Pandemic-Related Financial Crimes Spreading With Coronavirus

The coronavirus crisis has changed virtually every aspect of our lives. Experts believe it’s also changed the dark, underbelly of financial criminal behavior.

From a renewed emphasis on cybercrime to fraud in the quickly-rolled-out Paycheck Protection Program, federal officials are warning financial institutions and others about new ways fraudsters are trying to take advantage of the pandemic.

“Fraudsters are increasingly seeking opportunities to exploit vulnerabilities in financial institutions’ remote access systems and customer-facing processes,” NCUA Chairman Rodney Hood said in a letter to credit unions last month.

Another federal agency agreed.

“Some observers posit that the pandemic may be creating new classes of criminals and victims that could have lasting repercussions for transnational crime,” the Congressional Research Service said earlier this month.

And on Thursday, Acting Assistant Attorney General Brian Rabbitt said that in the past few weeks, the federal government has filed criminal charges against more than 50 people who allegedly committed fraud in attempting to obtain PPP loans from financial institutions.

The names of the financial institutions are not named in many of the criminal complaints. In many cases, the name of the federal agency insuring the financial institution is included.

“Experience has taught us that any time the federal government makes a large amount of money available to the public on an expedited basis, the opportunities for fraud are clear,” Rabbitt said at a news conference.

Rabbitt said there are a couple types of fraudsters attempting to take advantage of the PPP program.

He said the first category involves individuals or small groups who lied about operating a legitimate business or said they needed the money to pay employees but used it instead for splashy luxury items.

The second category, he said, involves coordinated criminal rings that engage in systematic, organized efforts to loot the PPP.

He complemented the financial community for its assistance in rooting out PPP fraud.

“Many financial institutions have been strong partners in assisting us in detecting and investigating potentially fraudulent activity in connection with the PPP and other government aid programs and safeguarding taxpayer dollars by freezing funds and accounts,” he said.

In its report, the CRS said recovery efforts lend themselves to fraud.

“Increased availability of government funds may challenge authorities to identify fraudulent claims, as well as misappropriated and misdirected funds due to corruption,” the agency said.

It suggested that Congress might want to examine whether the existing Anti-Money Laundering policies are adequate to deal with pandemic-related fraud, which may not be discovered for an extended period of time.

“A key issue on the horizon for policymakers is to anticipate how criminals will exploit the post-pandemic environment,” CRS said, in flagging at least two issues of particular concern to financial institutions:

• Voluntary and mandated stay-at-home orders have reduced in-person banking and have increased the use of online banking and remote transactions. These orders have made it difficult for some financial institutions to comply with rules related to customer identity verification.
• The postponement of onsite inspections of financial institutions has caused delays in the reporting of suspicious activity and a transfer of scarce government resources away from issues such as money laundering.