How to mitigate the risk of financial crime during COVID-19

While much of the world has been in lockdown and most staff have been working from home, financial crime has not disappeared. In fact, fraud has become more sophisticated than ever with many criminals using the pandemic as an opportunity to exploit vulnerabilities. It is crucial to adapt financial crime controls such as anti-money laundering (AML) procedures to the specific needs of the crisis. Financial crime procedures should be kept under frequent review as the pandemic progresses.

Here are some tips on how to protect your firm from financial crime during the pandemic and beyond.

Transaction monitoring

Transaction monitoring is an important part of any AML compliance programme because it helps to spot suspicious or unusual transactions. This might be more complicated in the current climate because what is usual or unusual could be quite different. But the situation can also present opportunities for spotting suspicious transactions.

For example, a cash intensive business in the retail sector that is maintaining a similar volume of financial flows despite the absence of actual economic activity could be grounds for suspicion. Automated detection mechanisms might fail to capture such a change, which is why the pre-pandemic controls that were in place may need to be adapted for the current climate.

Client onboarding and verification

When it comes to onboarding new clients, since the current situation does not allow for face to face verification, you’ll need to consider alternative verification methods and make sure you have procedures in place for doing that. Remember that a client who avoids meeting face to face can raise a red flag, so it is important to modify those procedures and consider virtual meetings or other forms of non face-to-face communication in addition to existing verification procedures.

When conducting client verification, remember that electronic verification is perfectly acceptable even in normal circumstances as long as it meets the requirements of the money laundering regulations, which require the verification measures to be “secure from fraud and misuse and capable of providing an appropriate level of assurance that the person claiming a particular identity is in fact the person with that identity.”

The Money Laundering Regulations already detail how to conduct remote checks for client identity verification. Firms can use a combination of some of the following checks, such as:

accept scanned documentation sent by email, preferably as a PDF
seek third-party verification of identity to corroborate that provided by the client, e.g. from their lawyer or accountant
ask clients to submit digital photos or videos for comparison with other forms of identification gathered as part of the onboarding process
verify phone numbers, emails and/or physical addresses by sending codes to the client’s address to validate access to accounts

You can also gather different bits of evidence to triangulate the evidence provided by the client. For instance, you can check that their phone number and IP address match the location they say they are in. And you can also have a face to face zoom call where the client shows their identification documents for you to compare and be satisfied the client is who they say they are.

If you’re relying on others to conduct client due diligence (CDD), you must ensure you understand how they have adapted or changed their procedures in light of current circumstances. And as always, keep a record and evidence of the processes you follow.

What to consider when returning to the office

As different industries re-open, any changes to monitoring mechanisms may need to be adjusted to take account of the changes to different industries and the lifting or not of restrictions by the government.

For client onboarding and CDD, consider if the business is ready to receive clients in the office, and if so, ensure that there are the relevant procedures in place including hand washing facilities and social distancing mechanisms. Even if some staff have returned to the office, it might be in the best interests of staff and clients to continue any virtual client onboarding procedures that have been implemented.

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How are you managing your GDPR compliance requirements?

GDPR added a significant compliance burden on DPOs and data processors. Data breaches must be reported to the authorities within 72 hours, each new data processing activity needs to be documented and Data Protection Impact Assessments (DPIA) must be carried out for processing that is likely to result in a high risk to individuals. Penalties for breaching GDPR can reach into the tens of millions of Euros.

“In a world older and more complete than ours they move finished and complete, gifted with extensions of the senses we have lost or never attained, living by voices we shall never hear.”