COVID-19: THE GROWING THREAT OF FINANCIAL CRIME

The COVID-19 pandemic has affected all types of organisations including financial institutions. Yet, financial services are one of the essential services exempted from the suspension of activities at workplace premises and continue to operate, albeit with reduced staffing. This means, there will be less resources at the main controlling functions for financial institutions including trading control units, Middle office, Back office, Risk Management and Compliance functions. Therefore, both the first and second lines of defence could be dramatically affected as the lock down continues to be in place in many countries.

At the onset of the pandemic, the priority of financial institutions has been to ensure business continuity. However, as the situation evolves, we expect to observe a shift in focus and a re-prioritisation of operational and conduct risks matters. Financial institutions will face - if this is not already the case - emerging threats of financial crimes such as fraud (internal or external fraud) and Money Laundering (ML).

For example, in many countries, fundraising and charity organisations have significantly ramped up activities in order to support people and communities affected by the COVID-19 outbreak. Indeed, such solidarity initiatives are necessary and would complement government implemented measures. However, it is also an opportunity for criminals to either launder illicit funds or illegally divert funds from their intended use. For instance, money could be laundered through donations to charity organisations such as hospitals, Non-Profit Organisations (NPO) or places of worship as well as potentially through certain investment opportunities launched by authorities. In addition, there is the threat of criminals misusing fundraising activities to finance terrorism or other criminal activities; online fundraising activities are particularly vulnerable.

Money Laundering and Terrorist Financing Threat 

With the current situation, financial institutions are facing new challenges to conduct their ongoing Anti-Money Laundering (AML) and Customer Due Diligence (CDD) activities remotely or on site but with drastically reduced staffing. The control protocol and the approval workflow might be affected for many reasons: 

  • Controls may not be executed at the fullest due to disjointed processes and remote handovers
  • Delays regarding signoffs and transactions approvals may be observed due to some in-house applications constraints or availability of authorised management
  • Dealing with downsized teams will sometimes result in a push towards work prioritization and therefore increases the risk of missing some “unusual” transactions assessment or review
  • Transactions alerts processing might not be executed at a timely manner due to reduced staffing or technological constraints with a potential risk of not reporting suspicious transactions to authorities and/or generating a backlog of work 
  • Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) training sessions might be deferred as well, resulting in the potential risk of new joiners not being fully aware of the firm’s internal procedures in terms of AML and CDD

Financial Action Task Force’s Commitment          

The Financial Action Task Force (FATF) has alerted governments and financial institutions on new and illicit finance risks. According to the President of FATF: “Criminals are taking advantage of the COVID-19 pandemic to carry out financial fraud and exploitation scams, offering fraudulent investment opportunities and engaging in phishing schemes. Malicious or fraudulent cybercrimes, fundraising for fake charities are likely to increase, with criminals attempting to profit from the pandemic by exploiting people in urgent need of care and the goodwill of the general public and spreading misinformation about COVID-19 […]. Like criminals, terrorists may also exploit these opportunities to raise funds.”

Consequently, financial institutions should remain vigilant while conducting their AML/CFT checks and CDD processes particularly for onboarding “unknown” or emerging charity organizations, conducting international transfers, dealing with fundraising activities or activating dormant accounts. Questioning and checking the origin and destination of funds remain crucial. In addition, the AML/CFT monitoring framework should be maintained during this period and reporting of suspicious transactions and activities should not be differed.

The FATF encourages financial institutions to apply a risk-based approach while dealing with charity organizations and work with legitimate and relevant NPO to ensure that much needed funds are getting to its intended recipients and not diverted for the benefit of a criminal enterprise. 

How Mazars Can Help You in Tackling Financial Crime Emerging Threats 

  • Assess your current AML/CFT framework and systems and highlight potential gaps
  • Review and adapt your AML/CFT risk-based approach 
  • Assist in addressing your backlog of work and particularly transactions review and alerts processing
  • Provide relevant training highlighting “red flags” related to new emerging risks 

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