Introduction
Money laundering (ML) is defined as the process of knowingly converting or transferring such property, which is proceeds of crime, for the purpose of concealing or disguising its illicit origins.[1] Although the Covid-19 pandemic has brought the world to a halt, it has concomitantly boosted the criminal economy by creating unprecedented circumstances, easily exploitable by a few. This piece aims to highlight the financial vulnerabilities that have been created due to the Covid-19 pandemic, while briefly discussing the potential safeguards against the exploitation of such vulnerabilities, as suggested by FATF—the global money laundering and terrorist financing watchdog.
New Money Laundering Threats Post Covid-19
The Covid-19 pandemic has led to certain unprecedented circumstances—including an increase in remote work and online transactions—which have the potential of exposing or further exacerbating the financial vulnerabilities of different states. Therefore, to comprehend the potential impact of these threats, financial institutions and organizations across the globe are conducting research into at-risk areas for money laundering activities in wake of Covid-19. In September 2020, MONEYVAL[2] revealed that “many countries reported a surge in certain crimes, especially with transnational elements, such as fraud (through electronic means) and cybercrime, creating new sources of proceeds for ML purposes”.[3] The Committee identified five main categories of potential ML threats: (i) fraud, (ii) medi-crime[4], (iii) corruption, (iv) cybercrimes and (v) late demand in moving illicit goods.[5]
Under the broader category of fraud as a ML threat, different sub-categories of Covid-19 related fraud have been identified: fraud related to medical equipment—which is linked to medi-crime, investment fraud, charity fraud, fraud related to economic relief measures, and embezzlement in public procurement contracts. FATF has highlighted counterfeiting of medical goods, such as medicines and personal protective equipment, as a significant form of medical equipment fraud.[6] A surge in non-delivery scams has also been noted where unscrupulous agents require upfront payment for delivery of medical goods, only for the delivery to fall through later.[7] Moreover, there have been reports concerning fraudulent advertising of companies supposedly developing ‘miracle cures’ for Covid-19, and promising huge returns on any investment made.[8] There also have been increasing instances of charity fraud, which entail fundraising for fake charities.[9] Individuals are deceived by scammers seeking funds for non-existing charities, or posing as representatives of well-known global charities.[10]
FATF has also noted an increase in the abuse of economic stimulus measures. Due to the pandemic, many countries have increasingly implemented stimulus programs on a large scale.[11] This has created opportunities for criminals to fraudulently claim money from governments by masquerading as legitimate business enterprises in need of government aid.[12] In July 2020, the state of Washington charged a tech executive with one count of wire fraud and one count of money laundering, following their alleged submission of at least eight fraudulent Paycheck Protection Program (PPP) loan applications, in pursuance of more than USD 5.5 million in loan, on behalf of six different companies.[13]
Furthermore, MONEYVAL has observed that as the pandemic continues to take its course, “illicit financial flows continue to run.”[14] Corruption and embezzlement run rampant due to the relaxation in previously stringent regulatory frameworks. AML (Anti Money Laundering) /CTF (Counter-Terrorism Financing) controls are not fully operational and effective while staff works remotely.[15] Majority of FATF members have postponed onsite inspections or substituted them with desk-based inspections—with on-site inspections only being limited to high-risk sectors or entities.[16] Some countries have also temporarily suspended complex controls in public procurement procedures to avoid administrative blockages, which has created opportunities for embezzlement.[17] Further, financial institutions are suffering as they are bogged down by governance and controls, which hinder their capability to efficiently adapt to the changing circumstances.[18] Therefore, certain relaxations in the AML and CTF regime, and bureaucratic hindrances faced by the financial institutions are providing exploitation opportunities to criminals.[19]
The Financial Crimes Unit of INTERPOL (an international organization that facilitates worldwide police cooperation) has been continually receiving information from member countries regarding fraud cases, accompanied with requests for assistance in stopping fraudulent payments. The victims of such fraudulent schemes have been found to be primarily situated in Asia, whereas criminals have been using bank accounts located in other jurisdictions in order to appear as legitimate representatives of companies being impersonated.[20] As early as March 2020, INTERPOL lent its assistance in curbing 30 Covid-19 related scams with links to Asia and Europe, which led to the blocking of 18 bank accounts, and freezing of more than USD 73,000 in suspected fraudulent transactions.[21]
