The shift to digital has also made it simpler for people to find ways to game the system and commit fraud, money laundering and other illegal activities.
Thanks to the coronavirus, the vast majority of us now spend more time online than ever. Tasks that we once performed in person, such as going to the grocery store or buying stamps, are now done in the comfort of our own homes.
Even going to the bank has become a virtual process, with more and more people opting to deposit checks and manage investments directly from their mobile phones.
In Europe alone, the coronavirus led to a 72% increase in the use of mobile banking and finance apps — in just one week. Obviously, much of this increase was due to the fact that people could no longer (or no longer felt safe to) visit banks in person, but even as the world returns to normal, mobile banking’s popularity doesn’t show any signs of abating. This might be good for consumers, but it puts a greater burden on financial institutions to have adequate safeguards in place to prevent fraudsters or money launderers from finding loopholes they can exploit.
Kenneth Blanco, director of the Financial Crimes Enforcement Network, says that the most prevalent trend the organization has seen with regard to coronavirus-related suspicious activity reports “involves fraudsters targeting multiple COVID-19-related government stimulus programs, employing money mules and cyber techniques.” In other words, some malicious actors are exerting considerable efforts to hijack money meant to aid struggling businesses and households, and laundering it to use for their own purposes.
In many cases, these efforts are made easier by the many digital financial platforms now available on the market. Law enforcement officials estimate that over $100 million stolen from pandemic relief funds have been laundered through investment accounts on platforms such as Robinhood, Fidelity, E-Trade and TD Ameritrade thus far, and there is probably a great deal more that is yet to be uncovered.
These accounts have become a favorite of money launderers, who often use stolen Social Security numbers and other information to set up phony accounts. Some money launderers also employ the aforementioned money mules — people who are in on the scheme and willing to use their account to pass the money on —
to further shield themselves from suspicion.
While these methods were in use even before the pandemic, the fact that governments rushed to give out pandemic checks without putting proper security and anti-fraud protocols in place made it simpler for people to apply for fraudulent loans and quickly shift the money elsewhere. In fact, a report by DataVisor found that new account fraud and transaction fraud reached its peak in the spring of 2020 — when governments began issuing stimulus packages to relieve the effects of coronavirus-induced unemployment and hardship — before trending downward.
Based on the ease with which fraudsters were able to carry out their deceptions, it is clear that more sophisticated oversight is required. According to a recent survey of financial institutions about the effects of the pandemic on their compliance processes, 93% have reported a negative impact on customer risk profiling as a result of coronavirus protocols and working remotely, while 83% say their sanctions screenings have been negatively affected.
While the eventual emergence from lockdown will help ease the pressure on overworked compliance departments, there is still an obvious need for tools that will make the anti-money laundering process simpler and stress-free. Technology in the anti-money laundering space has developed considerably over the past few years to enable full BSA-compliant individual, business and sanctions checks to be completed in a manner of seconds. Furthermore, firms can rely on systems that will provide constant monitoring of existing clients to ensure that they remain compliant at all times.
Has the coronavirus made it easier to launder money? Yes and no. On the one hand, there were plenty of opportunities available to launder money using business loans and financial aid offered by the government. On the other hand, the systems in place that enabled the money laundering to occur were already in place before lockdowns were implemented. However, the coronavirus has exposed some of the vulnerabilities in the financial system, particularly with regard to mobile banking and investing, that have previously made it possible for money launderers to wash their funds unnoticed. Hopefully, with increased scrutiny and insight, these vulnerabilities will be eliminated, forcing money launderers ever deeper into the shadows.
