June 26, 2020

The global pandemic has caused a crisis of epic proportion and has led to unprecedented global challenges: deaths, suffering, economic disruption and a torrent of COVID-19-related crimes.

The human cost is not just as a direct result of the virus itself, the impact is far wider: millions of people worldwide are losing their lives, their loved ones and their livelihoods. Those lucky enough to have held on to their health and their incomes may still be at risk of adverse effects on their mental health – balancing work and home life in one single contained space is far from easy. As Richard Fenning, Partner at Manchester Square Partners, puts it: “We’re not all in the same boat – we’re in it together, but people are experiencing this crisis very differently”. Waiting for us outside of our own four walls is a fragile and worsening economic situation – the “radical uncertainty and disequilibrium[1] – continues to drive a steep rise in unemployment levels and pushes more and more people into debt and desperation.

Not everybody is suffering, however. For criminals, crisis and chaos creates the perfect conditions to target weaknesses and exploit the most vulnerable. In May, the Financial Action Task Force (FATF) warned that “measures to contain COVID-19 are impacting on the criminal economy and… profit-driven criminals may move to other forms of illegal conduct.” In fact, fraudsters wasted no time at all: “How can I make a profit from Covid-19?” posted one criminal on the dark web[2] within hours of lockdowns being imposed across Europe. “The opportunities [for criminals] are vast”, said Tony Sales, once dubbed ‘Britain’s Biggest Fraudster’, by the Sun newspaper and now director of strategy at We Fight Fraud. “Fraudsters will be looking for weaknesses to exploit,” he points out, “and when they find them, they will share them across their criminal networks at the speed of light. There’s many an entrepreneur in the criminal world and they all want to see each other succeed.”

It’s the perfect storm for criminals. Not only are opportunities rife, but security is compromised, too. Law enforcement is distracted, supporting humanitarian aid and maintaining social order. “The pandemic is impacting anti-money laundering and counter terrorist financing (AML/CFT) obligations from supervision, regulation and policy reform to suspicious transaction reporting and international cooperation,” FATF warned. Michiel Van Dyk of the UN Office of Drugs and Crime echoed the view: “Financial Intelligence Units face limited capacity due to people being furloughed or reassigned, and are even closed down in some countries.” Supervisory authorities, no longer able to conduct on-site investigations, are reduced to desktop investigations, significantly limiting their effectiveness. Compliance teams, trained to detect unusual and suspicious activity are having to re-evaluate what exactly is unusual and suspicious[3] in the face of unprecedented change, while at the same time being forced to work remotely at home, in often challenging circumstances and employing online verification and authentication tools that they’re not familiar with.

How is the pandemic increasing existing vulnerabilities and creating new ones?

The coronavirus outbreak is making society’s vulnerable more vulnerable: those who are abused, exploited or in need of support suffer behind closed doors. Child and domestic abuse cases are reportedly rising, at the same time as becoming even harder to detect, as abusers are locked down with their victims and people’s movements remain restricted. Victims of human trafficking are at a higher risk then ever – a disrupted supply chain means labour populations are more valuable and more vulnerable to exploitation through overwork, underpay and lack of appropriate safeguarding.

The virus outbreak also creates newly vulnerable people: many who would have considered themselves financially secure at the start of 2020 may now have recently lost their jobs and therefore incomes, plunging them into poverty. Those who are ‘new to digital’ are finding they need to use devices to manage their finances and shop online for food for the first time ever, exposing them to systems and processes they’re unfamiliar with. Those who are shielding, suddenly find themselves relying on others to provide them with care and provisions.

The psychological impact of the pandemic shouldn’t be under-estimated. Anxieties about health are exacerbated by the emotional impact of not being able to see friends and relatives, and increasing concerns about finances. For many, debt and money worries will have already been a concern before the pandemic – an increased reliance on food banks has been widely reported for some time, in addition to levels of personal debt being at higher levels than those seen before the 2008 financial crisis. When it comes to debt and money worries – people tend to suffer in silence. Steve Coppard, Deputy Director of the UK Government’s Debt Management Function highlights the result of a YouGov poll in 2019, which alarmingly revealed that in the UK, people are twice as likely to be willing to talk about their mental health with others, than they are willing to talk about being in debt[4]. Both FATF and FATF-Style Regional Bodies (FSRB) members also note that, in a prolonged economic recession, those with financing needs may seek out non-traditional or unlicensed lenders, which may include criminal groups, further exacerbating the predicament that people are facing.

