COVID-19 Raises Financial Crime Risks, Report Says

By Philip Rosenstein
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Law360 (May 4, 2020, 11:00 PM EDT) -- The strain on the global economic system as a result of the COVID-19 pandemic has created financial vulnerabilities, the Financial Action Task Force said in a report published Monday, suggesting that regulators must reinforce cooperation across borders and with the business sector to mitigate such risks.

The FATF, the global watchdog that sets international standards for combating money laundering, published a report outlining various risks that businesses are facing in light of the COVID-19 pandemic as a result of widespread business closures and a general policy shift to focus on the health crisis. Central among them are the incidence of increased fraud, including the impersonation of officials and the proliferation of investment scams, increased cybercrime, and an increase in the "misuse of online financial services and virtual assets to move and conceal illicit funds."

"The COVID-19 pandemic has generated various government responses, ranging from social assistance and tax relief initiatives, to enforced confinement measures and travel restrictions," the report read. "While unintended, these measures may provide new opportunities for criminals and terrorists to generate and launder illicit proceeds."

U.S. regulators have been outspoken about the increased risk amid the COVID-19 pandemic. The U.S. Securities and Exchange Commission, Financial Industry Regulatory Authority and Financial Crimes Enforcement Network have all recently issued alerts addressing a range of illicit activities that target the financial industry and play on the fears of investors.

The FATF report echoes much of what they alerted U.S. businesses about in their announcements.

A FinCEN statement released in March warned of scams "similar to those that occur in the wake of natural disasters," including individuals or entities impersonating the U.S. government or government officials, investment scams claiming coronavirus-related medical breakthroughs, and schemes involving the sale of unapproved or dangerous medical products.

FinCEN also noted it had received reports regarding suspected insider trading related to COVID-19.

The FATF highlighted many of these concerns in its report, saying that it has seen an increase in such scams, as well as charity fundraising scams, phishing attacks and ransomware attacks. The report outlined that many of the vulnerabilities that financial criminals have been able to exploit are a result of a sudden change in business and personal routines, with transactions made increasingly online with users often unfamiliar with those platforms.

"Certain population segments (e.g., the elderly, low-income groups, and remote or indigenous communities) may be less familiar with using online banking platforms, and therefore more susceptible to fraud. Reports indicate that online bank fraud targeting financial or account information is on the rise," the report said.

The report provided some key actions that regulators could and are taking to mitigate the rise in financial crime while minimizing the spread of COVID-19. Of significant importance is increasing cooperation with partner regulators abroad as well as with the private sector, the FATF suggested in its report.

The FATF highlighted that regulators are supporting electronic and digital payment systems to make them more accessible as a means to slow the spread of the virus.

Regulators have also been providing clarity around the anti-money laundering and combating terrorist financing requirements relating to economic relief initiatives. FinCEN relaxed some requirements on disclosures following the passage of economic relief measures through Congress.

As part of the new guidance, FinCEN suspended the implementation of a Feb. 6 ruling regarding so-called currency transaction reports, temporarily lifting the requirement that an individual must report their given name in transactions involving sole proprietorships or businesses conducted under a different name. CTRs require that firms report one or more transactions exceeding $10,000 on any given day.

FinCEN further said that for loans issued under the Paycheck Protection Program, eligible federally insured depository institutions and credit unions will not need to reverify existing customers per Bank Secrecy Act requirements. The agency also noted that for non-PPP loans, a Sept. 7, 2018, ruling offers relief from the Beneficial Ownership Rule to renewal, modification, restructuring or extensions for existing legal entity customers.

"All countries should guide regulated entities to remain vigilant to detect suspicious financial transactions, particularly in the context of cross-border flows from countries that are receiving emergency COVID-19-related funding from international organisations and other donors," the FATF said.

--Editing by Jay Jackson Jr.

For a reprint of this article, please contact reprints@law360.com.

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