5 ways to tackle fraud during this financial crisis

Find out about the types of fraud and money laundering schemes arising from the current financial crisis, then figure out what to do about them.

Posted by: 
Alexis Fox-Mills
  |  
May 13, 2020

May 13, 2020

There are new types of fraud and different money laundering schemes arising from the current financial crisis. What are they and what should you do about them?

Here's a place to start.

We put together a list of 5 things to be aware of and to do about the latest risks rearing their ugly heads amidst the chaos of COVID.

1) Same fraud, new mask

Many of the scams being carried out during the COVID-19 crisis aren’t actually new at all. They are just wearing a different mask.

For example, advanced fee-fraud is on the rise. Businesses or individuals are asked to pay a fee before receiving products and services which never actually arrive. The Organised Crime and Corruption Reporting Project recently revealed an issue related to fake face mask orders - and this same type of fraud has been recorded several times on a worldwide scale.

When it comes to understanding what risks you may be subject to, make sure you’re able to garner insight from your own data about types of emerging fraud, so you can react quickly.

Use the intelligence you have on-hand in your internal control systems to plug data back into your risk models, benchmarks and management processes. This will help you learn and then make improvements.

2) Communicate with customers

During a time of volatility and change, fraudsters morph scams to capture more victims in different ways. Ensure you are aware of the types of fraud that may affect your clients. Europol is a good place to start when it comes to understand different typologies.

Then it's important to communicate with clients about the types of scams they could be vulnerable to; how they are being adapted; what to look and listen out for; and how you want them to react to attempted fraud.

The most common scams being adapted right now are romance and empathy scams. These are the types of fraud that involve sending money to a "sham partner" or friend to help them buy protective equipment, for example, or to help them get medical help for themselves or their families suffering from Coronavirus.

This process of acknowledgment and communication is also important in deterring "bad actors". You are telling them you are aware of their changing threats, that you are monitoring them continuously and ensuring your clients are protected.

3) Beware misinterpreting activity right now

Watch out for "false positives" coming from your control systems. It could be easy to misinterpret financial behaviour because of the unusual financial circumstances people are in.

Nearly everyone is spending differently and many people are making general adjustments that could manifest in “odd” behaviour. However, that behaviour may be perfectly justifiable in the current environment. For example, a big uplift in online spending is to be expected or many more contactless transactions than normal.

Customers shouldn’t be penalised for doing things differently, especially as they may need access to credit now as never before.

4) Validating customer data

KYC, KYB, AML and other customer due diligence checks have always been crucial to financial services businesses and those operating in regulated markets. It’s more important than ever to validate and scrutinise the data coming in about individuals and companies applying for credit and other financial products.

It's important to carry out risk checking beyond due diligence as well. There maybe good reason to re-run checks. Those who previously wouldn't have been tempted to act nefariously, as a money mule for example, are now under financial pressure due to job losses and redundancy. So, what they would have considered unthinkable yesterday has become a possibility today.

The way to control this potential risk, and weed out threats of money laundering, is to get valid data sources that verify individuals and businesses are legitimate. Create a single source of truth around customer data that's hosted in the cloud and which is always up to date and always live.

NB - There is still an increased likelihood of “bad” behaviour, so use your compliance and risk teams to collaborate (even if that's virtually) on suspicious activity and on various cases to build up an accurate picture of possible risk across your business.

5) Time for a tech review?

Think about your current approach to customer lifecycle management (CLM), the length of time disruption could last and the fact this scenario could recur.

There are some critical questions to ask of your processes and the technology you are using. You need to know you can rely on tech to do the heavy-lifting through automation so your team can do the value-added activity. Compliance teams should be able to focus on enhanced due diligence, escalations and the all important "sniff tests" if your CLM system is automating the bulk of onboarding, ongoing risk management and off-boarding.

Ask...

  • How adaptable has your CLM system been in this crisis?
  • Are you cloud-based or dealing with issues of on-prem software?
  • Have you found it easy to get the data you need to assess new threats?
  • Have your team been able to collaborate on cases in one platform?

When you have answers to these questions, you can decide what action to take to improve your tech and control new threats.

Summing up

There are potentially lasting implications for how we and society behave following the situation created by COVID-19. What this does for businesses though is provide the opportunity for creativity and re-setting boundaries around what’s done and what is possible through technology and people.

New solutions and new ways of thinking are essential, which means it’s a good time to research, gather information and talk to providers about technical solutions to fight money laundering and fraud, and manage ongoing risk and compliance.

Other resources

Listen to an on-demand playback of the online event we held with N26's FinCrime Manager and Credit Kudos' CEO in April. They'll give you a run through of what they are experiencing, practical tips on where to get official guidance and how they are dealing with fraud and AML.

Get in touch

PassFort can give you a full customer lifecycle management tool. From onboarding to risk management to off-boarding, run the checks you need, keep up-to-date on individual or company status and make risk-based decisions about all your accounts.

Get in touch any time, we would love to hear from you.

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