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While the world is on hold, financial crime has not taken a step back amidst the coronavirus emergency. Scammers, money launderers, and fraudsters have begun to exploit the weaknesses in the economy and in the fearful and worried population. As the efforts of law enforcements and regulators have shifted to the health fallout and economic impacts of the virus, criminals are increasing their shameful activities.
The Covid-19 pandemic has altered our lives, forcing millions of people to quarantine and self-isolate, setting aside all non-essential businesses and needs, and expanding critical sectors, primarily the pharmaceutical. A growing number of citizens are staying home and limiting their public lives, keeping in touch with the outside world mostly through the screens of their phones and PCs.
The unrecommended use of cash has also given rise at unprecedented levels to digital banking. For many it is their first time using apps and online banking, particularly the older generation, making them highly susceptible to shady persons.
It is in this surreal environment that criminals have found the vulnerabilities they need to enact scams and frauds to the detriment of financial institutions, the healthcare sector, and the world population.
How are criminals exploiting the coronavirus crisis?
On April 1st, the Financial Action Task Force’s (FATF) president, Xiangmin Liu, issued a statement concerning the measures to combat illicit financing during the Covid-19 crisis.
Amongst the various concerns and guidelines, Mr. Liu warns against, “financial fraud and exploitation scams, including advertising and trafficking in counterfeit medicines, offering fraudulent investment opportunities, and engaging in phishing schemes that prey on virus-related fears.”
These also include fundraising for fake charities and medical scams targeting virus-anxious innocent victims. There is also the fear that many of these criminal activities may be used to raise funds for terrorists.
The increase of digital banking may also see an increase of data being filtered through transaction monitoring systems, making it harder for AML analysts and Compliance Officers to identify Covid-19 cybercrimes and their flow of illicit money. However, a series of recently thwarted and unmasked attempts at coronavirus wrongdoings have allowed us to analyse and dissect various schemes.
Below are a series of examples that may aid analysts to spot potential red flags.
Quarantine measures across the globe have given rise to darknet market users on the Dark Web. This is partly due to the closure of businesses selling non-essential items, related restrictions on movement, and tighter controls.
Despite it being a hub of secondary markets for illegal activities, including the sale of medicines, weapons, and stolen credit cards, some markets have decided to stop people from capitalizing on the current crisis. Among these, Monopoly Market has been careful to prohibit users of their platform from exploiting the Covid-19 emergency and selling fake coronavirus vaccines or remedies, counterfeit masks, infected blood, or other questionable items with the threat of being banned.
How to detect scammers profiting from the coronavirus crisis?
In early April, an unidentified 39-year old man was arrested in Singapore for the suspected involvement of money laundering misdeeds concerning a business email scam in which he assumed the identity of a legitimate company and advertised the quick delivery of FFP2 surgical masks and hand sanitisers.
The man scammed a French pharmaceutical company by selling them an important quantity of masks for €6.64 million. After having transferred the money to a bank in Singapore, the pharmaceutical company never received the goods and the supplier became uncontactable. The EU and Singaporean authorities were able to retrieve a large sum of the money.
These types of scams are becoming increasingly common. When faced with a large transfer for the acquisition of medical supplies, there are a few potential red flag that may lead to the suspicion of a scam:
1
Tax havens: the money is being transferred to a tax haven or a country considered to be non-compliant with regard to the exchange of tax information or benefiting from considerably favourable taxation of professional income in relation to the place of its actual activity.
2
Background check: does the company have offices or branches in the country where the money is supposed to be transferred?
3
Contact information: ask your client who they spoke to and check if the person’s email is legitimate. Also check if that person truly works for the company he purports to.
4
Check the prices: coronavirus scams involving medical equipment often comprises of material sold at very cheap or discounted prices. Ask your client at what price they are buying the items and compare it to legitimate sources.
5
Website: if the scammer company has a website, give it a thorough look. Scam sites are distinguishable by the fact that they sell very few items, primarily masks and hand sanitisers, at discounted rates.
The FATF has also warned that, “national authorities and financial institutions should apply a risk-based approach to ensure that legitimate Non-Profit Organization activity is not unnecessarily delayed, disrupted or discouraged.”
How to detect money mules profiting from the coronavirus crisis?
An interesting advanced fraud case occured in March where a number of people were scammed by a fake company called the Vasty Health Care Foundation.
The foundation hired people through online job search platforms to help investigate local pharmacies that were suspected of violating medical pricing policies. Each individual was asked to file a report with the foundation and to keep receipts for travel reimbursement.
Once the trust of the "employees" was gained, the foundation requested assistance in transferring a "donation" from a contributor for the fight against Covid-19.
