COVID-19 poses unprecedented challenges not only to global societies and economies but also to the operations of the Anti-Money Laundering and Counter-Financing of Terrorism (AML/CFT). Substantial increase in risks and crimes associated with money laundering (ML) and terrorist financing (TF) are reported and predicted globally due to the significant changes in financial behaviours and patterns under the COVID-19 pandemic.
In response to the new financial climate, in May 2020, the Financial Action Task Force (FATF) has issued “COVID-19-related Money Laundering and Terrorist Financing Risks and Policy Responses” identifying challenges, good practices and policy responses to new ML/TF threats and vulnerabilities arising from the COVID-19 crisis.
It has been more than a year since the outbreak was detected. This article aims to provide an update on the additional threats faced by businesses combating money laundering and terrorism financing.
Four Money Laundering/ Terrorism Financing threats under COVID-19
- Increase in cybersecurity threats
Since the pandemic, cyber criminals are scheming new ways to exploit human weaknesses and insecurity caused by the pandemic. Scams are prevalent and these can be distributed through various channels like impersonating authorities, phishing emails or websites. These scams either trick victims to part with their money, or their personal identity. Ransomwares are also targeted at large enterprises for bigger payout.
- Bypass Customer Due Diligence (CDD) measures
Due to less supervision and the policy reform in both financial institutes and government under “lockdown”, criminals are attempting to bypass Customer Due Diligence (CDD) controls to conceal and launder funds by exploiting challenges in controls caused by remote working situations. Non-financial businesses and professionals who are regulated for AML/CFT are also facing difficulties in verify their customers’ identities due to the restricted travel in many countries.
- Misuse of online financial services and virtual assets
Criminals are trying to take advantage of a drastic reduction in face-to-face financial transactions and the increase in the use of online financial services and virtual assets, particularly from selling fraudulent COVID-19 medical goods. There was a case in 2020 that a man from Maryland, U.S. used Bitcoin cryptocurrency to sell COVID-19 prescription medicine on Darknet illegally.
- Criminals exploiting failing businesses and individuals in financial difficulties
During economic downturns, criminals may seek to invest in property or troubled businesses to generate cash and mask illicit proceeds. Besides, the increased use of unregulated financial services such as unlicensed lenders provides additional opportunities for illicit activities. Criminal gangs have been known to recruit individuals to use their bank accounts for transferring illicit gains.
How to effectively respond to the new AML/CFT risks and vulnerabilities posed under COVID-19?
Given the ongoing threats highlighted above, the risks in money laundering and terrorism financing faced by businesses are much more complex. Illicit gains from scams, frauds and corruption will eventually need to be laundered. Identity thefts from the various scams will make verification of identity even more difficult when performing Customer Due Diligence.
Recognizing the threats posed by the pandemic, below are some practices and responses to new ML/TF threats arising from the COVID-19 crisis.
- Review on existing AML/CFT procedures
Due to the continuously changing financial environment, review on existing AML/CFT procedures is needed to ensure they can timely and effectively detect suspicious activities and mitigate risks from remote transactions, customer onboarding and due diligence.
- Full-use of risk-based AML/CFT approach
Pragmatic practices for AML/CFT supervisory activities are allowed in the current situation. Financial institutions or professional firms could apply the least extent of simplified customer due diligence measures where lower risks are identified. Simultaneously, they should be vigilant to emerging ML/TF risks and adjust the focus on the potentially higher-risk area, particularly when doing business with counter-parties that are vulnerable to financial crimes related to COVID-19, such as medical protective gears, vaccines or virtual assets. FATF also emphasizes that ongoing monitoring and review on CDD are required if risks are later detected.
Read more about the FATF Guidance on the Risk-Based Approach to Combating Money Laundering and Terrorist Financing – High Level Principles and Procedures.
- Make use of technology for AML/CFT
The FATF encourages the use of technology, including Fintech, Regtech and Suptech for AML/CFT process. One innovative AML/CFT solution is SentroWeb. With its reliable Dow Jones data and handy web-based AML/CFT search engine, financial and professional firms can easily and efficiently screen their customers at onboarding and while conducting transactions, as well as digitalize the whole CDD process when employees are telecommuting during COVID-19 pandemic.
Read more information on SentroWeb-DJ.
- Strengthening the communication with enforcement agencies and other financial institutions
Professional firms are required to maintain record-keeping and risk assessment for AML/CFT supervision and report suspicious transactions to local legal enforcement agencies without delay. Besides, public-private partnership in the sharing of information is encouraged to minimize potential ML/TF risks, particularly COVID-19-related crime.
To tackle the emerging money laundering/ terrorism financing risks in the changing financial conditions, it is also important to keep updated with the new guidance and regulatory framework issued by the local authorities and the FATF.
In April 2020, both Hong Kong and Singapore have announced guidance or adjusted regulatory requirements on money laundering and terrorist financing risk management in response to COVID-19.
Read the circular regarding Coronavirus disease (COVID-19) and Anti-Money Laundering and Counter-Financing of Terrorism (AML/CFT) measures – an update issued by Hong Kong Monetary Authority (HKMA).
Read the Regulatory and Supervisory Measures to Help FIs Focus on Supporting Customers announced by The Monetary Authority of Singapore (MAS).
More statement or guidance issued by authorities in response to COVID-19 in other countries can be found in the FATF report (P.19-28).
Foreseeably, COVID-19 is not only changing the global financial landscape in the current pandemic but also in the post-pandemic era. To address the rising compliance challenges under such situation, leveraging technology automation is the most adaptive, reliable and time-saving way for AML/CFT implementation and operation. Click to see the article to learn more about how an innovative AML/CFT solution like SentroWeb can help to screen sanctioned persons, entities and Politically Exposed Person (PEP), perform CDD and ongoing monitoring to fulfil the compliance obligations.
See more information on SentroWeb-DJ.
- Read the “COVID-19-related Money Laundering and Terrorist Financing Risks and Policy Responses” issued by the FATF
- Read the circular regarding Coronavirus disease (COVID-19) and Anti-Money Laundering and Counter-Financing of Terrorism (AML/CFT) measures issued by Hong Kong Monetary Authority (HKMA)
- Read the Regulatory and Supervisory Measures to Help FIs Focus on Supporting Customers announced by The Monetary Authority of Singapore (MAS)
- Read the statement or guidance issued by authorities in response to COVID-19 in the different countries (P.19-28)
- Read the article introducing one innovative AML/CFT solution SentroWeb – Web based AML/CFT and PEP Search