How criminals use the crisis to exploit vulnerabilities in people and the system

Preying on vulnerable groups, such as the young and the over 70s

Lockdown has spurred a massive surge in domestic online activity and transactions, as people lose their physical connection with friends and family and are forced, through necessity to carry out day to day banking and shopping activities online. A significant number are ‘new to digital’ users, including the elderly reaching out to communicate and to transact online; minors engaging in remote learning; and massive spikes in subscribers looking to access online entertainment and streaming services. These users, characterised by a lack of experience and ‘online savviness’, are particularly vulnerable to scams and online harm. In May, FATF warned of the risk to children as they spend more time online for education purposes during lockdown, with some members reporting an increase in production and distribution of online child exploitation material. The inter-governmental body continued to highlight that lockdown and travel bans reportedly create increased demand for such illicit material.

Preying on people’s need for information and provisions during isolation

Lynne Owens, director general of the National Crime Agency (NCA), estimates that around 3% of all online scams, reported to the NCA, are now related to COVID-19 and highlights that online shopping fraud has risen by 46% since the start of the lockdown, “making it one of the biggest crime growth areas” in the UK.

Interpol’s COVID-19 threat assessment reveals that ‘fraudulent and counterfeit trade in personal protective equipment (PPE) and anti-viral pharmaceuticals’ is an emerging threat and reports on a marked increase of cyber threats, including malicious domains, malware and ransomware. FATF advice mirrors this, warning of criminals attempting to profit from COVID-19 through increased fraud activities such as impersonating officials, counterfeiting, including essential goods (medical supplies and medicines), and fundraising for fake charities and fraudulent investment scams, where individuals are duped into buying shares in publicly traded companies by falsely claiming the organisation has products that can cure COVID-19.

Michiel van Dyk, Head of the UNODC Global Programme against Money Laundering and Terrorist Financing, reports examples of cybercriminals embedding malware in fake news sites purporting to give updates on the spread of the virus; phishing scams that claim to offer a cure for the virus; online platforms set up to sell counterfeit or sub-standard medical equipment, surgical masks, hand sanitisers and COVID-19 test kits; and fundraising for fake charities via social media platforms. Van Dyk references one case in Singapore, where a criminal was convicted of having defrauded $7m in a business email compromise scam, relating to medical equipment[5]. According to Interpol, the seizure of more than 34,000 counterfeit and substandard items related to coronavirus and the arrest of 121 criminals[6], reported in March, is really only the tip of the iceberg.

By early May, over 500 coronavirus-related scams and over 2,000 criminal phishing attempts had been reported to UK fraud authorities, with total losses estimated at £1.6 million[7]. The NCA highlights a range of online scams[8] where criminals prey on people’s specific vulnerabilities during the crisis: posing as nurses on dating sites; offering fake or non-existent items for sale; and phishing emails offering tax refunds, a free TV licence for 6 months and others. CIFAS, the UK’s fraud prevention service also reports on shameful bereavement scams[9], where fraudsters target the relatives of people who have died from COVID-19, pretending to be debt collectors recovering debts incurred by the deceased, or else saying that they are from the local authority’s bereavement services team and require credit card details to pay their funeral director.

Preying on people’s need for vital services

Lord Mervyn King, ex-governor of the Bank of England, voices serious concern around the devastating potential impact of cybercrime on the UK economy – calling it ‘one of the biggest threats we face’. He refers not just to the disruption and cost – both reputational and financial – to organisations that suffer a cyberattack, but to the potentially catastrophic effect of an attack on critical infrastructure, such as health services or power supply, resulting in significant disruption and potentially significant economic damage and loss of life.[10]

Interpol’s recent COVID-19 threat assessment report recognises health service providers and suppliers of essential products as ‘critical infrastructure’. Its Cybercrime Threat Response Team has already detected a significant increase in attempted ransomware attacks against key organisations and infrastructure engaged in the virus response[11]: “Cybercriminals are using ransomware to hold hospitals and medical services digitally hostage, preventing them from accessing vital files and systems until a ransom is paid.”