The victim was notified that he or she will receive the money from the donor by wire transfer to their account. They were told that they could keep some of the money for themselves as a commission, but the rest had to be deposited in cash in a Bitcoin ATM (dispenser) and transferred to them using a QR code that the victim had received from the foundation's email address, following their instructions.
This methodical and carefully orchestrated strategy demonstrates that criminals have the ability to create presumably legitimate systems for laundering large amounts of money with limited resources.
By manipulating a person's goodwill, criminals have sought to take advantage of people's empathy to enable them to launder funds from stolen credit cards without raising questions. With this case it was done through a process of financial untraceability using virtual currencies and mules.
Let’s analyse potential red flags that an AML analyst may encounter that may give rise to money mule suspicions:
1
No relation: a client may receive a sum of money from a healthcare foundation/company, but that specific client’s business has nothing do to with healthcare.
2
Funnel account: the client may receive a sum of money from a healthcare foundation/company, then cash it out at an ATM (equivalent opposite transactions).
3
Communication: ask the client where he/she received information on any jobs pertaining to healthcare. Many money mule jobs are posted online on website such as Monster.com or Indeed.com.
4
Legitimacy: check if the name of the foundation/company exists online. Does it appear in a database concerning companies? When was it first constituted?
5
Website: if the foundation/company has a website, check when it went live online. This can be done by following this quick guide. If the website has been up and running for only a number of days or weeks, then it’s most likely a scam.
The preventive aspect
Prevention is the best way to safeguard your institution’s clients from scammers and criminals. Send out an email to all clients describing potential scams and tell them to keep their eyes peeled. If they have any doubts regarding a company or a person, give them an email where they can contact you. Here is a list of confirmed coronavirus scams.
How to detect fake investments profiting from the coronavirus crisis?
There have been numerous “pump-and-dump” schemes created thanks to the coronavirus crisis. The scheme consists of “pumping,” or increasing the price of a company’s stock by spreading positive, yet false rumours on the company itself. The promoters would then “dump” their own shares before the build-up ends, profiting from their sale. The stock prices will then plunge, leaving recent investors in deficit, but providing an opportunity for the promoters to rebuild their stock at a lower cost and obtain a larger future margin.
This has been done with small pharmaceutical companies which have hyped the news that they were on the verge of finding a cure or a vaccine for Covid-19. The U.S. Securities and Exchange Commission (SEC) has already suspended the trading of a number of companies linked to this scheme, including Aethlon Medical Inc., Eastgate Biotech Corp, No Borders Inc., Praxsyn Corporation, and Sandy Steele Unlimited Inc.
When faced with a client wanting to invest in a little-known pharmaceutical company, an AML analyst should watch out for the following red flags:
1
Small Microcap stock: is the stock a small microcap? Most of the companies that enacted this scheme are of that size.
2
Information: where did the client hear about the stock? If online, check the source to see if it’s legitimate.
3
History of the stock: check the history and the recent volumes of the stock. Were they low and have they skyrocketed in the past few days?
What is the future of crime post-pandemic?
The Covid-19 pandemic will leave the economy of many countries in shambles, greatly hurting financial institutions, and creating more poverty among the population. This will be a ripe environment for various criminal organizations.
Warnings are elevating that criminal organizations will most likely acquire small companies on the verge of failure due to the pandemic to use for money laundering purposes.
A rise of the use of usurary instead of traditionnal banking system is anticipated.
The Covid-19 pandemic will leave the economy of many countries in shambles, greatly hurting financial institutions, and creating more poverty among the population. This will be a ripe environment for various criminal organizations.
Antonino di Matteo and Roberto Tartaglia, two Italian magistrates fighting the Mafia, have issued a warning that criminal organizations will most likely acquire small companies on the verge of failure due to the pandemic to use for money laundering purposes. Compliance and AML Officers should scrutinize the transparency of the companies their institution does business with, particularly who and what other companies are behind them, who exactly are the UBO’s, and any negative news related to them. Financial institutions should adapt their adverse media screening tools to capture new categories related to coronavirus crimes and money laundering that have and will emerge in news outlets. They must also not accept clients who have an obfuscated company structure.
Another fear is that many restaurants, bars, and small businesses in need of money will be rejected by banks that have taken a toll due to the epidemic and will resort to unscrupulous usurers. Be sure to remain vigilant when high amounts of money enter a person or company’s bank account and return to the same person for a higher quantity. Possible red flag words related to usurers should be added to your institution’s blacklist such as loan, lend, advance, and credit.
Compliance and AML Officers and analysts will need to be aware of new trends in criminal activity so as to counter them in the most efficient way.
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Know your CustomerMon 01 April 2019
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