Fraud in times of pandemic

The new pandemic has taken its toll on the world and certainly changed the way members of society fundamentally interact with each other. From life in general to the finest details of everyday life, everything changed in 2020. From these changes, criminals were no exception. They have used their ingenuity to adapt to these new times and develop new methods of scamming people. Times of uncertainty create the perfect context for creating new fraud schemes that usually affect the most vulnerable of us.

During the last year, many financial institutions have issued warnings about new risks and implications that could emerge during the COVID-19 pandemic, especially through financial crime. In an interview from April 2020, the president of FATF had said that national authorities and international bodies are alerting citizens and businesses of these scams, which include impostor, investment, and product scams, as well as insider trading in relation to COVID-19. Like criminals, terrorists can also exploit these opportunities to raise funds. He also recommended responsible digital customer onboarding and delivery of digital financial services. Moreover, he called for called for greater transparency in international transactions and in nonprofit activities.[1]

In a more recent interview, Mr. Pleyer, the newly appointed president of FATF, has explained how the approach to illicit behavior has expanded in the sense that there is an increase in money laundering patterns. Such patterns can be seen in defrauding the government aid, fundraising for fake charities, counterfeiting of medical goods, and a drop in the customer due diligence because people are working from home and they might have different security measures in place.[2] Fake shops, websites, social media accounts and email addresses claiming to sell facial masks and medical supplies online have flooded the internet and have been a real threat to international health since the start of the pandemic. Romania has issued several security alerts regarding products that pretend to be European certified but, they actually are not.[3]

We can also see an evolution of previously used fraud schemes being adapted into COVID ones. For instance, the “accident method”, a telephone type of fraud, where criminals call victims pretending to be clinic or hospital officials requesting medical treatment payments for a relative of the victim that has been involved in an accident, now has been adapted in pretending that they need medical aid for COVID victims.[4] Given the rush and the state of emergency involved, many are fooled by this kind of criminal behavior and are left with the late, and only option, to contact the actual authorities. Imposter scams are not limited to this kind of behavior. Borrowers are being contacted by scammers over the phone or by email and being asked to reschedule a loan as a relief measure. This allows scammers to extract account details and siphon off funds in no time.[5]

As if all these scams were not enough in these hardship times for everyone, after the discovery of a vaccine, there have been multiple frauds regarding the distribution of it. The US Treasury’s Financial Crimes Enforcement Network cautioned of an array of vaccine-related crimes, including the sale of unapproved, counterfeit or illegally marketed vaccines. In addition, fraudsters have offered to provide individuals with a vaccine sooner than provided under authorized distribution plans, FinCEN said.[6] In addition to this, cybercriminals have targeted vaccine researchers with ransomware. In a recent incident, attackers took systems offline at Universal Health Services Inc., one of the largest hospital chains in the U.S., forcing it to cancel some surgeries and divert ambulances. Ransomware and corresponding financial demands have surged in recent years, more so in these days, taking advantage of the increased demand of vaccines and their distribution which is coordinated almost entirely digitally.[7] Ruyk, a bitcoin ransomware attack, has been reported as having affected COVID-19 hospitals, taking advantage of their huge social importance. Another way of a cyberattack is through launching fake mobile apps, which claim to be providing information on COVID-19 but are aimed at stealing personal data. OFAC made a statement that victims of ransomware schemes and financial institutions that do pay the attackers could be violating sanctions or anti-money-laundering rules and therefore could be liable to criminal investigation themselves.

As a result of all these cases where criminals seem to have the upper hand, the Department of Homeland Security has set in motion Operation Stolen Promise in which the focus was to combat illegal import and sales of counterfeit or substandard products, detect and deter financial fraud scams, and prevent the exploitation of relief and stimulus programs. Among the first scams were those regarding PPE (personal protective equipment), medical gowns, and antiviral products and the scams were aimed especially to those that are most vulnerable, but that is something to be foreseen in any situation where the demand is extremely high and the offer is very limited.[8] After the introduction of the Pfizer vaccine on the market, focus 2.0 of the operation has shifted mainly towards countering the threat posed by the illicit sale and distribution of counterfeit or unauthorized vaccines and treatments because of high public demand for access to these solutions that is to follow.[9] Homeland Security Investigations has analyzed to date over 60.000 sites allegedly involved in COVID 19 related fraud, opened more than 750 cases and made 186 arrests so far.

