As countries begin to lift some of their lockdown measures, experts across a variety of fields have started to conduct some preliminary analysis on the overall impact of the coronavirus pandemic.
In the field of anti-money laundering and counter-terrorism financing, the Financial Action Task Force (FATF) released a new paper on “COVID-19-related Money Laundering and Terrorist Financing Risks and Policy Responses” in May 2020.
The report, which can be accessed in full here, is centred around three central topics:
- New threats and vulnerabilities stemming from COVID-19-related crime;
- Current impact on AML/CFT efforts by governments and the private sector due to COVID-19;
- Suggested AML/CFT policy responses to support the swift and effective implementation of new measures to respond to COVID-19.
From different points of view, the FATF paper highlights the importance of adapting existing strategies and requirements to new circumstances quickly, leveraging innovative technology where and when it makes sense to do so. The following highlights a few examples of the practical application of this approach.
New money laundering avenues
“With global trade volumes in decline and individual travel at a near standstill, conventional transnational organised crime schemes that take advantage of global supply chains and the traditional illicit revenue schemes of organised crime groups are impacted by COVID-19”.
During the pandemic, organised crime is precluded from travel and, as a result, has shifted its focus to a variety of new digital strategies to launder money or generate illicit profits. As international travels remain restricted, these new avenues may become stable sources of illicit profits even after life has gone back to normal. By partnering with specialised technology providers, regulators around the world have an opportunity to monitor, react and limit the spread of such tactics in a timely manner that will yield results well after the pandemic is behind us.
Misdirection of Government Funds
“FATF members report that criminals may use legal persons to make fraudulent claims on government stimulus funds by posing as legitimate businesses seeking assistance. Some FATF members reported taking steps to reduce risks, such as disbursing aid to people and businesses via existing government accounts for receiving social benefits.”
The COVID-19 crisis has brought to the surface some of the weaknesses of existing systems in particular regarding the secure and timely distribution of government funds as well as the accelerated procurement process for suppliers of vital products (e.g. PPE) in times of crisis. By introducing digital onboarding procedures and extensive automated checks (automatically checking, among other things, company structures of foreign companies), governments can effectively add an extra layer of security to protect their stimulus programmes as well as their procurement process from exploitation.
Embracing remote onboarding and digital identification
“[Some supervisors are] encouraging the use of responsible digital identity and other responsible innovative solutions for identifying customers at onboarding and while conducting transactions”.
The FATF paper includes a comprehensive list of official guidelines released by national financial regulators during the pandemic. The overview not only represents a valuable source of information to understand and identify commonalities in regulators’ responses during the pandemic, but it also showcases how regulators’ attitude towards remote onboarding and digital ID verification practices has quickly shifted.
In fact, a recent FATF Digital ID Guidance highlights that non-face-to-face onboarding and transactions conducted using trustworthy digital ID can be standard or even lower-risk. On the individual side, the width and depth of available ID verification technology now include AI-driven ID document checks, video verification, liveness detection, automated facial comparison, geolocationing, and on-going AML screening options that can help compliance teams add extra layers of security to their digital onboarding journeys. From the business verification and KYB point of view, state-of-the-art digital solutions offer seamless connections to company registries around the world, automated retrieval of mandatory documents based on local regulatory requirements, automated transliteration from a variety of character sets, transcription of key information through Optical Character Recognition, instant unravelling of UBO charts and secure outreach tool for shareholder information.
Like never before, the current crisis has highlighted the importance of embracing digital strategies in both preventing and fighting money laundering on a global scale.
As the number and frequency of online interactions with customers continue to grow in light of social distancing measures, financial institutions of all sizes are being encouraged to review their client onboarding, re-certification and on-going monitoring procedures to ensure strong AML compliance at every step of the digital journey.
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