Money Laundering Trends in a Pandemic World: Reporting Entities, COVID-19 and Anti-Money Laundering Procedures

Risks associated with money laundering and terrorist financing are expected to increase substantially due to the COVID-19 pandemic, impacting how financial transactions and related activities will be conducted in the near future. Criminals and vehicles of money laundering activity are constantly evolving, thereby challenging reporting entities, law enforcement and regulatory bodies to find more effective ways to detect and deter them.

It is imperative reporting entities* are aware of the risks a post-pandemic world will pose to anti-money laundering (AML) client and transaction monitoring efforts and are prepared to effectively mitigate them.

Money laundering trends and typologies

The most effective and efficient AML transaction monitoring rules are tailored to detect activity indicative of the commission or attempted commission of a money laundering or terrorist financing offence, while producing a minimal number of false positives. To achieve this, a reporting entity’s AML programs must reflect the typologies and risk factors the business is exposed to at a given point in time. Based on the impact of COVID-19, it is imperative reporting entities re-assess their AML procedures to capture new forms of risks and typologies to avoid triggering regulatory concerns.

As expected, deposit-taking reporting entities will likely experience a reduction in cash-related activity in the short- to medium-term; this trend will also likely extend to the use of negotiable instruments like cheques, drafts and money orders. Money services businesses are also likely to adapt their operational set-up to favour online / non-face-to-face interactions as they ramp up. This will require reporting entities to update their existing platforms to detect these new or evolved scenarios as paper and in-person transactions decrease in volume.

Areas of concern

As a result of the COVID-19 pandemic, reporting entities should consider the following factors when monitoring transactional patterns and consumer behavior for suspicious behaviour:

Cyber Related Attacks – As a result of the increase in online activity, there has been a rise in phishing scams, spear phishing, identity theft and other cyber-related fraudulent activity, many targeting emergency government support programs, according to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

Online Scams – Online shopping scams are likely going to increase as a result of the rise in demand for COVID-19 related supplies. These scams often involve criminals looking to sell fake or non-existent supplies to unsuspecting shoppers. These fraudsters can sometimes rely on their bank accounts to receive these illicit funds in various ways e.g. email money transfers, domestic wire transfers, etc.

High Risk Products – Value and volume thresholds on high-risk products like electronic funds transfers (EFTs) are likely going to require a reassessment due to the expected changes in customer behaviour favouring contactless payments.

Smurfing – Watch out for a likely rise in the use of smurfs (the use of multiple individuals and / or multiple transactions just under the reporting threshold) and money mules as a result of the rise in unemployment, which might lead to more sophisticated ways of evading conventional AML rules
on smurfing.

Crowd Funding, Donations and Charity Scams – This activity is expected to increase as the pandemic presents a myriad of vulnerable avenues to exploit, from healthcare needs to personal and financial needs. This is also likely to impact existing anti-terrorist financing efforts.

Human Trafficking – This is likely going to expand digitally to cover sex exploitation and trafficking. Reporting entities are expected to prepare for a surge in inventive ways in which criminals are going to attempt to move these funds within the financial system to evade detection.

Increased Use of Virtual Currencies – The decline in cash transactions facilitated by a drastic reduction in face-to-face transactional activity presents an avenue for fraudsters to leverage the multiple advantages of transacting in virtual currencies.

How MNP can help

MNP’s dedicated AML professionals have developed and assessed the effectiveness of hundreds of AML compliance programs, payment service providers, financial technology businesses and other FINTRAC reporting entities to the satisfaction of the regulators and financial service partners.

We can help you:

• Review your risk assessment manual for adequacy
• Review and tune your transaction monitoring rule for efficiency gains
• Identify whether your business is a reporting entity under the AML Regulations
• Test the effectiveness of your AML compliance program
• Conduct transactions monitoring review

For more information, contact:

Mondiu Jaiyesimi, BSc., MSc., CAMS, CBP
Forensics and Litigation Support, 
647.475.4500
[email protected]

Sara Chambers, CPA, CFE, CAMS, CFF
Investigative and Forensic Services
403.536.5582
[email protected]

Corey Anne Bloom, FCPA, CA•IFA, CFF, CFE, ACFE Regent Emeritus
Forensics and Litigation Support
514.228.7863
[email protected]