COVID 19 opened the doors for a new wave of money laundering
October 26, 2020

Author: Atty. Rafael Gabela Salvador

rafael.gabela@fexlaw.com

The health crisis the world is going through is one without precedent in modern history. The global pandemic that has arisen because of the spread of coronavirus disease has wreaked great havoc, many of which cannot yet be quantified. However, the world has suffered for several decades from another equally destructive and difficult to detect disease: money laundering. The coronavirus and the crime of money laundering share many similarities: both are threats to the world economy, both are phenomena that are difficult to detect, and if the necessary measures are not taken to eradicate it, the “contagion” is rapid and easily expanded. Similarly, to combat both ills, rigorous compliance with prevention standards is crucial. The COVID 19 pandemic means a global paradigm shift: the way we do business will change radically, the way of interacting between human beings will not be the same as in previous years, technological advances will grow rapidly and exponentially. Likewise, the phenomenon of crime will change, and, therefore, we must be prepared to face it with more effective and precise tools. The question is precisely this, are we prepared to face what is coming?

For most nations, the crime of money laundering represents a complex challenge in terms of prevention, discovery, and legal action. Historically, the crime of money laundering was considered a form of cover-up, but due to the danger it represents, now its treated as an autonomous crime is prevalent in most countries. At the international level, this crime represents a problem of titanic dimensions, so much so that according to reports issued by the United Nations through its Office on Drugs and Crime (UNODC), it is estimated that approximately 1.6 trillion dollars product of criminal activities are laundered worldwide. These are alarming figures.

The emergence of new techniques for money laundering, which are increasingly refined and complicated, increase the difficulty of dealing with this crime. Technological development in recent years has meant that criminals now have a greater range of options to perpetrate illegal acts and hide the profits from their criminal activities. A clear example of this is the emergence of cryptocurrencies and other digital assets, which despite having many advantages for conducting lawful businesses, they have also been an effective tool for criminals to hide the illicit origins of their criminal activity. To exemplify this in a clearer way, it is necessary to analyze the great problem that cryptocurrency mixers represent for the detection of money laundering, a virtual tool whose access is given almost exclusively through the Deep Web and its purpose is to increase anonymity of cryptocurrency transactions. The way in which a mixer operates is quite simple, a user sends his cryptocurrencies to the address of a mixer, which is registered individually for each user. The coins are mixed with other people’s transactions or distributed among hundreds of thousands of wallets belonging to a mixer. Once the process is complete, “clean” cryptocurrencies are transferred to preset storage, either back to the sender or to the new owner.

This is just a small sample of how new and inventive ways of laundering money have appeared in recent years because of the technological revolution we are experiencing. However, new ways of perpetrating this crime will emerge because of this crisis caused by COVID 19. In fact, a growth in the incursion of certain criminal activities has been evident because of the start of the COVID 19 pandemic. Most of these crimes, however, are cybercrimes: phishing, hacking, cracking, computer fraud, etc. There has also been evidence of an increase in pyramid scams (ponzi schemes), adulteration and / or counterfeiting of medical products, crimes related to corruption (for example, crimes of embezzlement or corruption of public funds in state contracts to purchase medical supplies with a surcharge), etc. An event that evidences the above is that the United States Immigration and Customs Enforcement Service (ICE) investigative branch of the Department of Homeland Security (DHS) and the United States Attorney’s Office for the District of Columbia, within the Operation Stolen Promise, confiscated a fraudulent internet domain that was going to be used by a criminal to sell fraudulent COVID 19 diagnose kits through that internet domain taking advantage of the emerging health crisis. The United States Department of Homeland Security also indicated that, since April 23, 2020, its special agents have initiated more than 232 cases, made a total of 376 seizures, made 6 arrests, have executed 12 search warrants, and have seized more than three million dollars in illicit profits.

The increase in crime and economic recessions is a phenomenon that has been recurring throughout history. During the Great Depression, the Italian-American mafias, which were already profiting from alcohol smuggling during the Prohibition, escalated their operations. During the period of the collapse of the US real estate sector, drug trafficking generated profits like never before. Sadly, in times of crisis, criminals find the ideal circumstances to expand their criminal operations. This phenomenon is due to several factors, one of them is that during crises there are fewer economic resources to invest in security and crime prevention. Companies are currently going bankrupt and face operational challenges which, by reducing their income, forces them to lay off staff, therefore they have fewer people to monitor suspicious operations and implement crime prevention systems. A second factor is that, at the state level, resources and attention will be focused on other priorities. In the current crisis the health systems of many countries are collapsing due to the large number of infections, therefore, these countries will focus their efforts on fighting the virus and not against crime. It is also happening that many countries have “relaxed” their compliance standards. For example, in the Bahamas, the duties and obligations of financial institutions under the Recipient Landlord Registration Act of 2018 have been temporarily suspended due to trade restrictions resulting from the emergence of COVID 19. But the most serious thing about all this is that many companies, businesses or financial institutions are going to turn a blind eye to crime because it may even be their only salvation from insolvency. Former UNODC executive director Antonio María Costa revealed that organized crime money was the only thing that kept some banks from going bankrupt during the 2008 US financial crisis.

However, despite the fact that at the moment there has been no reported increase in money laundering globally, given that many financial institutions have entered into a “blockade”, it is delusional to think that there will be no upturn in this crime. As we have stated before, a higher number of cybercrimes, corruption, scams and forgery of medical supplies have been reported. The crime of money laundering is an autonomous crime, but the illicit origin of the assets comes from a previous criminal conduct. This in Law Theory is known as related or underlying crimes. Therefore, all criminals who have engaged in criminal activities since the start of the pandemic will have to commit the crime of money laundering to enjoy the ill-gotten gains from their crimes. One prediction that is very likely to come true is as follows: Following the global economic crisis that has emerged from the COVID 19 pandemic, money laundering figures will grow dramatically.

Financial Action Task Force of Latin America (GAFILAT) has issued a report in which it pointed out various phenomena that may pose a risk to money laundering and terrorist financing. GAFILAT indicated that a reduction is expected in the volume of reports of suspicious operations and also in delays in obtaining additional information required for the necessary investigations. Likewise, I point out an increase in crimes related to corruption, an increase in financial fraud and scams. But it also gives some good practice suggestions for trying to mitigate emerging risks. However, it is now up to the member countries to apply these suggestions so that they do not remain as a simple declaration of good intentions. Furthermore, a central axis of each state must revolve around implementing new alternatives to combat this risk.

Sadly, crises and crime are part of a vicious circle, a perverse uroboros which will not stop growing if we do not take urgent and effective actions to confront it. Robust and rigorous Compliance systems, with a focus on AML and CFT measures is a crucial requirement to prevent this new wave of money laundering. The crisis will cause an exponential growth in crime, but also in technology that can be a great ally to combat criminal acts. For all of us who work in the world of Compliance, this crisis can be a great opportunity to reinvent ourselves and find more effective solutions to combat money laundering and terrorist financing.

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