Business beware: Covid-19 is leading to increased money laundering, fraud and terrorist financing

In a report published yesterday, the Financial Action Task Force (FATF) has set out the “unprecedented global challenges” facing businesses and policymakers as a result of the Covid-19 crisis. The report sets out a significant rise in Covid-19 related corporate crime – particularly fraud, cybercrime and corruption – which is creating “new sources of proceeds” for illicit criminals.

The task force cited six explicit risks for businesses from the pandemic, citing concerns that criminals might seek to:

• 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; and
• exploit Covid-19 and the associated economic downturn to move into new cash-intensive and high-liquidity lines of business in developing countries.

Further, the paper set out possible solutions for businesses and government seeking to weather the storm. These include:

• 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; and
• supporting electronic and digital payment options.

The paper marks the latest in a series of warnings from leading business groups and enforcement bodies about the potential criminal consequences of the pandemic. We blogged last week on the financial institutions’ call for a global response to the pandemic, and earlier this month on the National Economic Crime Centre’s warning of a growing threat from fraud.

Businesses must remain vigilant amidst testing times ahead, whilst ensuring their compliance protocols are updated and strengthened to meet the challenge.