Preying on individuals and companies desperate for financial support

The FBI warns that fraudsters are taking advantage of the uncertainty and fear surrounding the pandemic to steal from people and to access their personal and financial information. In addition, criminals are preying on people’s desperation and vulnerability as a result of losing their income, to recruit money mules to move illicit money for them, through fund transfers or even by moving physical cash. As Steven Merrill, head of the FBI’s Financial Crimes Section explains: “Money mules allow criminals to mask their identities, move money across country lines and avoid arousing the suspicions of financial institutions[12].” In the current climate, with many facing financial difficulties, people may be particularly susceptible to offers of quick ways to make money from home, such as acting as a mule, and may not necessarily see this as a criminal offence.

Interpol warns that individuals and businesses on reduced incomes are being targeted by loan sharks. In the UK, the Local Government Association (LGA), which represents councils in England and Wales, cautions “struggling borrowers… to steer clear of illegal loan sharks offering ‘quick cash fixes’ that will make their problems worse”, explaining that illegal money lenders may charge excessively high interest rates and rely on extortion and sometimes blackmail, violence and kidnap offences to claim back money owed to them[13].

“Exploiting the vulnerable is how crime gangs recruit support and increase their power”, reported Sky News[14] in April, drawing attention to how the Italian mafia is using the crisis for its own gain, just as it did back in 2008 during the financial crash. The mayor of Naples highlighted how the mafia supports families and companies during crisis, providing food and provisions to those in need and giving financial support to struggling businesses to exercise influence over individuals that they later leverage to coerce them into acting illegally on their behalf.

Lynne Owens[15] also points to the way organised crime gangs are exploiting coronavirus relief schemes in the UK, including those offered by the Department of Work & Pensions (DWP) and HMRC. She fears that “£1.5 billion has been lost to universal credit fraud alone.”

As Rob Buckland, Global Equity Strategist from Citigroup[16] points out, there’s a lot of cheap money being ploughed into the financial system through relatively crude policy instruments, as governments act quickly to support individuals and companies. This creates opportunity for fraudsters, who use information in the public domain to make fraudulent claims on government schemes, posing as legitimate businesses or individuals seeking financial assistance. Both FATF and FSRB members report that a small proportion of economic support directed to businesses and individuals may present potential fraud risks, and consequently money laundering. In particular, criminals can falsely claim to provide access to stimulus funds to obtain personal financial information. Criminals may also use professional enablers to make fraudulent claims on government stimulus funds by posing as legitimate businesses seeking assistance.

Exploiting migrants and other vulnerable workers

As Dan Wager, ex-FBI and now Vice President of Market Planning at LexisNexis Risk Solutions explains, travel restrictions and other limitations on the movement of people doesn’t prevent trafficking, in fact it simply makes the victims’ already desperate situation worse. FATF warns that the shutdown of workplaces, slowdown in the economy, rising unemployment, and financial insecurity are all factors that could result in an increase in human exploitation. Cheap, exploitable labour becomes an even more valuable commodity at this time since movement, and therefore supply of labour, is restricted. Add to that the complete disregard traffickers have for employment rules, minimum wages, and workers’ safety, and the risks to vulnerable individuals is clear. Interpol is currently monitoring and receiving information from all its member countries in relation to human trafficking and environmental crime. But as FATF also warned recently, the suspension or reduced activity of government agencies regularly engaged in detecting human trafficking cases and identifying victims of trafficking (including workplace inspectors and social and health care workers), means that cases may go undetected.[17]

Exploiting drug addicts, desperate for supplies

Restrictions on movement hasn’t prevented drug trafficking either. Dealers are circumventing lockdown restrictions, for example using counterfeit NHS IDs to move freely on public transport. Elsewhere, gangs are finding new routes to market; Interpol reports on “increased drug commerce via social media, encrypted apps and the Dark web.”

