AML RightSource
Back in 2008, during an interview with Wall Street Journal, then-President-Elect Obama’s Chief of staff, Rahm Emanuel said ‘You never want a serious crisis to go to waste.’ While he meant that the silver lining to catastrophes can be that they often let leaders take necessary steps that would not have been possible during normalcy, the findings from the recent Corruptions Perception Index 2020 (CPI) report by Transparency International do suggest that a good crisis can often be an early Christmas for those who dabble in exploiting it to the fullest for financial gain.
CPI 2020 – What it is and what it isn’t
Without deviating too much from the trend from previous years, more than two-thirds of the nations scored less than 50. New Zealand and Denmark are tied at the top as the least corrupt countries, both having scored 88. They are followed by Finland, Switzerland, Singapore and Sweden with 85 points each. South Sudan and Somalia shared the lowest rank, both having scored 12 on the index.
The index does not measure private sector corruption, as the methodology to measure both public and private sector are vastly different, and combining them using a ‘one size fits all’ methodology would compromise the statistical and conceptual coherence of the index. This does not however mean that the countries scoring well are free from all kinds of corrupt practices.
How COVID-19 acted as the catalyst for corrupt practices
When the pandemic hit in 2020, it not only manifested as a health emergency but also as an economic catastrophe for many. Millions of people lost their jobs, markets came to a standstill overnight and most nations did not have the adequate infrastructure in place for people to smoothly slide into the work from home routine.
On top of that, law enforcement in countries (even those that scored above 40 on the corruption index) had to change gear and shift their priorities to tackle COVID-related situations. Proper investigating agencies and taskforces across nations saw time and money being diverted towards COVID-related lapses in the “new laws”. This naturally gave some breathing room to fraudsters, white-collar criminals and money launderers, who suddenly did not see an army of lawyers, guns and badges chasing them, at least not at the same scale as pre-pandemic times.
Rise in financial crimes in 2020
The COVID-19 crisis was not wasted by criminals. Interpol even issued a global threat assessment of crime to its 194 member nations. It noticed a significant spike in targeted malware and ransomware attacks, which were more likely to happen because people were spending more time online, thanks to lockdowns. Cyber-security firm, Carbon Black, noted that there was a 148% rise in cyber-crime in March 2020 from the previous month’s figures. The Financial Action Task Force has also highlighted in their report a rise in money laundering and terrorist financing, that were riding the coronavirus tidal wave. Even Google reported 18 million daily phishing links and emails with COVID-19 relief or finance-related themes in early April of 2020. An unforeseen and unpredictable pandemic was the perfect weapon to cripple the monitoring processes of law enforcement agencies.
Money laundering 2.0
Just like drug cartels often use drug mules to ferry contraband across international borders and check-posts, and the new money launderer has found a financial mule a.k.a., the ‘money mule’. Criminals set up fake NGOs that accept donations under the guise of something like COVID relief or distribution of free vaccines, and then put out job advertisements for customer support for such companies. An unaware person applies for it, gets the job, and after a couple of harmless pen-pushing tasks, they are asked to receive a “donation” which they have to withdraw from an ATM, and deposit into a crypto ATM, after keeping a commission of course. That’s just one of the many new ways of getting dirty money cleaned or turned untraceable.
Pandemic or no pandemic, there is no sure-shot way to completely do away with money laundering. Sometimes the criminals are your typical run-off-the-mill fraudsters, but some other times the lines get murkier when the state itself is involved in the corruption at a systemic level. Funds get announced and allocated, but at times they are kept out of the jurisdiction of traditional audit agencies.
But there is hope yet.
One of the solutions is for banks to train and educate their staff on how to notice a change in customer behavior and raise red flags when needed. It’s not simply enough to ‘know your customer’ but also to know your customer’s customer. Another way to tackle ML would be to not drastically change the mandates of law enforcement agencies, especially those divisions that know how to build watertight cases. States need to know how to separate the investigator from the beat cop.
It’s unlikely that the evolution of money laundering or financial fraud COVID-19 ushered in will disappear after the pandemic ends. But there are lessons to learn here, and if agencies treat this as a feedback loop, and build on their learnings, then it is not entirely impossible to check the rapid growth of financial wrongdoing. Small steps but with a bigger picture in mind – that should be the mantra. For now.