Financial crimes authority urges vigilance on AML as Covid-19 brings fraudsters out of the woodwork

Financial crimes authority urges vigilance on AML as Covid-19 brings fraudsters out of the woodwork

The Financial Action Task Force (FATF) has warned FSIs and regulatory bodies not to take their eyes off the ball as criminals exploit gaps in national anti-money laundering/counterterrorism financing (AML/CTF) exposed during the Covid-19 panic.

FATF, the global financial crimes watchdog, has urged local financial authorities to work hand-in-hand with industry to prevent fraudsters taking advantage of weaknesses in AML/CTF systems, with many criminals assuming resources to tackle illicit financing will be diverted to mitigating Covid-19-related scams and threats.

To manage all threats consistently and without gaps, FATF maintained that “supervisors, financial intelligence units and law enforcement agencies should continue to share information with the private sector to prioritise and address key [money laundering] risks, particularly those related to fraud, and [terrorism financing] risks linked to Covid-19”.

“This makes risk-based supervision and enforcement activity more critical than ever,” it said.

Noting the significant rise in criminals “taking advantage of the Covid-19 pandemic to carry out financial fraud and exploitation scams”, FATF urged both regulators and industry to adopt an even hand in managing both the spike in financial and cyber scams and existing AML/CTF responsibilities.

“FATF encourages governments to work with financial institutions and other businesses to use the flexibility built into the FATF’s risk-based approach to address the challenges posed by Covid-19 whilst remaining alert to new and emerging illicit finance risks.”

Westpac and CBA have both fallen afoul of local AML/CTF laws in recent years, with local financial crimes authority, AUSTRAC, charging both banks with failing to comply with mandated reporting obligations. Last year, CBA was alone fined a record $700 million for multiple breaches of the AML/CTF Act; Westpac was deemed by AUSTRAC to have contravened the AML/CTF Act on more than 23 million occasions, however, it has yet to be issued a fine.

In a bid to curb the spread of Covid-19, FATF has also recommended FSIs’ rapid adoption of financial technologies, particularly contactless payment options, “to the fullest extent possible”.

Local banks and payments authorities appear to have heeded this advice, recently doubling limits for contactless payments before a PIN is required to be entered, and thereby reducing the number of direct physical contacts with payments terminals.

“With people around the world facing confinement or strict social distancing measures, in-person banking and access to other financial services is difficult, and unnecessarily exposes people to the risk of infection. Use of digital/contactless payments and digital onboarding reduce the risk of spreading the virus,” FATF said.

However, the watchdog stressed the need for banks and payments companies to embed “trustworthy digital identity systems” into payments infrastructure to prevent fraud and misuse, putting forward its own Guidance on Digital ID.

“The FATF calls on countries to explore using digital identity, as appropriate, to aid financial transactions while managing ML/TF risks during this crisis.”

FATF pitches itself as a global watchdog for money laundering and terrorist financing. It sets international standards to mitigate illegal financial transactions and generates policies to drive national legislative and regulatory reforms among 200 participating countries.

More information on FATF’s statement can be found here.