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Coronavirus and Financial Crime

  • by Becki LaPorte
  • Mar 19, 2020

In the past weeks, COVID-19 (“Coronavirus”) has affected nearly every aspect of day-to-day life. To combat the pandemic, businesses have already taken many steps. Most have needed to work toward constant cleanliness and reassure customers through email. The travel industry has offered incentives for customers to keep traveling, while constantly providing updates on the virus. Business emails, news programs, social media and even grocery store small talk cannot avoid the topic. As such, people around the world have given and received information and advice on almost every facet of the virus, from preventative measures and latest cancellations to the status of toilet paper at Costco.

Sometimes it seems as if there is as much misinformation as there is information. While most of us do our best to filter through the advice they find helpful or ludicrous, that general sense of public unease and concern offers an opportunity for scammers to shine. Financial institutions must consider whether they are inoculating themselves for the onslaught of crime designed to take advantage of the confusion.

The Virus of Coronavirus Scams

Financial institutions might think that COVID-19 is out of their control or focus. But amid the chaos and confusion,  it is the duty of all financial institutions to protect customers from the scams that have likely already started.

Scammers are opportunistic. They feed on panic and fear. For instance, scams flourish right after natural disasters (e.g., hurricanes, earthquakes) and scammers will pull on victims’ heart strings to encourage them to donate to a “worthy cause.” In reality, that money does not support victims, but rather the scammers and their network. Scammers command a sense of urgency and panic to extort money from countless individuals.

Common COVID-19 Cons

Scammers host an arsenal of fraud tactics during times like these, but here are a few common cons that your institution should be aware of:

  • Fraudsters might claim a relative or friend is stuck in a foreign country and can only get home if one immediately wires funds to a random bank account. According to the fraudulent claim, without those funds the person will be incarcerated in a foreign prison.
  • Similarly, another common scam supposedly places victims on a list “leading to incarceration,” e.g. a bogus FBI or IRS list. It should come as no surprise that paying fees will get that victim off the list. Financial crime experts could fill libraries with scams they have encountered and victims that have been harmed.
  • In addition, there are likely shell companies already created with agents telling potential victims that they are working to find a virus cure and are just waiting on FDA approval or something similar that sounds “official.” They claim that a person can get in on the ground floor and invest with these companies. From there, the company would send some restricted stock to make the person wealthy. Really, they are probably orchestrating a Ponzi scheme or boiler room and perpetrating fraud
  • Finally, your institution’s brand might be used in an “alert” to customers stating that their bank account has been temporarily suspended. The victim will receive a link that looks like their bank’s login screen, encouraging them to login with their banking username and password. In reality, this screen allows criminals to collect the victim’s personal banking information.

How Can Institutions Protect Themselves and Their Customers From COVID-19 Scams?

While it’s true that the frequency of coronavirus scams is likely to accelerate with the virus itself, it is up to financial institutions to take the necessary steps to thwart them. It is important to understand that these scams aren’t just a nuisance to your customers; they affect your profits and reputation as well.

Use these best practices to ensure your organization and customers stay safe:

1. Identify Vulnerabilities: Organizations must first outline internal vulnerabilities. Based upon an institution’s business model, where do points of entry for scammers exist? Are their customers who are particularly vulnerable to falling victim to scammers? Financial institutions must build controls around the vulnerabilities in their model. Next, they must conduct heightened due diligence on new products and clients, taking extra care with customers who claim to have additional cash flow (both incoming and outgoing) due to the pandemic. Now may be a good time to confirm the adequacy of transaction monitoring systems as well.

2. Customer and Employee Education: Education of staff and customers is critical. Once an organization determines where and how scams can occur, it should inform its staff about red flags and what to look for. Many of these scams are tried and true. Therefore, an institution may simply need to swap out the natural disaster language with pandemic language. This should be added to discussions around the functioning of advance fee schemes. It is also helpful to train staff and customers to maintain healthy skepticism surrounding new companies addressing the pandemic. This can be accomplished with customers through messaging about protecting themselves from scams as well as addressing proper cleanliness practices. Institutions can also list educational tips on their website. As with most issues, knowledge is power.

3. Stay Calm and Informed: Financial institutions should also stay current on the evolving pandemic and exercise appropriate caution. Although it can be difficult to wade through the ongoing media onslaught, they must remain informed about news in their communities. Keeping an eye on what is happening empowers organizations to determine paths to legitimate support networks. For example, a random email or fundraising phone call could likely be linked to a scam. By contrast, the local school board raising funds to provide free lunches during school closures is likely legitimate.

4. Partner Up: Partnering with financial crime professionals in one’s network will lead to more success. Even institution leaders who feel they have seen it all likely haven’t in this case. Opening a dialogue with professional social media contacts, professional organization colleagues or even other community businesses (e.g., the local chamber of commerce or Rotary partners) can be a helpful method to learn best practices.

Keeping that ongoing dialogue, along with education and partnership, are great ways to prevent and detect scams. As financial institutions discuss this pandemic, they must remember to look at it through professional eyes and ensure they protect employees and customers. Doing so during these times of stress and misinformation can help them best prevent Coronavirus scams.

Becki LaPorte serves as compliance director for CSI’s Regulatory Compliance Group. She has over 20 years of experience in the financial services industry, including compliance, conducting investigations, developing and delivering comprehensive training, and consulting on program development and implementation. Becki is CAMS and CFCS certified.