Earlier this month, senior officials of the global money laundering and terrorist financing watchdog, the Financial Action Task Force (FATF), issued a paper identifying challenges, good practices, and policy responses to new threats and vulnerabilities to the global financial system arising from the COVID-19 crisis. The U.S. Financial Crimes Enforcement Network (FinCEN) likewise is regularly publishing advisories regarding new COVID-19-related threats to the financial system. The FATF paper also includes a list of financial crimes-related statements and guidance issued by various other countries in response to COVID-19, in its Annex B.
As discussed below, the challenging COVID-19 environment has generated new avenues for money laundering. Specifically, new opportunities for bad actors to engage in fraud, cyberattacks, and other criminal activity have been created by the advent of remote working arrangements, increased online banking and financial services activities, as well as governmental and non-governmental efforts to distribute critical medical supplies and financial assistance.
Financial institutions’ anti-money laundering (AML) compliance programs remain an essential part of national and international efforts to identify and prevent abuses of the financial system, including with respect to COVID-19-related crimes. Financial institutions will be expected to incorporate into their AML programs information that FATF and government authorities have provided about increases in COVID-19-related crimes, related money-laundering risks, and red flags to watch out for. However, the ability of many financial institutions to exercise their compliance functions is affected by the operational changes that they are making to address COVID-19’s impacts.
Regulated financial institutions must be mindful of this new and challenging environment, and they should use the guidance provided by FATF, FinCEN, and other state and federal regulatory authorities to adapt.
FinCEN recently reminded regulated financial institutions of their obligations to adopt a risk-based approach to AML compliance. As Orrick has detailed in a separate piece, FinCEN Director Kenneth Blanco stated they must continue “adapting in real time.” Financial institutions should consider taking the following steps in order to ensure continued compliance with their AML obligations in a COVID-19 world:
The actions discussed above are critical, as changes in the way people interact and conduct business have opened up new opportunities for bad actors to perpetrate crimes and launder money. FATF’s paper provides a non-exhaustive list of COVID-19-related crimes, which include: (1) fraud – such as impersonation of public officials to obtain financial information, phony sales of medical supplies, and investment scams; (2) cybercrime, through taking advantage of the sharp increase in remote working arrangement and dependence on mobile computing devices; (3) exploitation of online banking platforms; (4) exploitation of vulnerable populations; and (5) misappropriation of government resources. Likewise, FinCEN recently has advised of financial crimes related to the COVID-19 pandemic. In what it promises is the first of several such publications, FinCEN on May 18 issued an Advisory on Medical Scams related to the Coronavirus Disease 2019. The advisory warns of possible illicit activities regarding fraudulent cures, tests, vaccines, and services; non-delivery scams; and price gouging and hoarding of medical-related items, such as face masks and hand sanitizer.
Criminals are taking advantage of the global pandemic to find new ways to conceal and launder illicit funds. Financial institutions should take these risks into consideration in assessing and updating their AML compliance programs and monitoring for suspicious activity.
Resource and other challenges financial institutions are facing may make creativity and a willingness to adjust their business or AML practices essential to addressing the threats created by the global pandemic. The regulatory expectation that compliance programs remain effective in the face of new developments remains strong, and financial institutions must carefully assess the risks they face, understand whether their compliance programs are equipped to address those risks, and be proactive in remedying any gaps, deficiencies, or other challenges.