FBI has raised awareness of a new tempting scheme intended for a large audience. It usually involves a seemingly harmless request. You receive an email, maybe through an online job site or a dating website. Provide your bank account information and allow money transfers to flow through your account. You move the money for someone, who pays you a little cash for your trouble or lures you with the potential of a romantic relationship.[10] This is a very easy way to launder money from ill-gotten gains and many are unaware that they have become money mules for criminals. Some of the money comes from internet scams, while other sources include drug trafficking, human trafficking, and other illegal business schemes. New patterns of fund transfers or going to be needed to be implemented now that COVID-19 relief funds stray the usual ones from the norm. In this window of an opportunity, money mules are very likely to rise in numbers.

As mentioned earlier, the criminals have adapted themselves to the new situation better than expected.  A family that was once considered mountain-dwelling goat farmers has transformed itself into a globalized crime syndicate. It was not done overnight, of course, but the past year has shown how flexible they are in adapting their criminal behavior. The power in the ’Ndrangheta family from Calabria is inherited in a dynastic fashion, therefore its members, having more wealth and power than their predecessors, have degrees from the London School of Economics or even Harvard. Some have MBAs and this crime syndicate has become more specialized to the point of infiltrating into the Italian health system.[11] The ‘Ndrangheta families are not a centralized organization, therefore they are more resilient to government crackdown (unlike Cosa Nostra or Camorra). Their profits used to come from front companies funded by corrupt local officials and, since the rise of the death toll due to COVID in Italy,  they have established monopolies on funeral, ambulance and blood transportation services, reaching to the point where the money gained from these kind of sources were laundered in financial centers like Milan or London.[12] Even more, the Italian Ministry of Interior has issued a statement in which they are mentioning that organized crime cartels are trying to infiltrate in the distribution of the vaccine for COVID-19. Jürgen Stock, Interpol’s Secretary General has said that the vaccine is the most precious thing that will be distributed in 2021, and the mafia and other criminal organizations are ready to grab it.[13]

The United Kingdom has especially been a place favorable to COVID-19 fraud schemes. The Coronavirus Job Retention Scheme Fraud, commonly known as the furlough fraud, is when an employer deliberately claims back wages under the job retention scheme for an employee they know is carrying out work for them. Or, since the introduction of the flexible system on 1 July, it is when an employer claims for days or hours the employee is actually working. It can be found also in the case where employers claim money back for fictitious employees.  Some small businesses started appointing members of their families as directors of companies to increase the threshold of government support artificially with monthly salaries for shareholders who also act as directors. Its original purpose was to give aid to businesses from the UK government to support their employees by paying them 80% of their salaries during the pandemic but many have taken a very wide understanding of that aid, many times beyond the legal meaning. The first arrest was made in July of last year, but many others followed. HM Revenue and Customs (HMRC) said it had arrested a man from Solihull, West Midlands, on Wednesday, in connection to a suspected £495,000 fraud of the Coronavirus Job Retention Scheme.[14]

Another type of scheme attempted to ease people of their money was detected at the start of this year when fraudsters sent out text messages telling them that they are “eligible to apply for your vaccine” with a link to a bogus NHS website. The next step was to ask for personal information and more importantly, bank details “for verification”. Other types of scams have included people travelling door-to-door selling counterfeit or useless protection equipment, or fraudsters claiming to be from the official test and trace service and demanding payments.[15] This kind of actions have culminated with a case being investigated by the City of London Police of a 92-year-old woman being defrauded of 160 pounds by a man posing as a “vaccinator”. He assured her that the sum would be reimbursed by the NHS. Police said it was not known what substance, if any, was administered, but the woman had been checked at her local hospital and showed no ill effects.[16]