Deirdre Carwood, Forensics Partner at Deloitte in Ireland highlights a similar increase in drug smuggling there: “While authorities are being diverted to the frontline to deal with COVID, criminal gangs are using the opportunity to move large quantities of illegal drugs.” In June, the NCA reported the largest drug seizure ever made[18], in a joint operation with the PSNI in Ireland: 600kg of herbal cannabis detected in a lorry load of vegetables, with an estimated street value of £12 million. Similarly, in May “UK Border Force officials found 14kg of cocaine stashed among two consignments of face masks after stopping a van driver near Calais[19].”

Oleksiy Feschencko, also of the UNODC, points out that with travel restrictions in place, it’s harder for dealers to meet their customers so they’re finding new ways to distribute their drugs and launder their criminal proceeds. One way is by acquiring ailing food delivery businesses which then allows them to both continue distribution, operating under the guise of a legitimate enterprise, and to launder the proceeds. Another way, FATF highlights, is targeting real estate opportunities that can be acquired at a bargain and used as a legitimate front for laundering illicit proceeds. Deirdre Carwood and others warn legitimate businesses that now, more than ever, they need to do their due diligence and know who they’re dealing with. Drug dealers are finding numerous creative ways to adapt to lockdown: posing as joggers, using fake NHS IDs and “running bulk deals and selling lockdown party packs”. County lines gangs are recruiting online, using social media to groom their targets: “young people can become ensnared in dangerous gang activity from their phones while their families have no idea[20].” But despite the best efforts of criminals, drug supply chains have been disrupted by COVID. This creates its own problem for law enforcement, Dan Wager explains, as spiralling drug costs force end users to commit more petty crime to raise the funds and keep their supply flowing. 

Taking advantage of the chaos in financial and compliance systems

Newly-created and exploitable vulnerabilities are putting increased pressure on compliance teams, already struggling to maintain adequate processes and controls while contending with the added complications of working remotely. Criminal groups and even some legitimate but fraught businesses may attempt to take advantage of this disarray to circumvent controls to introduce illicit proceeds into the financial system. FATF members highlight that tax evasion and related crimes may increase as individuals and companies facing economic difficulties look to reduce their fiscal burdens. In addition, corporate insolvency proceedings can free up illicit cash contained in businesses whilst masking the funds’ origins.

UK law sector regulators – the SRA and Law Society of Scotland[21], urge firms to be more critical of all client activity at this time and to apply a risk-based approach. Smaller firms, in particular, they warn, might be especially vulnerable from several angles: clients transacting, knowingly or otherwise, with criminals; the temptation to move resources away from compliance, thereby exposing them to risk; or taking on areas of law they’re not familiar with.

FATF and FSRB also highlight the heightened risks of illicit  corporate and financial  market  activities,  such  as  insider  trading,  that  seek  to  profit  from  large  value  swings seen across global markets since the start of the pandemic. Also highlighted is the continuing money laundering and terrorist financing risks associated with virtual assets, with examples having already been seen of individuals using virtual assets to launder proceeds earned from COVID-19 related scams.

What can we do to protect society and stop the criminals from taking advantage?

“Be alert, look at the risk and make sure you know who you’re dealing with,” says Michiel van Dyk.

“In the current environment, it’s very likely there will be thousands of legitimate businesses who are desperate – suffering from a lack of business and lack of cash flow; facing closure – who will be approached to help launder the proceeds of crime,” explains Dan Wager. Their vulnerability puts them at higher risk of being coerced into activity they may know doesn’t feel right, but they might turn a blind eye to save their business. The same goes for individuals facing unemployment and economic hardship.

Aside from the fact that this enables the criminals to cleanse their dirty money, there is also a real risk that we allow criminals to syphon money out of our economy that could otherwise be put towards healthcare or government support schemes. By allowing this coercion to take place, we’re also permitting criminals to gain control of important institutions within our community: the buildings we live in, the shops we buy from, the restaurants we eat in, the law firms we rely on and trust.

