In the two years since the first cases of Covid-19 were reported several experts and authorities have endeavoured to establish the impact of the pandemic on trade-based financial crime (TBFC).
But while it is relatively easy to establish increased vulnerabilities in the supply chains fractured by the pandemic, establishing the extent to which Covid-19 has increased or decreased levels of TBFC is difficult, not least because there were no widely accepted measures of TBFC levels before the pandemic struck. Finding actual examples of TBFC enabled by the pandemic is even more difficult.
Evidence of increased fraud
A May 2020 report by the Financial Action Task Force (FATF) cited evidence of increases in certain types of fraud, including the impersonation of officials; counterfeiting, including of essential goods such as medical supplies and medicines in high demand during the pandemic; fundraising for fake charities, and fraudulent investment scams.
But while recognising that conventional transnational organised crime schemes that take advantage of global supply are impacted by Covid-19 the FATF report does not specifically cite cases or types of TBFC affected by the pandemic, although it does highlight several probable heightened vulnerabilities.
Also in May 2020, the UK’s National Crime Agency (NCA) pointed to a distinct possibility of trade-based money laundering (TBML) involving the supply of personal protective equipment (PPE), both in terms of large-scale procurement contracts and in online scams relating to sales direct to the public.
As well as cases where funds are known to have been transferred, there are others where the account holder claims that funds transferred into or out of their account are to source PPE for others, but there is no supporting evidence of any contracts with, or any funds paid out by, the UK government.
Whilst it is possible that such cases may genuinely be individuals sourcing PPE through their own contacts, the NCA said “it cannot be ruled out that they are claiming involvement in PPE provision to obscure their involvement in TBML”.
An interesting interview published in the December 2021 edition of Financier Worldwide Magazine asks experts at accountancy and business advisory firm BDO what new TBML threats and heightened vulnerabilities have been amplified by the effects of the pandemic.
Adil Raza and Toni Weirauch identify potentially heightened vulnerabilities including difficulties monitoring some of the large-scale emergency financial aid and stimulus programmes introduced in the pandemic and the increased use of remote banking, customer identity verification and due diligence.
Another vulnerability they say derives from government funding used to combat the virus and subsidise the incomes of many families that diverted the resources and attention of authorities away from investigating illegal activities, including TBML.
Measuring the impact
Even before the pandemic struck it often took years for TBFCs to be uncovered, investigated and prosecuted so even in the future as a body of knowledge emerges it may still be difficult to assess the impact of Covid-19 in absolute terms.
Nevertheless, the probable vulnerabilities now seem to have been identified consistently by several experts and authorities and those concerned with TBFC should by now be well aware of them.
COVID-19-related Money Laundering and Terrorist Financing Risks and Policy Responses May 2020 published by the FATF can be found here.
COVID-19 Suspicious Activity Reporting published in May 2020 in a United Kingdom Financial Intelligence Unit (UKFIU) Guidance Note and produced in line with the NCA commitment to share perspectives can be found here.
Q&A: Trade-based money laundering investigations published in the December 2021 edition of Financier Worldwide Magazine can be found here.
Categories: Trade Based Financial crimes News