COVID's impact on Money Laundering

For most of us, COVID has been a crisis, never seen before, impacting all of our lives one way or another. Here I would like to highlight the impact of COVID in the Financial Economic Crime area. When the whole world was struggling during the pandemic, criminals, as always, found a "great opportunity" to leverage the vulnerable society. Such situations may happen again and hence we need to look back and introspect what was the good, the bad as well as ugly during this pandemic.

The good

We saw a major change in consumer behaviour. People started spending a lot of time online, making online purchases (returning items and getting refunds 😉 ) and the likes. This led to an increasing significance of PSPs in the mix, including some smart payment options offered by providers like Klarna where you “buy now pay later”. All this means one important thing. With so much data captured via these online purchases, we now have a new entry in the AML/CFT controls space - PSPs. Their role as a gate-keeper becomes much more important now than it used to be earlier. Banks/MSB’s were mostly on the front-line in the past. With the volume of online payments increasing multi-fold, PSPs are gaining much more prominence in being the facilitators of payments, connecting merchants to consumers. If PSPs do their job well, we will have additional controls and insights to stop criminals. Even FATF pointed out in their guidance sometime back that the risks these entities will face is similar to the non-face-to-face risk banks have faced.

On the cash side of things, rapidly changing global trend emerged. We are moving faster to becoming a cashless society than expected before. Just to give one example, more and more shops/restaurants started preferring cards than cash. As pointed out in one of my earlier articles (No cash...no laundering... it's simple!), money laundering threat does not reduce with reducing cash flow, but on the contrary will boost the opportunities of us AML professionals in understanding customer behavior even better and identify the ones who have wrong intentions. I can say with confidence that going cashless has been one of the best things which could have happened during these tough time. It goes without saying, the more we go cashless, the better it will be for developing a safer society.

The bad

This list can be quite exhaustive, so I will keep it short. Governments all over the world have been trying to boost their medical infrastructure to deal with their respective challenges. Taking the example of Brazil, where across 17 different states an organized crime was exposed where the total amount involved was over $360 million. The scheme involved overpricing of the sale of medical equipment , purchases of unlicensed medical equipment, irregularities in the bidding etc.

Scams related to face masks/PPE kit sale was on top of the list. Fraudulent companies were incorporated (in some cases existing dormant companies were used) to promise sale of such equipments. However after receiving the funds criminals behind these companies moved the money through a network of accounts and then ultimately to their personal accounts. To name one specific case, Interpol exposed such a scheme of over EUR 1.5 million which covered several countries.

There were several cases where companies falsely claimed COVID benefits from their respective governments, thereby abusing honest tax payers money. In one particular case from US an individual was found to launder more than $4 million from a Payment Protection Program (PPP).

The ugly

With advancement of technology, smart ways to hide source and destination of money ( e.g. using crypto currencies etc.) we tend to forget money laundering, in majority, is still in a classical way. This was more evident than ever during the pandemic.

Several fake cash intensive businesses were unearthed who made consistent profit even during the pandemic, such as nail saloon, barber shops etc. Before pandemic their business was always under the radar however after the lockdowns were in place, this “consistent” business became the red flag! In my trainings and workshops I keep on emphasizing the fact that we should not be carried away by “anomaly” detection as a the smart criminals are always consistent and try being under the radar.

Another major issue which happened close to home. In Netherlands, as tourists were no more coming to the city, the souvenir shops were running out of business. Guess what, the friendly neighborhood laundering syndicates started visiting these business with suitcase full of cash and cleaned up their dirty money by buying such shops! How simple can that be…

Such example bring the ugly side of this crime. The basics of laundering still remains the same and we should never underestimate.

Way forward

I truly hope we do not face any such pandemic ever again. However learning our lessons, as AML professionals, we need to keep our eyes and ears open and be more pro-active and smart during such crisis and beyond. I cannot emphasize more, we as Financial Institutions need to join hands and fight this crime together. Breaking silos will allow us to rapidly learn from each other and ensure a crime investigated in one part of the world immediately helps investigators on the other side of the world!