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The COVID-19 financial crime risks

Renata Galvao
Renata Galvao
Refinitiv World-Check Research Manager, Africa Region
Lisa Walters
Lisa Walters
Refinitiv World-Check Research Manager, North America
Donovan Guedes
Donovan Guedes
Refinitiv World-Check Research Manager, Central Europe

Supply chain fraud, cyber crime and investment scams are some of the ways criminals can take advantage of the current pandemic crisis. What due diligence measures should organizations be taking to cut their COVID-19 financial crime risks?

  1. Heightened COVID-19 financial crime risks mean that organizations need to be ‘online smart’ and adopt stringent due diligence measures to safeguard data and resources.
  2. Supply scams are especially prevalent in the healthcare sector as companies have struggled to identify legitimate suppliers of medicines and equipment.
  3. The combination of trusted data and a risk-based approach is needed to address the challenges posed by COVID-19 financial crime risks. 

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The world appears to have come to a standstill, but criminals are using this opportunity to increase their illicit activities and profit from the COVID-19 pandemic. This is the time to remain hyper-vigilant.

Listen to our recent Webinar ‘Is your supply chain dynamic enough to deal with COVID-19?’ for insight into the challenges faced by companies in during the pandemic and how Refinitiv can assist.

Covid-19 case statistics. The COVID-19 financial crime risks

The need for self-isolation has significantly changed how we conduct business and interact with one another. It has resulted in a dramatic increase in online activity, which in turn leaves us vulnerable to criminals looking to exploit the sudden and extensive digitalization of personal and professional lives.

A new report by Europol reveals that organized crime networks are adjusting their modus operandi to virtual opportunities enhanced by the COVID-19 pandemic. Cyber crime, fraud and counterfeits of medical equipment are a few of the crime trends highlighted by the government agency.

COVID-19 financial crime

Interpol has also reported a rise in the number of websites selling fake protective products, including face masks, sub-standard hand sanitizers and unauthorized anti-viral medication.

As many businesses adopt virtual working environments or permit new connections to their systems, the FBI has been alerted to an increase in the number of criminals trying to steal personal and intellectual property information.

This is often through phishing emails claiming to be from the Centers for Disease Control and Prevention or other organizations responsible for providing information relating to COVID-19.

These COVID-19 financial crime risks mean that we need to become “online smart” and adopt stringent measures to safeguard our data and resources.

Operational and regulatory risks

As countries declare states of emergency and new legislation comes into force to tackle the issues arising from the pandemic, keeping up with the current regulatory landscape has become more important than ever.

The strict self-isolation measures adopted by many governments around the globe have forced many companies into continuity plans. This has substantially affected overall business processes, including the onboarding of new clients and suppliers.

Refinitiv Qual-ID. The COVID-19 financial crime risks

Financial institutions, for example, have been faced with the compelling need to move work operations online, and while this presents a unique opportunity to explore the digital onboarding of clients, trusted and secure solutions must be adopted in order avoid cyber security threats and identity fraud.

The global disruption in supply chains has also forced organizations to source and secure new suppliers. Despite the urgency of finding new business partners, effective due diligence measures should not be compromised as third-party risks rise.

Supply chain fraud

The Department of Justice has warned against a growing number of supply scams, in which fraudsters are pocketing money and never delivering the promised products.

In one example, Europol reportedly investigated a transfer of 6.6 million euros from a European company to a supplier in Singapore selling alcohol gels and protective masks. The goods were allegedly never received.

In another case, it was reported that an attempted purchase of 3.85 million masks resulted in a loss of 300,000 euros by an organization that also fell victim to a supply scam.

Supply scam risk is especially prevalent in the healthcare sector. In the face of extraordinary demand for medicines and equipment to help contain the spread of the virus, many companies have struggled to identify legitimate suppliers.

Despite these significant risks, research from a newly released report from Refinitiv indicates the mean percentage of companies in the healthcare sector carrying out due diligence at only 50 percent, which is seven percent below the total for all sectors surveyed.

The Real Risks: Hidden threats within third-party relationships

Bribery and corruption concerns

The healthcare sector is also at risk of falling victim to bribery and corruption. According to a report by Transparency International (TI), corruption often thrives during times of crisis.

The procurement of medicines and supplies is a particularly vulnerable area:

  • The UN Office on Drugs and Crime has found that between 10 percent and 25 percent of the money spent globally on procurement is lost to corruption.
  • In Europe, 28 percent of health corruption cases are related to the procurement process for medical equipment.

The figures provided by TI, pre-date the current crisis, and the situation is likely to exacerbate as a growing shortage of supplies unfolds.

Not only can governments fall victim to scams, but other concerns such as price gouging may arise, leaving hospitals having to choose between paying inflated amounts, or fighting a pandemic without basic materials to protect their healthcare workers.

Principles for effective ABC management. The COVID-19 financial crime risks

Investment scam risks

While different types of businesses are facing temporary closure and loss of revenue, investments in the medical industry seem to be expanding. Forbes suggests healthcare is one of the 20 sectors to invest in during the coronavirus economy.

However, criminals are attentive to such distinctive opportunities and investment scams are growing. Consequently, security commissions in the U.S are warning investors about companies claiming to have products or services that will prevent, detect or cure COVID-19.

The Department of Justice has also warned against “research reports” that make predictions on microcap stocks, or low-priced stocks issued by companies with limited publicly available information.

Third-party due diligence quote. The COVID-19 financial crime risks

Value of a risk-based approach

Against this backdrop of increasing supply chain and investment scams, and growing online financial crime, trusted data has become more important than ever as the key tool to help mitigate risk while exploring new opportunities.

Despite the fact that onboarding new suppliers may be urgent as a result of current demand considerations, due diligence measures cannot be compromised given ever-increasing reports of fraud and corruption.

This is where reliable, trusted data becomes a critical tool for compliance and risk mitigation in line with a best practice, risk-based approach (RBA).

In a statement issued by the Financial Action Task Force, the adoption of the RBA is encouraged in order to address the challenges posed by COVID-19 while remaining alert to new and emerging illicit finance risks.

As the world grapples with a ‘new normal’ defined by uncertainty and fear, keeping a step ahead of financial criminals has never been more important.

With the right data, tools and insights, we can make better decisions and protect our societies, our organizations and ourselves against ever-increasing crime and corruption.

Listen to our recent Webinar ‘Is your supply chain dynamic enough to deal with COVID-19?’ for insight into the challenges faced by companies in during the pandemic and how Refinitiv can assist.

Webinar: Is your supply chain dynamic enough to deal with COVID-19? The COVID-19 financial crime risks

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