In a panel discussion held by Ernest and Young in 2021, its financial managers noted that the remote environment created by the pandemic has completely altered the financial landscape, and the rising figures of cybercrimes, fraud and embezzlement will have an ever-lasting impact, even post COVID-19.[22] Under the category of cybercrimes, FATF has noted a surge in “engineering attacks, specifically phishing email and mobile messages through spam campaigns.”[23] The engineering attacks acquire the personal information of individuals through deceiving them by sending fake links to stimulus programs, banks distributing aid, infection rate maps, and websites selling medical equipment.[24] Targeted phishing emails are easily generated through gaining illegal access to customer contact and transaction information of businesses with weak network security. Once the information is compromised, the bank accounts of innocent citizens are used for transferring illicit proceeds for the purposes of money laundering.[25]
While money laundering is the primary cause of concern for FATF, INTERPOL and MONEYVAL, these organizations have also warned against the rise of predicate crimes[26] (the crimes generating illicit proceeds, which when ‘laundered’, would lead to the offence of money laundering).[27] Due to the pandemic, there are greater chances of human exploitation as a result of decreased economic activity, and shutting down of workplaces.[28] Reduced activity of governmental agencies involved in detecting human trafficking may lead to an increase in the occurrence of such crimes.[29] Moreover, as online education has become the new norm, children are at a risk of being exploited through digital modes.[30] Furthermore, due to many properties being currently uninhabited as a result of the pandemic, there is a chance of increase in organized property theft and crimes.[31]
Recommendations and Potential Safeguards
To curb the increase in money laundering activities in the wake of Covid-19, and to deal with the changed financial landscape, governmental and financial institutions, banks, and service providers must develop agile mechanisms that evolve with changing threats,[32] so that criminals cannot benefit from the loopholes overlooked by institutions.[33] Further, FATF recommends prioritization of accurate identity recognition mechanisms, and improvement in the quality of online services to protect less sophisticated users.[34] Companies must also be equipped to assess operational controls and risk management programs in wake of the ever-evolving and rapidly increasing new threats.[35] It is also essential to increase awareness among the public regarding these threats, as criminals have mainly been targeting innocent individuals, and taking advantage of the collective distress resulting from the pandemic.
References
[1] UN Convention Against Transnational Organized Crime, Article 6.
[2] The Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (Council of Europe).
[3] MONEYVAL, ‘Money laundering and terrorism financing trends in MONEYVAL jurisdictions during the COVID-19 crisis’ (Council of Europe, 02 September 2020) <https://rm.coe.int/moneyval-2020-18rev-covid19/16809f66c3> accessed 25 May 2021.
[4] Counterfeiting of Medical Products and similar crimes involving threat to public health—See Council of Europe Convention on the counterfeiting of medical products and similar crimes involving threats to public health 2016.
[5] MONEYVAL (n 3).
[6] FATF, ‘Update: COVID-19-related Money Laundering and Terrorist Financing- Risks and Policy Responses’ (December 2020) <https://www.fatf-gafi.org/media/fatf/documents/Update-COVID-19-Related-Money-Laundering-and-Terrorist-Financing-Risks.pdf> accessed 25 May 2021.
[7] Ibid.
[8] Ibid.
[9] Ibid.
[10] Ibid.
[11] Ibid.
[12] Ibid.
[13] Ibid.
[14] MONEYVAL (n 3).
[15] Clifford Chance, ‘Coronavirus: Financial Crime and AML/CTF Implications’ (April 2020) <https://www.cliffordchance.com/content/dam/cliffordchance/briefings/2020/04/Financial-crime-and-AML-CTF-implications.pdf> accessed 26 May 2021.
[16] FATF, ‘COVID-19-Related Money Laundering and Terrorist Financing- Risks and Policy Responses’ (May 2020) <https://www.fatf-gafi.org/media/fatf/documents/COVID-19-AML-CFT.pdf> accessed 23 May 2021.
[17] MONEYVAL (n 3).
[18] Financier Worldwide, ‘COVID-19: rethinking anti-money laundering (AML) and fraud risk management’ (May 2021) <https://www.financierworldwide.com/covid-19-rethinking-anti-money-laundering-aml-and-fraud-risk-management#.YKtlgZMzZAd> accessed 25 May 2021.
[19] MONEYVAL (n 3).
[20] INTERPOL, ‘INTERPOL Warns of Financial Fraud Linked to COVID-19’ (13 March 2020) <https://www.interpol.int/en/News-and-Events/News/2020/INTERPOL-warns-of-financial-fraud-linked-to-COVID-19> accessed 26 May 2021.
[21] Ibid.
[22] Financier Worldwide (n 18).
[23] FATF, ‘COVID-19-Related Money Laundering and Terrorist Financing- Risks and Policy Responses’ (n 16).
[24] Ibid.
[25] Ibid.
[26] Ibid.
[27] The World Bank, ‘Combating Money Laundering and the Financing of Terrorism: A Comprehensive Training Guide’ <https://documents1.worldbank.org/curated/pt/337371468331913740/pdf/499600v20PUB0C101Official0Use0Only1.pdf> accessed 02 June 2021.
[28] FATF, ‘COVID-19-Related Money Laundering and Terrorist Financing- Risks and Policy Responses’ (n 16).
[29] Ibid.
[30] Ibid.
[31] Ibid.
[32] Ibid.
[33] FATF, ‘Update: COVID-19-related Money Laundering and Terrorist Financing- Risks and Policy Responses’ (n 6).
[34] FATF, ‘COVID-19-Related Money Laundering and Terrorist Financing- Risks and Policy Responses’ (n 16).
[35] Financier Worldwide (n 18).
