Heightened AML risk during COVID19
As countries around the world struggle with the coronavirus pandemic, financial institutions are experiencing compliance challenges linked to the outbreak.
The coronavirus has caused widespread disruption to global financial markets along with new opportunities for criminals to generate and launder illegal funds.
Accordingly, financial authorities around the world are adjusting their AML approaches to account for new patterns of criminal behavior and better address these emerging money laundering risks.
Changes in Behavior
The pandemic has prompted numerous countries to enact strict control measures, restricting movement and often confining people to their homes. The subsequent impact on global economies has caused drastic changes in the behavior of banking customers and in the behavior of criminals seeking to exploit the situation:
The sharp increase in cash withdrawals and cryptocurrency transactions has been accompanied by increased engagement with digital banking services, particularly by demographics, such as the elderly, that would not normally use them.
That compliance challenge is complicated by changes in criminal behavior as fraudsters use coronavirus fears to sell fake cures, fund fake charities or elicit money by posing as government officials. In fact, these are typical typologies reflecting those seen in the wake of natural disasters.
Adverse Media Monitoring
The increased money laundering risk that the coronavirus pandemic has brought to global financial systems is reflected by an increased volume and diversity of adverse media stories.
During the pandemic, financial institutions should adjust their adverse media screening to endure they continue to capture categories of news stories that may indicate potential money laundering activities or other crimes. These include:
Regulation: Regulatory media stories might cover disciplinary actions taken by authorities against certain firms or the imposition of fines for activities like price-fixing or collusion.
Financial difficulty: Stories involving significant debt or bankruptcy, store closures, redundancies or the departure of high-level staff.
Violence or human rights abuse: Stories involving violent actions, such as assault or sex offenses, or connection to state-level offenses, including human rights abuses.
Criminality: Stories about other kinds of financial criminality, including accounting malpractice, dishonest billing practices and predatory lending.
In the context of the widespread economic disruption caused by coronavirus, compliance programs should be particularly vigilant for stories concerning financial difficulty. Firms which enter financial difficulty may become vulnerable to money launderers who are seeking gaps in compliance or opportunities for leverage.
Increase in Money Mule Crime
The coronavirus outbreak has prompted an increase in a typology of money laundering that utilizes “money mules” to transform illegal funds. Money mules are people who have been recruited, sometimes on the pretext of legitimate employment, to receive deposits of illegal money into personal accounts. The mule is asked to withdraw that money as cash, with a commission for themselves, before depositing it back into an account owned by the money launderers.
In the context of the coronavirus pandemic, money launderers are exploiting legitimate health concerns and the impact on the employment market to recruit mules.
The mules are discouraged from sharing information about the “donations” that they are handling and advised to invoke an urgent need to pay for coronavirus medicines should they be questioned by the bank. AML/CFT compliance teams should be particularly vigilant for characteristics of the following process:
A money launderer poses as a legitimate medical charity in order to recruit employees to handle charity “donations”: in reality, the donations are illegal funds that require transformation.
The donations are deposited in employees’ personal bank accounts (or sometimes in personal Bitcoin wallets).
Employees are asked to withdraw the funds as cash and deposit them in a Bitcoin ATM.
Once deposited, the now-transformed funds are sent, via an irreversible transaction, to a Bitcoin wallet controlled by the money launderers.
As the pandemic continues to affect societies and economies across the world, banks and financial institutions must adjust to the new compliance climate to accommodate legitimate behavior from customers while identifying criminal behavior from money launderers and fraudsters.
From a practical perspective, that means not only incorporating sufficient screening and transaction monitoring capabilities into already restricted resources during the pandemic, but ensuring that staff are made aware of the heightened and new AML/CFT risks they are facing so that they are in a position to identify suspicious activities.
IQCompliance is an independent FAIS and FICA compliance firm specialising in financial intermediaries in South Africa. To unsubscribe from blog mailings reply to a blog update with 'UNSUBSCRIBE' in the subject line.