The Financial Action Task Force (FATF) recently published a paper[1] named COVID-19-related Money Laundering and Terrorist Financing – Risk and Policy Responses. This and many other recent articles and publications[2][3] within the Anti-Money Laundering (AML) specialist’s community alert of the need for extra care and diligence during these unprecedented times. Pandemic related crimes like fraud, cyberattacks and financial aid misdirection are providing new opportunities for criminals.
Customer Due Diligence (CDD) or Known Your Customer (KYC) policies and procedures have evolved through the years from a simple request for information gathering to what today is known as the Risk Based Approach (RBA). Regulators in Canada, the United States, Europe and across the globe recommend this approach, among other reasons, because it requires a conscious effort from AML professionals in duly assessing and evaluating risks by taking into account jurisdictions, industries, economies, corruption index to name a few.
Covid-19 has brought a new reality from which much more historical perspective will be needed to fully comprehend its consequences. However, AML professionals cannot wait for future regulations to guide how to fight money laundering in these strange times. More than ever the AML community must work together in identifying new threats posed by those who plan to use this pandemic to launder their ill-gotten funds. In that regard, due diligence efforts, following the above-mentioned risk-based approach, should also be focused in better understanding and monitor current events and trends. The global pandemic is affecting countries differently, their preparedness along with swift and coordinated responses are crucial, however, factors such domestic culture and economy may vary and that must be considered when conducting due diligence. On-the-ground resources and therefore understanding of a jurisdiction are key and that knowledge must be shared and contextualized by due diligence professionals when presenting their findings. A couple of local examples:
- It has been widely reported that the Canadian Emergency Benefit (CERB) is being abused. Bad actors may attempt to use the urgent nature of the program and its lack of proper security measures to gain access to the funds. The government announced that they will retrospectively investigate the legitimacy of the claims, however, until then funds can easily be obtained by organised crime and their illicit networks and subsequently used for illegitimate purposes. The emergency funds may become accessible to people with substance use disorder, which in return may increase their capacity to afford drugs, increasing demand and proceeds of those trafficking. The risk of money laundering is higher in areas like Vancouver due to the existing fentanyl crisis.
- Fraudulent Personal Protection Equipment (PPE) has been in high demand lately and is expected to be in the foreseeable future sought a after good. Counterfeit PPE products have been making the news since the pandemic was declared, the proceeds of the sell and distribution of these products have already entered our economies. Due diligence on third parties, covering the entire supply chain when possible, should be conducted. Restrictions on the movement of people and goods may differ from jurisdiction to jurisdiction. Due diligence should not only focus on the individuals involved, but also study the nature of the goods and the jurisdictions from which they have circulated. Often, cumbersome routes or extra layers of unnecessary paperwork are key indicators of fraudulent activity.
Extraordinary times demand extraordinary measures. Financial investigation units (FIU) and due diligence providers must work together and adapt to the new reality. RBA evaluation should consider global threats as well as local nuances. It is not the time to get by doing the bare minimum, it is time to enhance AML efforts because money launderers are not waiting for the pandemic to be over, rather using it to accelerate their efforts.
[1] https://www.fatf-gafi.org/media/fatf/documents/COVID-19-AML-CFT.pdf
[2] https://www.europol.europa.eu/publications-documents/beyond-pandemic-how-covid-19-will-shape-serious-and-organised-crime-landscape-in-eu
[3] https://www.fbi.gov/coronavirus