White-collar crime can pay under cover of COVID-19

The global money laundering and terrorist financing watchdog, the Financial Action Task Force (FATF), is warning that criminals are taking advantage of the COVID-19 pandemic to carry out financial fraud and exploitation scams, including advertising and trafficking in counterfeit medicines, offering fraudulent investment opportunities, and engaging in phishing schemes that prey on virus-related fears.

Malicious or fraudulent cybercrimes, fundraising for fake charities, and various medical scams targeting innocent victims 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.

Even national authorities are alerting citizens and businesses to the scams, mainly impostor, investment and product scams and even insider trading in relation to COVID-19.

The Danske Bank scandal is ever a cautionary tale for the world of banking and finance, but more so in times of economic depression and uncertainty such as that brought about by the COVID-19 pandemic.

From being one of the most respected European financial institutions, Danske Bank went to being implicated in what may be the world’s largest money laundering scandal, with $236 billion in laundered money estimated to have passed through its Estonian branch.

“In a nutshell, what happened is this,” lawyer Charles Cassar, founder of Shoulder Compliance, says. “Just before the financial crisis of 2008, Danske Bank had acquired Sampo Bank, a Bank which was active in Russia and the Baltics, including Estonia. When the 2008 financial crisis hit, banking profits decreased world-wide, but Danske’s newly acquired Estonian business continued to do well. This was largely due to their ‘non-resident’ portfolio of clients, that is their handling of foreign money.

“Eventually it turned out that they were laundering money for Russian criminals on a grand scale. However the activity went on unabated for many years. The suggestion of course is that there could have been reluctance to enforce robust controls, since this business was profitable while other parts of the Bank were taking a hit.”

Now Cassar observes that a striking aspect of some of the larger money laundering cases in recent years is how they often directly or indirectly owed their origin to the 2008 crash, as troubled institutions relaxed standards to salvage what business they could, only to end up paying a greater price further down the line.

“As the economy takes a hit from COVID-19 businesses would be well advised to remain cautious, since the situation offers perfect opportunities for launderers, fraudsters and financial criminals of all types,” the lawyer says.

Another lawyer, Integritas head of legal Cheryl Grech, says due diligence is an ever-growing priority for companies, financial service providers and individual practitioners who want to stay afloat by avoiding financial crime ever hitting their business.

“I agree that the increase of such crime may be true during a crisis such as that which we are experiencing. Many businesses are facing loss of income, and so there might be a tendency to let their guard down in the hope that there might be new business on the horizon. Fraudsters might take this opportunity to prey on more vulnerable people in society such as elderly and use this opportunity to make criminal gain,” Grech warns.

Even Interpol has made an appeal to the public to exercise caution when buying medical supplies online during the current health crisis, saying criminals are capitalizing on the situation to run a range of financial scams.

With surgical masks and other medical supplies in high demand yet difficult to find in retail stores as a result of the COVID-19 pandemic, fake shops, websites, social media accounts and email addresses claiming to sell these items have mushroomed online.

But instead of receiving the promised masks and supplies, the unsuspecting victims have seen their money disappear into the hands of the criminals involved.

“It is important to look out for the obvious signs and if something looks too good to be true it probably is. The industry, especially the financial services one, needs to continue to be alert and not be afraid to ask questions to clients or potential clients in order to understand the structure of their companies and rationale behind their choices to set up such,” Grech says.

The FATF says that even in this era of social distancing, companies must be ready to carry out proper due diligence through digital onboarding and simplified due diligence and contactless payments.

The International Monetary Fund has already flagged the effectiveness of anti-money laundering and terrorism financing regime Malta’s main challenge in the medium-term. The Financial Intelligence Analysis Unit, in coordination with the MFSA, have developed a risk-based automated tool to identify risk areas, but the IMF wants more frequent and more intrusive supervisory inspections of banks and cryptocurrency traders.

Perhaps even more in the time a pandemic, the IMF’s warning that the MFSA remains strained due to the large number of financial institutions under supervision, heightens the need stronger oversight and swifter police action on money laundering, prosecutions and related asset confiscations.