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FinCEN provides guidance regarding fraud associated with the pandemic
INSIGHT ARTICLE |
Since the World Health Organization declared the COVID-19 outbreak a global pandemic in mid-March, scammers have been taking advantage of financial institutions’ fears surrounding COVID-19.
Several agencies have reported an increase in coronavirus scams as a means to exploit consumers via the internet (including social media), emails and texts. Specifically, scammers are impersonating the U.S. Centers for Disease Control and Prevention and the WHO through these various channels. Additionally, fraudulent health products and medical treatments are being marketed to consumers as cures for COVID-19.
Based on the increase in fraudulent activity related to COVID-19, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a press release concerning the pandemic on March 16. That release included information related to potential delays by financial institutions in filing required Bank Secrecy Act reports and information related to how financial institutions can remain alert in identifying malicious or fraudulent transactions, which often arise during natural disasters.
First, FinCEN advises financial institutions affected by the COVID-19 pandemic to contact them and their functional regulator as soon as practical if there are concerns regarding potential delays in their ability to file required BSA reports. Financial institutions seeking to contact FinCEN should call its Regulatory Support Section (RSS) at +1 800 949 2732 and select option 6 or email FRC@fincen.gov.
Second, FinCEN advises financial institutions to remain alert about potential illicit behavior and fraud associated with COVID-19. FinCEN identified the following four emerging trends:
- Impostor scams: Bad actors attempting to solicit donations, steal personal information or distribute malware by impersonating government agencies, international organizations or health care organizations.
- Investment scams: The Securities and Exchange Commission urged investors to be wary of COVID-19-related investment scams, such as promotions that falsely claim the products or services of publicly traded companies can prevent, detect or cure the coronavirus.
- Product scams: The Federal Trade Commission and Food and Drug Administration have issued public statements and warning letters to companies selling unapproved or misbranded products making false health claims pertaining to COVID-19. Additionally, FinCEN has received reports regarding fraudulent marketing of COVID-19-related supplies, such as certain face masks.
- Insider trading: FinCEN has received reports regarding suspected COVID-19-related insider trading.
In addition to the scams noted above, other areas of concern through multiple sources include:
- Illicit financial flows: Tremendous increases in government spending to obtain resources, services and foreign assistance, often without enough transparency and oversight, can lead to bribes, kickbacks, contract malfeasance, misappropriation of funds, etc. Meanwhile, criminal organizations will still engage in money laundering and other illicit financial activity to maintain their criminal supply chains.
- Limited regulatory oversight: Given current quarantine considerations, many regulators are unable to conduct their oversight activities at usual levels. The Federal Reserve has already announced it will temporarily reduce its bank examination activities, while Canada is now triaging its money laundering reporting.
- Customer due diligence limitation: Conducting due diligence of customers may be limited or not feasible due to quarantine restrictions.
- Shell companies and foundations: Ending anonymous corporate ownership, the standard tools used for money laundering, is critical to mitigating illicit financial flows, including frauds and scams related to the coronavirus.
FinCEN referred financial institutions to FIN-2017-A007 “Advisory to Financial Institutions Regarding Disaster-Related Fraud” (Oct. 31, 2017) for descriptions of other relevant typologies, such as benefits fraud, charities fraud and cyber-related fraud.
In the event suspected suspicious transactions are linked to COVID-19, individuals preparing suspicious activity reports (SAR) should check the appropriate SAR-template box(es) for certain typologies, and FinCEN also encourages financial institutions to enter “COVID19” in Field 2 of the template.
Financial institutions should remain vigilant during the pandemic and develop additional controls and contingency plans as necessary to continue monitoring for potential illicit behavior alerts in accordance with regulations and policy. Additionally, authorities encourage financial institutions to find creative ways to conduct customer due diligence, including developing new protocols for compliance against money laundering so employees can work from home while securing company and customer private information. If any COVID-19-related delays arise, contact FinCEN and functional regulators as soon as possible.
- The Financial Crimes Enforcement Network (FinCEN) Encourages Financial Institutions to Communicate Concerns Related to the Coronavirus Disease 2019 (COVID-19) and to Remain Alert to Related Illicit Financial Activity
- Coronavirus: Scammers follow the headlines
- WHO statement concerning impostor scams
- SEC notice on COVID-19 related investment scams
- FTC and FDA joint updated statement concerning product scams
- FDA statement concerning product scams
- FIN-2017-A007- Advisory to Financial Institutions Regarding Disaster-Related Fraud (Oct. 31, 2017)
This article was written by RSM US LLP and originally appeared on 2020-05-06.
2020 RSM US LLP. All rights reserved.
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