COVID-19 has had far-reaching effects across the whole of society, with almost no corner left unscathed. While the impact of this crisis continues to be felt in our personal and professional lives, and is likely to continue doing so for some time to come, green shoots are beginning to appear – in falling infection rates, businesses and schools reopening and the hospitality industry starting to open up. As we edge towards ‘normality’, reaction naturally turns to reflection.  One of the clear themes to have emerged from the discussions with business across myriad sectors through the Facing Change series – is ‘change for good – for good’. It has been a time of unparalleled challenge and disruption, but businesses, and people are adapting. The move towards digitalisation, previously steady at best, has accelerated beyond expectation. The corporate world, and wider society with it, has had to come to terms with remote operating and transacting. The term work-life balance has been around for some time but it’s taken on new meaning in a way that was inconceivable a short time ago and in a way that is unlikely to return to the old ways in future – one example of the often cited ‘new normal’.

And so with pain comes progress. A wider acceptance of digital and remote working promises wholesale transformation of business and the wider economy – offering faster, more tailored services to a wider range of people. “A digital economy, a virtual economy, is a more resilient economy,” says Imran Gulamhuseinwala, the UK’s Open Banking implementation trustee. Of course, permanent change and long-term adoption of a digital economy is only possible if trust is present. Trust in the technology and the infrastructure to provide a safe environment in which consumers can transact. With this will come a stronger-than-ever reliance on robust KYC, identity and compliance mechanisms, to weed out and prevent fraud and money laundering and other bad actors from abusing the system. So businesses now, more than ever, have a clear incentive to invest in robust data-led solutions to manage their fraud, identity and compliance risks. In an increasingly digital world, data is king.

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[1] Facing Change: Interview with Lord Mervyn King

[2] Facing Change: Interview with Michiel van Dyk, UNODC

[3] Facing Change: Interview with Graham Mackenzie, Law Society of Scotland; Colette Best, Solicitors Regulation Authority

[4] YouGov survey 2019

[5] Facing Change: Interview with Michiel van Dyk, UNODC

[6] https://www.ibtimes.sg/interpol-seizes-34000-fake-face-masks-arrests-121-criminals-amid-coronavirus-outbreak-41403

[7] https://timesofmalta.com/articles/view/financial-crime-increases-in-a-global-crisis.791249

[8] As reported in yahoo! news

[9] https://www.cifas.org.uk/newsroom/Cifas-weekly-coronavirus-scam-update-29-05-2020

[10] Facing Change: Interview with Lord Meryn King

[11] https://www.interpol.int/News-and-Events/News/2020/Cybercriminals-targeting-critical-healthcare-institutions-with-ransomware

[12] https://www.nbcnews.com/news/us-news/fbi-warns-money-mule-schemes-exploiting-covid-19-pandemic-n1180581

[13] Yahoo! Finance news

[14] https://news.sky.com/story/coronavirus-mafia-poised-to-exploit-vulnerable-people-during-covid-19-pandemic-11980834

[15] https://www.thetimes.co.uk/article/crime-gangs-exploit-crisis-to-steal-1-5bn-in-benefits-fraud-b0t6fzw3h

[16] Facing Change: Interview Rob Buckland, Citigroup

[17] FATF: COVID-19-related Money Laundering and Terrorist Financing Risks and Policy Responses: https://www.fatf-gafi.org/publications/fatfgeneral/documents/covid-19-ml-tf.html

[18] https://www.irishnews.com/news/northernirelandnews/2020/06/04/news/three-arrests-after-national-crime-agency-s-largest-ever-drug-seizure-in-north-1963616/

[19] https://www.theguardian.com/society/2020/may/07/drug-dealers-posing-joggers-nhs-staff-covid-19-lockdown

[20] https://www.bbc.co.uk/news/uk-52535549

[21] Facing Change: Interview with Colette Best, Solicitors Regulation Authority; Graham Mackenzie, Law society of Scotland