Another possible fraud, this time by a healthcare provider, was encountered in the state of New York, where the Attorney General’s office is investigating ParCare for illegally obtaining the COVID-19 vaccine and letting people skip the line and get the dose. The vaccines were reportedly given to members of the public and not frontline healthcare workers or nursing home residents and staff, as stipulated by the state.[17] As a response to this situation, Governor Cuomo said he will issue an Executive Order increasing penalties for providers that intentionally disregard prioritization, penalties that can get up to 1 million dollars and revocation of all state licenses for any healthcare professional who knowingly breaks the law. Another similar measure can be found in the state of Florida where lawmakers are already discussing increased penalties for all COVID-19 frauds. ““First offense will be third-degree felony so it’s punishable by a maximum of 5 years in prison and if you are a repeat offender, a second or subsequent offense is a second-degree felony punishable by a maximum of 15 years in prison”.[18]

 COVID-19   has brought to the surface some issues that otherwise might have not been so problematic in the past. Now financial institutions can be expected to focus on maintaining their business in the short term, even if that means neglecting long-term reputational risks and other risks of noncompliance, and that might impact the financial world harder than many COVID-19 prevention measures. It is most likely that this pandemic will not go away any time soon and it certainly will never be the same again as before. Appropriate changes should be made and be kept because legislation is always one step behind crime, as new ways of breaking the law are discovered. Fraudsters have always been sophisticated; this is usually the key to their success. We should consider them just as clever and organized as the authorities that guard us from them, and their versatility should not be underestimated. Where there is a way of making illegal profits, there will be someone willing to risk for those profits, and this pandemic has created many gaps that just now are slowly filling the organizational and legislative gaps.

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[1] https://www.fatf-gafi.org/publications/fatfgeneral/documents/statement-covid-19.html

[2] https://www.riskscreen.com/kyc360/news/money-laundering-watchdog-turns-focus-to-digital-tools-extremism/

[3] https://www.digi24.ro/stiri/actualitate/noi-alerte-privind-patru-tipuri-de-masti-neconforme-in-romania-printre-care-si-unele-pentru-copii-cum-arata-acestea-1404604

[4] https://www.interpol.int/en/News-and-Events/News/2020/INTERPOL-warns-of-financial-fraud-linked-to-COVID-19

[5] https://www.acamstoday.org/covid-19-the-lurking-financial-crime-threat-for-fis/

[6] https://www.riskscreen.com/kyc360/news/u-s-treasury-warns-banks-of-covid-19-vaccine-fraud/

[7] https://www.wsj.com/articles/treasury-warns-against-keeping-ransomware-payments-quiet-11601587735?mod=article_inline

[8] https://www.kalb.com/content/news/Operation-Stolen-Promise-targets-COVID-19-fraud-scams-570063861.html

[9] https://www.ice.gov/topics/operation-stolen-promise

[10] https://www.nbcnews.com/news/us-news/fbi-warns-money-mule-schemes-exploiting-covid-19-pandemic-n1180581

[11] https://www.ft.com/content/8850581c-176e-4c5c-8b38-debb26b35c14

[12] https://www.acamstoday.org/covid-19-fraud-schemes-across-the-world/

[13] https://www.g4media.ro/guvernul-italian-se-teme-de-infiltrarea-mafiei-in-procesul-de-distributie-a-vaccinurilor.html

[14] https://www.independent.co.uk/news/uk/crime/furlough-scheme-fraud-arrested-hmrc-west-midlands-a9610111.html

[15] https://www.bbc.com/news/business-55563748

[16] https://www.bbc.com/news/uk-england-london-55577426

[17] https://abc7ny.com/parcare-vaccine-fraud-attorney-general-ny-covid/9143911/

[18] https://www.winknews.com/2021/01/08/florida-lawmakers-to-discuss-bill-that-creates-penalties-for-covid-19-vaccine-fraud