How money launderers are exploiting know your customer (KYC) checks and using the pandemic as a ruse to move money
The restrictions following the global pandemic have introduced myriad new challenges into every area of our lives and business operations. However, for some, it has been business as usual.
Organised crime has continued to flourish in the ‘COVID world’. Drugs and people trafficking linked to sectors like food production and the sex industry have not gone away and the ugliest side of money laundering still remains.
Organised criminals have also taken advantage of how COVID has accelerated the digital agenda around the world. While most firms were travelling in a digital direction for client onboarding well before COVID, the pandemic has accelerated this move rapidly.
In fact, it has offered up new opportunities for fraudulent activity, particularly in relation to account openings and new relationships with regulated firms, where for the first time, customers cannot be met face-to-face.
As such, those involved in money laundering are seeking to exploit the know your customer (KYC) checks on a regular basis.
There are many examples of firms where these checks and measures have turned out not to be sufficiently robust. Asking new customers to hold up a photo on a screen is simply not enough (and yes it has been done)!
The perfect cover
COVID is also being used as a new cover story to move money: criminals are now exploring different and emerging industries to launder cash such as medical or healthcare supplies.
To mitigate this, regulated firms need to take time to understand a customer’s financial and trading history. If they have never had a track record in PPE provision for example, it’s time to ask questions concerning the source of funds.
An enterprising move suddenly profiting from medical supplies, may be a cover to move illicit cash around the world, made from underlying criminal activity.
As organised criminals have adapted, so must regulated firms. Processes need to be updated. Some have put waivers in place which can be helpful. However, it’s important to ensure waivers do not expose firms and don’t antagonise innocent customers and create a negative experience.
Firms also need to be clear what exceptions have been implemented for the benefit of regulators. Overall, many regulators have been extremely helpful during the COVID crisis and are happy to discuss exceptions, including what actions are viable and reasonable.
A role for data and analytics
Technology can also play its part to help with AML controls. AI and machine learning - and its implementation - means it’s now possible for organisations to explore more automated solutions to help confirm if the source of customer wealth is plausible.
The rise in big data can detect criminal networks by something as simple as a linked mobile phone number. In addition, automated systems can now be deployed to detect and screen for unusual activity.
While technology evolves all the time and it’s possible to buy off-the-shelf, its use often needs to be fine-tuned – if not, it can still generate volumes of poor information and poor results.
It’s helpful to find out how other organisations are operating the latest tech, as mistakes can be costly.
New environment, new skills
As well as improved procedures and technology implementation, the modern-day compliance officer needs to develop their skill set. Influencing skills are needed to guide and affect business leaders.
Risk and compliance officers need to be outward looking too, seeing trends, understanding the new technology and anticipating what’s coming their way, as threats and new opportunities for criminal activity evolve so rapidly.
Networking with other compliance professionals to share knowledge and best practice is important.
The best compliance officers have always needed to understand the rules. But now, they must also understand their business inside out. They must identify the risks, appreciate how technology’s role is evolving to manage those risks, and ensure staff – at all levels – are aware of what risks may look like.
Critical thinking is required to put issues into the bigger context, and this is demanding. It’s a tough trade but at the end of the day, a job done well means preventing criminal activity in our new COVID world and it doesn’t get much better than that.
Pekka Dare is vice president, International Compliance Association (ICA)
For further information about ICA please visit ICA Essentials Anti Money Laundering (int-comp.org)