Blog post

Financial Crime Trends & Related Risk Issues in a Quarantined World

While nearly all financial institutions are dealing with some level of adversity during the quarantine, it should be of note that financial crime risk seem to be affected as well.  We may be in the middle of the current COVID-19 pandemic, but its residual effects on crime patterns and trends may be seen for quite some time. As we’ve all noticed, technology is playing a big part in our own adaptation to quarantine life, whether work or leisure, and the very same tools we use everyday are those same technologies that are changing crime patterns as the world has moved even further in a digital direction.

Some Financial Crime Trends Specific to Quarantine

With isolation comes a sense of unease and nervousness for many, often leading to depression and for some, self-medication[i]. It is no coincidence that we are seeing a spike in substance abuse and specifically, opioid-related deaths and hospitalizations[ii], because of society’s reaction to the pandemic. Joblessness and an insecure future further exacerbate the situation. As such, financial institutions should assume that a likely spike in transactions related to the sale and trafficking of drugs may be occurring, and traditional methods of transaction exchange using cash and dark alleys may not be how things are done[iii] in the “new normal.” Thinking outside the box with scenario-building exercises can help determine which trends your financial institution is seeing.

Another trend being seen is the use of social engineering[iv] tactics in various scams involving COVID-19 government payments and Unemployment Insurance (UI) claims. Because much of what is occurring is “faceless,” meaning there is no physical interaction among parties or the financial institution, it is as important as ever to ensure your financial institution is staying on top of local trends and occurrences. Similarly, fraud involving Payroll Protection Program is occurring[v] among financial institutions, as local oversight of these programs can be hindered by lax Customer Identification Program (CIP) protocols in our ever-growing virtual environment.

Trade-based Money Laundering (TBML) schemes are prevalent as well. These schemes tend to involve Personal Protective Equipment, or PPE, and may involve some combined practice of price-gouging or hoarding for later profiteering[vi]. The same can be said for medications and other resources needed in the fight against the Coronavirus, and often involves persons or businesses who do not normally purchase related items suddenly involved in procurement[vii].

Related Risk Issues for Financial Institutions during Quarantine

A common risk factor in the above crime trends is that the transactions in each scheme involve the use of technology as cash is no longer efficient. This means that everyone, including bad actors, are looking to technology to assist them in exchanging for goods and services[viii]. Not without scrutiny, cryptocurrency poses its own risks, but now that the world has been forced to move into a virtual space in rapid succession, schemes involving extortion, phishing, or outright spoofing of legitimate services, is on the rise[ix].

E-commerce is rapidly growing, and criminal elements will continue to test the waters, pushing the envelope to see what is recognizable, and where they can hide their actions. This rapid growth of users in the online marketplace will continue to challenge financial institutions to look beyond cash-based transactions.

For this matter, looking at your financial institution’s data sources to see what information can be gleaned for more accurate assessment is but one aspect of taking a proactive approach. Reassessing your compliance team’s roles and pivoting focus from traditional and conventional methods of entry to the financial system to modern and cutting-edge methods is another way to refine your process. Conduct a brief risk assessment of your institution’s situation and leverage this knowledge towards making effective decisions. Keeping up to date with the surrounding footprint is one step in the right direction.

Broadening your team’s curiosity and aligning your financial institution’s focus on current trends that are unique to your location is vital in our evolving world. Financial crime trends and risk-related issues do not stay static, but also evolve with the changing landscape. It will be imperative that financial crime compliance efforts stay fresh to protect not just the financial institution, but its members and customers.










About the writer

Dave Gowan

Dave brings a unique blend of experience as a former investigator and compliance officer with multi-billion dollar asset financial institutions. Dave has a 15+ years of career experience from the armed forces; to financial crime / fraud investigation; to complete compliance officer responsibilities. Dave brings a pragmatic and practical approach to the industry, grounded in fact and working knowledge of financial regulations. Dave has been with PayLynxs for over 4 years.