From 11 to 13 January, K2 Integrity’s experts participated in several panels at the ABA/ABA Financial Crimes Enforcement Conference. Below is an overview of insights delivered by Ray Dookhie in a session on Post-COVID Financial Crimes Strategy, with Ray Villanueva, Special Agent in Charge of Homeland Security Investigations (HSI).

Since the beginning of the pandemic, fraudsters have stolen hundreds of millions of dollars of funds intended to relieve stressors on individuals and entities around the world. The schemes have ranged from iterations of financial fraud such as bank fraud, unemployment fraud, and price gouging to fake vaccinations and vaccine record cards.

Financial institutions have been at the center of pandemic economic recovery efforts such as the Paycheck Protection Program (PPP), unemployment compensation, and more. This required financial institutions to adapt programs and processes to address new products and related risks—including the increase in fraud.

While the tales of fraud are countless—from PPP funds spent on luxury goods to falsified claims for unemployment compensation—there are steps financial institutions can take to lessen their exposure to such risks.

“Criminals have adjusted to the COVID-19 environment,” said Ray Villanueva, Special Agent in Charge of HSI Washington, D.C. Field Office. “The Anti-Money Laundering (AML) community, including law enforcement and private sector partners, must continue to adapt and to implement innovative ideas into this ever-changing environment. Working together, we will remain ahead of fraudsters, especially those seeking to exploit our financial system.”

Mitigation Efforts for Financial Institutions

By enhancing existing efforts and supplementing with new tactics, financial institutions can increase their defenses against growing risks. These efforts can include:

  • Re‐evaluate risk assessments and risk appetite: New products and services require an updated risk assessment, as they introduce new vulnerabilities to an organization. Financial institutions should reassess their risk profiles and risk appetites and adjust protocols to allow for efficiencies in due diligence, investigations, and risk management processes.
  • Reinforce KYC efforts: While fast and immediate support and stimulus to the national economy is needed, participation in such efforts does not give financial institutions a KYC or Enhanced Due Diligence (EDD) waiver. To meet the potential exposure of new products, and to avoid operational, reputational, and concentration risks, these crucial steps cannot be bypassed and should be monitored closely.
  • Expand and improve communication with teams: During times of uncertainty, communication is essential to help manage risk. As new risks emerge, and new fraud typologies surface, training will help teams understand the key risk factors to be aware of, and how to manage them when they arise. Compliance teams should assess and tweak their ongoing training needs in light of the evolving environment.
  • Enhance surveillance programs for COVID-related fraud detection: Regulators are imploring financial institutions to enhance surveillance programs to identify and report COVID related frauds, or file suspicious activity reports (SARs) when applicable. As the ongoing effects of COVID-19 continue to impact the business community, financial institutions must be on high alert and communicate with appropriate parties about the risks and threats they are facing.

Bad actors are nimble and adapt to their environment. As a result, collaboration between the private and the public sector is critical to staying ahead of fraudulent activity. Entities in the private sector are the “first responders” to fraud and financial crime, and are strategically positioned to support and mitigate these crimes—while also communicating these efforts and trends to law enforcement and regulators to help inform the broader financial services ecosystem. While financial crime and fraud risks continue to change and grow, entities can stay one step ahead by taking proactive steps to mitigate key challenges.