Money Laundering: How the Pandemic Boosted Financial Fraud
Money Laundering is the process of legitimizing money that originated from illegal activities and it consists of passing it several times through numerous lawful institutions such as banks and companies. This makes it almost impossible to track its origin which has been a steady global problem for many decades. During the pandemic, however, a large increase in reported cases was verified as criminals saw this uncertain time as the perfect storm to get away with this illegal activity.
In the UK alone, a national risk assessment found a 20% rise in suspicious activity from 2019 to 2020.
Under the current situation of social distancing, remote working and numerous businesses being closed, the Financial Action Task Force (FATF) predicted that the amount of money laundering cases would significantly decrease. In fact, the most common businesses used for this kind of illicit activity, such as small shops, bars and restaurants, were also the ones being hit the hardest by Covid-19 induced measures. This type of commerce was one of the leading gateways for money laundering since it is cash-heavy which makes it extremely easy to make illegally sourced capital seem completely legitimate.
Bank branches, also commonly used facilities for money laundering, were similarly impacted by lockdown measures and were forced to shut their doors and move online. This makes it harder for criminals to enter with large sums of money and quietly send it overseas.
However, this only meant that criminals, highly adaptive individuals by nature, had to discover new ways to continue with their activities, which did not prove to be a very arduous task as the coronavirus pandemic, despite closing some doors, also opened several. The pandemic led not only to the increase of remote transactions, but also to the increase of usage of online platforms by people who may not have been familiar with them which creates easy targets for money laundering related activities such as identity theft, bank account takeovers and the creation of synthetic identities by combination of multiple sources to create a fake identity.
Furthermore, as government stimulus to small businesses become more popular during this time, many criminals are using them as an opportunity to hide illicit gains. The FATR reported that criminals are taking advantage of this government aid by falsely claiming to people that they will grant them access to stimulus, thus stealing personal financial information. Once they have access to this data, criminals can create bank accounts in that person’s name, establish new corporations or even apply for new credit cards, which are optimal vehicles towards money laundering. In fact, it was found that since the pandemic began, more than 60 million bank accounts were opened online of which several digital IDs were not reliable.
The decrease in effective ID verification as online banking became more prominent is also a great cause for this situation because it greatly aids criminals in getting away with identity theft.
The recent surge in need for medical supplies is also seeing a rise of companies who falsely claim to produce them and sell ineffective cheaply manufactured and counterfeit masks as a cover up for illicit activities, thus easily falling off the radar for money laundering activities. As governments are worried about getting access to these supplies, less control goes into verifying what is happening behind the scenes in these businesses.
Measures to combat this situation were recently employed but many state that they came too late. When it comes to companies in the beginning of the Covid-19 crisis, the European Banking Authority demanded regulators to be mindful of pandemic related regulations, thus requiring more flexibility when it came to supervisions. With this, numerous on-site inspections were postponed which made it easier for criminals to leave unpunished for almost a full year.
