ACFCS Coronavirus Coverage: Fighting invisible enemies – viruses, front companies and charity charlatans

The Skinny:

  • The coronavirus pandemic has complicated financial crime compliance investigations, but the changing transactions, or lack of change, could hold the key to uncovering the signs of nearly invisible front companies.
  • But to find those murky miscreants, financial institutions must pivot quickly. Some risks have flip-flopped as people panic-buy, pull cash out in bunches and wire wildly – all now the normal, transactionally speaking.
  • Charities, for example, also must be viewed with a more jaundiced eye as criminals exploit fear on one end of the spectrum and a desire to help on the other.

As doctors, nurses and first responders work together to fight a surging, invisible enemy, detailed in the video above, financial crime compliance officers must also work even harder during the coronavirus pandemic to counter a host of illusory threats, like front companies, which could rise to the fore as overall transactional throughput falls. 

By Brian Monroe
bmonroe@acfcs.org
March 27, 2020

The virus is real, while the front companies your institution may be banking, are not.  

The COVID-19 pandemic continues to wreak havoc and sow destruction, misery and death on a global scale.

It has also complicated financial crime compliance investigations. Some risks have flip-flopped as people panic-buy, pull cash out in bunches and wire wildly – making it more difficult to separate the criminal wheat from the swirling transactional chaff.

Charities in what has now become an international disaster also must be viewed with a more jaundiced eye as criminals exploit fear on one end of the spectrum and a desire to help on the other.

There is more pressure on bank investigators and analysts to ensure the companies accepting these donated funds – maybe it’s a charity supposedly supporting the acquisition of in-demand personal protective equipment (PPE) or worse, a freshly-minted firm touting phony kits and snake oil cures – are not out to profit in a pandemic with quick purchases of expensive personal luxuries.

No doubt, even if you are safe and healthy, the novel coronavirus has forced you to change your daily routines drastically – as you are reading this, you are probably on your couch working from home – as you act locally to stop an insidious international enemy invisible to the naked eye.

But as an anti-money laundering (AML) professional, even if you have traded a suit and tie for a t-shirt and jeans, the criminals attempting to move illicit assets haven’t stopped – so neither can you.

Case in point: With bars and restaurants shut down, criminals will change their avenues to launder money, so your AML team should be prepared to adapt as classic red flags and typologies are upended and reversed.

For example: The front companies organized criminal groups use to cleanse sullied funds could now be rising to the surface.

The aberration: In a foundering economy, a company doing normal business or sending the same wires as normal is suspicious – particularly if you are not a grocery store or other “essential” business still allowed to operate. 

Want more information on how the pandemic is affecting the fincrime compliance field? Check out these ACFCS stories illuminating the many shifting dimensions of risks, resources and regulatory responses

Coronavirus Fincrime Compliance News Update: Coalition calls for safeguards to prevent looting of relief funds, more AML aftershocks, exploitation fears, and more

In this expansive piece, ACFCS offers a roundup and analysis of statements by regulatory bodies in the United States, Europe, Canada and Australia broadly exhorting institutions to prioritize finding and reporting on the highest level of suspicious activities, along with key updates from law enforcement on fraud trends and more.

To read the full story, click here.

Coronavirus Fincrime Infection Inflection Points: Compliance teams must counter surge in alerts, attacks, with fewer resources, even layoffs

In this enterprise piece, many of the top minds in the financial crime compliance field offer insight on how to handle several challenging issues affecting investigations and reporting.

At the top of the list: Financial institutions are seeing profits fall and risks soar and could decide to trim or reorganize now-scattered fincrime compliance teams – just as AML alerts begin to avalanche.

To read the full story, click here

Here are some other red flags that may need to be adjusted or updated for the new reality of financial crime during a pandemic:

Flipping out

For many banks, risks have flip-flopped. Historically, money moving quickly out of personal accounts and engaging in wires to foreign countries would trigger an AML alert that needed immediate review.

But currently, investigative resources at institutions – for potential cases of fraud of AML cases – are in very short supply.

As a result, some banks have stated anecdotally they are adjusting their transaction monitoring systems to not as broadly alert when personal accounts exhibit large withdrawals of cash, engage in wires to countries hit hard by the virus and even transactions involving virtual currency exchanges.

The reason: With fewer and likely more scattered fincrime analyst resources, regulators are exhorting institutions to focus on the highest level of potential criminal activity – such as a fraud involving a pandemic scammer.

As well, these types of transactions from personal accounts have an explanation: people panic-buying at grocery stores and convenience stores, and pulling out money out of fear.

As for that uptick in wires to cross-border locales: Those are the result of fretting families wiring funds to support foreign friends and relatives in struggling regions.

And some customers more aggressively moving funds into virtual coin? That also has an explanation: customers are going to virtual value as both as a refuge from the stock market and out of concern physical fiat currency could be contaminated. 

Reevaluating regional risk

The new nuances of risk for some financial institutions have also gotten more complex because some states have issued edicts to “shelter in place.”

What does that mean? Well it depends on where you look.

Right now, overall, that term means halting or limiting non-essential travel, while some areas have splintered even further – with some counties and cities requiring people to stay home and ordering certain businesses, like restaurants, clubs and event venues to close.

As well, as some businesses are clearly “essential” – think hospitals, shipping companies and grocery stores – while other cities and counties are setting their own “essential” businesses that may not be as apparent to banks operating in that region, for instance, such as some areas dubbing laundromats as essential.

The current challenge for banks: getting to know your level of lockdown.

Is it a full or partial lockdown? Where are consumers, your customers, likely going to shop in a certain area? What places are consumers not going to go given certain lockdown levels?

For instance, if you see a nail salon still doing brisk business, particularly if the funds are flowing between 11 p.m. and 2 a.m., that is indicative of human trafficking. 

Charlatan charities

While there are well-known charities doing absolutely vital work in times like this – propping up doctors, nurses, hospitals, first-responders and other workers fighting a life and death battle – there are just as many or more of fraudsters looking to divert those desperately needed funds for their own illicit gains.

For AML professionals, that means better parsing out when a charity has gone rogue.

Normal: A known charity accepts funds and issues a check, a wire, or series of checks and wires, to a well-known hospital or medical group working on the front lines. Same goes for deposits to lesser known, but still legitimate, donations to charitable crowdfunding sites like GoFundMe.

For instance, banks should try to risk assess this nascent but burgeoning sector. GoFundMe has already captured more than $5 billion in donations.

One key delineator: Is the supposed crowdfunding operation working with the largest and well-known sites, including GoFundMe, Mightycause, FundRazr, CrowdRise or FirstGiving? If not, as a compliance professional, you better start asking them more questions and look for aberrant activity.  

Not normal: Large wires coming from a charity crowdfunding site that do not touch companies that could need this money and, instead, go to other newly-formed operations, or personal accounts, particularly in regions known for such scams, like India, Nigeria and the Philippines – some of the call center fraud capitals of the world.

A simple rule of thumb during these trying times: First responders don’t need fancy clothes, jewelry or a fast car.