Economic uncertainty ‘a breeding ground for fraud and financial crime’

The COVID-19 pandemic has caused unprecedented challenges in the economy and led to an increase in COVID-19-related crimes, including fraud, cybercrime, misdirection or exploitation of government funds, the Financial Action Task Force has warned.

Publishing a paper on the financial crimes and money laundering risks during the pandemic, the FATF mentions a list of dangers related to financial crime that emerge during such a time of crisis. It states that this new virus is creating new sources of proceeds for illicit actors.

It is an argument echoed by financial expert Manfred Galdes, the former head of the Financial Intelligence Analysis Unit (FIAU) in Malta in an article he penned for the Malta Chamber of Commerce.

The FATF report states that due to the fact that financial crime supervisors had to divert their main attention somewhere else, financial sectors are finding themselves in a more exposed, vulnerable state.

This crisis is harming the government and the private sector’s ability to implement anti-money laundering supervision, according to the FATF.

“These threats and vulnerabilities could result in criminals finding ways to bypass customer due diligence measures and increase misuse of online financial services and virtual assets to move and conceal illicit funds.”

The FATF is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction.

The paper also looks into possible policy responses that the authorities can take to deal with the problem. The FAFT mentions the need for domestic coordination to assess the impact of the pandemic. It also suggests a strengthening in communication with the private sector and supporting electronic and digital payment options.

It also refers to the misuse of international financial aid and emergency funding and the fact that economic terrorists exploit the crisis to move into new cash intensive and high liquidity lines of business in developing countries.

Similar sentiments were explored in an article by two financial consultants here in Malta. Galdes and  Henry Duggan warn that the pandemic is serving as a breeding ground for fraud and financial crimes.

Economic repercussions could potentially turn out to be a dangerous vacuum that criminals will take advantage of as they have always done in times of crisis. The article refers to scams that emerged during the pandemic, such as multiple cases of companies trying to make a hefty profit from the sale of face masks or other protective equipment.

The Shift had reported how individuals have been spreading fear to sell masks at exorbitant prices here in Malta and how international companies registered in Malta were selling fake face masks in the US.

The pandemic is serving as the perfect climate for cybercrime. The experts warned that, post pandemic, we may see new types of fraud, money laundering and terrorist finance adapted to the restrictions placed on individuals and businesses.

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