Regulators warn against money laundering risks during the COVID-19 pandemic

Stories of money laundering scams exploiting the unprecedented situation caused by COVID-19 have been filling news headlines for the past few weeks.

For instance, on April 4th the Straits Times reported that a man was arrested for suspected involvement in money-laundering offences linked to a COVID-19-related scam. The arrest was the result of an investigation into “a business e-mail impersonation case in which an overseas pharmaceutical company was defrauded of €6.636 million (S$10.3 million) over the purchase of surgical masks and hand sanitisers”.

Similarly, on April 14th, the Irish police interviewed a suspect in relation to the alleged laundering of €1.5 million in the Republic of Ireland, connected to an international COVID-19 fraud investigation. According to The Irish Times, the money  – traced to an Irish bank account the man owned – “came from German health authorities desperate to secure face masks for their frontline staff”. After being put in contact with a Dutch supplier through an Irish intermediary, this German company placed an order for 11 million masks. The current joint investigation – engaging authorities in Germany, the Netherlands and Ireland and supported by Interpol – revealed that, unknown to the German company, the order was made with a fraudulent entity that had cloned the website and email address of the legitimate Dutch company.

In the UK, people have been bombarded with phishing text messages and emails by scammers impersonating officials of the Center for Disease Control and Prevention (CDC) or the World Health Organization (WHO). The scammers are asking for “payment for a list of infected people in your area where you may be required to pay by bitcoin or asked to click on a link which delivers malware,” Pembrokeshire County Council noted. Manchester City Concil stated that “COVID-19 related fraud has increased by 400% in March”. Just between 1 February 2020 and 18 March 2020, Action Fraud has received 105 reports from victims of COVID-19 related frauds, with losses totalling close to £970,000.

To counteract the dangerous trend, regulators all over the world have now started drawing attention to the heightened risk of coronavirus-related frauds and money laundering schemes.

In its official statement published on April 1st, the Financial Action Task Force (FATF) warned against the emerging criminal trends and encouraged national law enforcement agencies and regulators to increase awareness of popular scam among the population:

Malicious or fraudulent cybercrimes, fundraising for fake charities, and various medical scams targeting innocent victims are likely to increase, with criminals attempting to profit from the pandemic by exploiting people in urgent need of care and the goodwill of the general public and spreading misinformation about COVID-19.  […] Supervisors, financial intelligence units and law enforcement agencies should continue to share information with the private sector to prioritise and address key ML risks, particularly those related to fraud, and TF risks linked to COVID-19.

In the United States, FinCEN (Financial Crimes Enforcement Network) has been advising financial institutions to remain alert about malicious or fraudulent transactions – similar to those that occur in the wake of natural disasters – since mid-March. Based on monitoring reports of potential money laundering activities connected to COVID-19, FinCEN identified 4 key emerging trends:

1. Imposter Scams – Bad actors attempt to solicit donations, steal personal information, or distribute malware by impersonating government agencies (e.g., Centers for Disease Control and Prevention), international organizations (e.g., World Health Organization), or healthcare organisations.
2. Investment Scams – The U.S. Securities and Exchange Commission (SEC) urged investors to be wary of COVID-19-related investment scams, such as promotions that falsely claim that the products or services of publicly traded companies can prevent, detect, or cure coronavirus.
3. Product Scams – The U.S. Federal Trade Commission (FTC) and U.S. Food and Drug Administration (FDA) have issued public statements and warning letters to companies selling unapproved or misbranded products that make false health claims pertaining to COVID-19. Additionally, FinCEN has received reports regarding fraudulent marketing of COVID-19-related supplies, such as certain facemasks.
4. Insider Trading – FinCEN has also received reports regarding suspected COVID-19-related insider trading.

Finally, in the United Kingdom, the Financial Conduct Authority (FCA) also warned investors against an increasing number of scams amid the outbreak of COVID-19, explaining that “These scams take many forms and could be about insurance policies, pensions transfers or high-return investment opportunities, including investments in crypto assets.”

In a series of statements issued on 31 March, the European Banking Authority (EBA) warned national regulators and banks of evidence of new criminal activity linked to the current pandemic. As reported by GTR, the EBA highlighted international trade as a potential risk area. Specifically, “banks processing payments linked to trade transactions should take additional measures to establish whether unexpected flows – particularly linked to customers or regions badly affected by the virus – are of legitimate origin”.