The Covid-19 pandemic has presented criminals with new opportunities to exploit weaknesses while we all concentrate on adjusting to our own unique and, at times, onerous situations.

On 14 April, Interpol reported that the German health authorities had fallen victim to fraud when trying to procure protective face masks for their front-line healthcare workers. They made an upfront payment of €1.5 million and, days before the delivery was due, someone notified the German authorities that the payee had not received it and that they had (to secure the order) to make an urgent payment of €880,000 directly to the supplier. Suffice to say, the masks did not arrive and it transpired that a legitimate face mask supplier's website had been cloned by a fraudster.

In response, Interpol warned the public to remain vigilant "as organised crime groups continue to adapt their activities to benefit from the global health crisis."

Europol reported on 6 April that someone had been arrested for defrauding an EU pharmaceutical company of €6.64 million for face masks and hand sanitisers. The company made a payment to a bank account in Singapore, but the items never arrived and the supplier disappeared.

The US Federal Bureau of Investigation recently published a warning to all health care professionals about the rising tide of fraud in this area, offering four helpful hints about things that might indicate suspicious activity: unusual payment terms; last-minute price changes; last-minute excuses for delays in shipment; and unexplained sources of bulk supply.

What to do in a crisis

Financial firms can protect themselves from or inadvertently processing fraudulent payments and even from falling victim to frauds themselves by reminding staff to stay alert and by stepping up their efforts to make themselves more secure.

If a bank’s client makes a payment that is not in line with the normal activity that the bank expects of him, or if bank employees feel as though he is pressurising them to make a payment quickly, the MLRO ought to reassure them that it is acceptable to stop for a moment, take stock of the situation and, perhaps, think of making a suspicious activity report. He should assure them that they will not be penalised for being prudent and voicing their genuine concerns, especially during this global crisis. Clients will understand, particularly when it is explained to them that additional controls have been imposed to protect them and their assets from falling victim to financial crime.

On the flip side, in times of crises, there may be a temptation for an otherwise exemplary employee to turn rogue. The compliance officer/MLRO ought to keep talking to his firm’s employees during these difficult times. He should look for signs of stress or changes in behaviour which give him cause for concern.

The validation of internal policies, procedures and controls and the proof of their effectiveness to boards (through the process of ‘assurance’) has never been more important. The last thing that a business wants to be dealing with during a worldwide pandemic is internal fraud and a disastrous failure of internal controls.

Counterfeit goods

Counterfeiters have been equally adaptable in shifting their production and distribution of goods to exploit the pandemic, which has resulted in a global shortage of products and an opportunity for crime. Counterfeiters have capitalised on the anxiety of individuals and the urgency in which products are required, with Europol reporting the production of fake blood screening tests, substandard face masks and many other inadequate products flooding the market, jeopardising public safety. This activity is inevitably expected to generate significant profits for the criminals, and they will need to launder the funds somewhere.

Enforcing the law

My inbox has been flooded every day with emails from Europol that report on successful arrests, the retrieval of funds and complex investigations that involve international co-operation between many law enforcement authorities. Meanwhile, financial regulators are relaxing certain rules in sympathy with the problems that the financial sector is having. It is important to keep abreast of these regulatory concessions, however slight they may be.

Proceeds of crime

With this exponential increase in criminal activity generating enormous proceeds, all Money Laundering Reporting Officers have to protect their organisations from the threat of being associated with 'laundromats.'

That threat is made even more complicated by the very public way in which people swap anti-money-laundering hints and tips. Fraudsters, spammers, counterfeiters and organised crime gangs that try to defraud people also have access to those hints and tips and are able to prepare full and convincing answers to the money-laundering reporting officer's questions, or even evade suspicion in the first place. Of course the MLRO might grow suspicious if he encounters an HNW who wants to strike up a new business relationship with his firm if that individual is fully prepared with pristine due diligence packs.

Staff at financial firms are distracted and anxious at the moment, so compliance officers and MLROs ought to display humility and use 'soft skills' and good leadership to spearhead their organisations' efforts against financial crime in these unprecedented times. If they make it obvious that they are taking even more precautions than before, and doing so competently, this crisis will offer them the chance to make an impression and gain their top directors' complete attention and respect. If they do so, they might even convince them to let them iron out some old AML problems that they did not take so seriously in the past. In the meantime, the boards of their companies should at all times oversee their internal policies, procedures and controls to make sure that they are effective and resilient.

I am certain that once somebody has invented a Covid-19 vaccine, counterfeiters and fraudsters will be nimble in changing their schemes to offer fake or non-existent vaccines. The effects of 'C-19' on financial crime will be around for some time to come, so we must remain vigilant.

* Sandra Lawrence can be reached on +44 1481 734808 or at sandra.lawrence@collascrill.com