The Crisis that helped the launderers!

The Covid crisis has been challenging one for all of us, it has presented with opportunities for both good and bad. The pandemic provided the necessary impetus to drive the Digitalisation agenda within the banking sector, at the same time such a transformational agenda has helped criminals to benefit greatly.

The business were directly impacted due to the crisis not just because of the 'lack of economic activity', but also because of the criminals 'lot of laundering activity' during the crisis. The scammers used the opportunity to target certain specific domains which continued to have a strong demand even during the crisis and benefitted greatly and collectively the failures were sending shock waves across many sectors.

The demand continued around the world for the business built on Pharmaceuticals, Medical instruments, Surgical Masks and handwash gels. The lack of man power during lockdown, lack of routine checks, supply chain break up, lack of the traditional procurement channel, Immediacy of situation and lack of resilient systems has collective helped launders. The criminals were able to innovate and colloborate in laundering loads of money by setting up Fake companies, Fake websites, Fake contracts, Sim swap scams, Phising scams, OTP scams, QR code scams and Investment scams throughout the crisis.

The war is not over yet, so this blog summarises some of the examples published by FATF in their recent study of the economic climate. The FATF has been monitoring the changes in criminal activity, their impact on anti-money-laundering/counter-terrorist-financing (AML/CFT) regimes, and the measures that governments have implemented to respond to the different types of challenges presented.

Vulnerabilities

• Bypass customer due diligence measures;
• Increase misuse of online financial services and virtual assets to move and conceal illicit funds;
• Exploit economic stimulus measures and insolvency schemes as a means for natural and legal persons to conceal and launder illicit proceeds;
• Increase use of the unregulated financial sector, creating additional opportunities for criminals to launder illicit funds;
• Misuse and misappropriation of domestic and international financial aid and emergency funding;
• Exploit COVID-19 and the associated economic downturn to move into new cash-intensive and high-liquidity lines of business in developing countries.

What changes does the vulnerabilities bring to AML policy?

• Domestic coordination to assess the impact of COVID-19 on AML/CFT risks and systems;
• Strengthened communication with the private sector;
• Encouraging the full use of a risk-based approach to customer due diligence; 
• Supporting electronic and digital payment options.  

Case studies

Counterfeiting Medical Goods – Personal Protective Equipement  Fraud -  Finland

A Finnish governmental actor purchased 3.1 million masks for approximately EUR 5 million from a private Finnish company. This company in turn purchased the goods from a vendor in China. However, right after the purchase, it turned out that the private Finnish company’s entrepreneur had a questionable business history, and the quality of a major part of the delivered medical supplies were substandard. The FIU discovered the questionable business history during routine checks. There was a lack of tax reporting, outstanding tax debts of the company during past fiscal years, and the company was excluded from certain official databases. The case is still under investigation as an aggravated fraud. However, throughout the investigation authorities have confiscated assets for EUR 2.6 million.

Source: Financial Intelligence Unit, Finland (2020)

Cyber Crime - Singapore, France

In March 2020, a Singapore-based bank raised an alert after it received a funds recall message from a French company. The bank notified the Singapore authorities of its suspicion and, given the international component to the transaction, Singapore authorities immediately notified their French counterparts of the suspicious money flow and possibility of fraud. Through quick intervention and collaboration with banks, the Commercial Affairs Department of the Singapore Police Force seized over SGD 6.4 million (EUR 4 million) on the same day of the alert.

The ensuing investigation found that a French pharmaceutical products company was the victim of a fraud involving false transfer orders for a total loss of EUR 6.64 million. The company had fulfilled an order for surgical masks and hand hydro-alcoholic gel from their usual suppliers, whose identity was stolen through a business email compromise scam. The French company was deceived into transferring EUR 6.64 million to a Singapore-based bank account owned by the fraudsters, after which the company neither received the products nor could reach the supplier. Later in March 2020, a 39-year-old man was arrested in Singapore on suspicion of laundering scam proceeds relating to COVID-19 medical supplies of SGD 10.2 million equivalent (EUR 6.64 million). The individual has not been charged as of yet. He was found to be acting in concert with an organized crime group based overseas. The Singapore authorities continue to work with the French authorities on the case.

Case Study 5 Source: Singapore Police Force, Ministry of Economy and Finance (France)

Charity Fraud - China

Mr. W, claiming to donate towards the fight against COVID-19, published donation information with a fund-raising QR code on an online platform, calling for public donations. During the pandemic, over 100 people from all over China paid in by scanning the QR code, mostly integral multiples of RMB 10 (USD 1.50) or RMB 100 (USD 15). The total value of donations exceeded RMB 100 000 (USD 14 960). Shortly after the money was credited, it was transferred to Mr. W’s personal bank account. There was no corresponding donation record, only obvious features of fraudulent actions. The case has been reported to the police for investigation.

Case Study 7 Source: Anti-Money Laundering Bureau, The People’s Republic of China (2020)

Investment Fraud - United States of America, California.

In June 2020, a man in California was indicted on fraud charges alleging that he solicited people around the nation to invest in companies that would market pills he claimed would prevent coronavirus infections and produce an injectable cure for those already suffering from COVID-19. The defendant falsely claimed to have developed a cure for the COVID-19 virus and a treatment that prevented a person from being infected by the COVID-19 virus through text messages, videos, and statements sent to potential investors and posted on the internet. The indictment alleges that he fraudulently solicited investments in two companies with a series of false promises, including miraculous results from the prevention product and the cure, and risk-free and 100 percent guaranteed “enormous returns” on investments. To bolster the claims, the defendant falsely represented that an unnamed party in Dubai had offered to purchase the two companies for USD 10 billion, claiming this offer would secure the victim-investors’ investments in the two companies, and that he had secured funding from seven investors who had each already invested between USD 750 000 and USD 1 000 000. The FBI arrested the defendant in March 2020 after he delivered pills – purportedly the treatment that prevents coronavirus infection – to an undercover agent posing as an investor. He has been charged with 11 counts of wire fraud stemming from solicitations he allegedly made to potential investors in Nevada, New York, Texas and Colorado. Two of the charges relate to communications with the undercover agent. Note: In the United States, an indictment contains allegations that a defendant has committed a crime. Every defendant is presumed innocent until and unless proven guilty beyond a reasonable doubt. Source: Department of Justice, United States of America (2020)

Case Study 6. California, United States of America: 

FATF (2020), Update: COVID-19-related Money Laundering and Terrorist Financing – Risks and Policy Responses, FATF, Paris, France, www.fatf-gafi.org/publications/methodandtrends/documents/update-covid-19-ML-TF.html