Financial institutions should closely scrutinize transfers linked to the procurement of medical products and government subsidies and conduct deeper checks on large cash transactions as criminals seek to exploit the coronavirus pandemic, a senior Dutch official said.
Hennie Verbeek-Kusters, head of the Dutch financial intelligence unit, told ACAMS moneylaundering.com senior reporter Koos Couvée that her agency recently promulgated a list the methods organized criminals may use to make the most of the rapidly changing economic conditions associated with the global health emergency.
Dutch authorities have already prevented several scams linked to government procurement of medical goods but much remains unknown about the emerging fraud and money laundering risks, making it especially important that financial institutions report suspicious activity in a timely manner, the FIU chief said.
An edited transcript of their conversation follows.
FIU-the Netherlands disseminated a list of red flags to help financial institutions identify fraud and money laundering associated with COVID-19. What did you highlight?
The FIU got together with the Fiscal Intelligence and Investigation Service [FIOD], the Public Prosecution Service and the Social Affairs and Employment Inspectorate [ISZW] to consider the fraud, money laundering and other financial-crime risks that may now arise in connection with the coronavirus crisis.
We have divided this into three areas where we as the FIU, but the private sector in particular, must be very alert at the moment. The first is that you have a new scarcity of certain products, such as protective clothing in hospitals, mouth caps, hand sanitizer and similar good, which has brought a lot of illegitimate providers on the market seeking to exploit the situation.
To give you an example, just a few weeks ago a financial institution reported to us a payment requested from a hospital for a shipment of facemasks from a company that the bank did not trust.
We investigated and concluded that the company in question did not normally ship facemasks, so we immediately referred the case to the National Police and FIOD. They quickly made a number of arrests and fortunately prevented the hospital from losing millions of euros to a bunch of suspicious middlemen for a shipment that never arrived.
Government support for struggling businesses and individuals have reached an unprecedented level. What are your concerns around subsidy fraud?
This is the second issue we’ve warned about. The Dutch government has introduced a range of measures to support citizens and businesses, with the maxim: ‘pay out first, check later.’ It is so important that the support is there, but every euro that ends up in the wrong place is one that can’t get to the person or company that genuinely needs it.
So we’ve supplied obliged entities with a list of red flags. To give some examples, you could think about a company that is receiving wage compensation but has no employees, or ends up paying no wages, or one that withdraws a large sum of cash immediately after a support payment has been received.
When it comes to subsidy fraud, do small and midsized enterprises pose the largest risks?
Small and medium-sized enterprises are certainly a place where a lot of subsidies will end up.
One risk we’re seeing is that there are a lot of companies currently being set up very quickly, possibly in order to fraudulently apply for government support. Certainly if there are companies wanting to open a bank account at present, that’s where you’d want to ask all the right questions.
The measures the government has taken have very specific designations and that means that we are asking financial institutions to scrutinize those transactions using the red flags we’ve highlighted. Institutions should be able to see that the money is being transferred as part of these emergency measures and so will be able conduct data analysis on relevant transactions.
Is there a specific code or keyword under which regulated entities can report these types of unusual transactions to the FIU?
Yes, we’ve asked reporting entities to give these reports a special keyword so that we know it relates to coronavirus. We are continuously running real-time analysis, meaning that all incoming reports are scanned based on keywords so we can prioritize accordingly. If we receive coronavirus-related reports we can analyze them immediately, while our partners ISZW and FIOD stand ready to get to work on our disseminations right away.
What are the new money-laundering risks you are seeing?
The third issue we’ve warned the private sector about is possible money-laundering related developments. At the moment the economy is – hopefully only temporarily – changing dramatically. As certain parts of the economy are coming to a standstill because of the lockdown measures it stands to reason that therefore money-laundering risks are also shifting.
Businesses such as nightclubs, restaurants and hairdressing salons are closed at the moment. These types of businesses pop up in money-laundering schemes normally, and that means that now they’re closed there may be other types of businesses where laundering is shifting to.
Financial institutions but also accountants really need to keep their eyes peeled for businesses in sectors badly affected by the crisis that are or should be struggling, and suddenly appear to have money coming in. But we may also see new companies suddenly being set up quickly, partly to defraud the government, but also to be used to launder and mix funds that are normally laundered via other entities.
Dutch authorities raided several car and vegetable exporters last year amid suspicions that criminals were using those firms to launder vast sums of cash. Is there a risk that this type of activity will affect other sectors as more and more companies begin to struggle?
Yes, that is also something we’re flagging to right now, and that is really where the gatekeepers, such as banks and accountants, must pay even closer attention. A growing number of entrepreneurs are at risk of going under and so the risk that they’ll look the other way becomes many times greater.
At the moment, we don’t yet know which sectors this type of activity could move to, and that’s why we’ve shared these red flags. We need the private sector to detect it and report it to us.
Consumers are handling less cash than usual because of the lockdown measures and contagion fears, correct? Should banks limit the amount of cash certain clients can deposit?
Cash is being used less, so it really should give a signal anyway. But ultimately introducing strict cash limitations is difficult for banks to do at the moment. All over Europe there is a lot of talk about limiting cash payments, and there is pending legislation in the Netherlands to address this issue. If those measures become law, it’ll make a big difference.
At the same time, you also see people using the argument that they want to transact only in cash because they fear the financial system might collapse. Either way, it’s very important that banks, accountants and other institutions pay close attention to cash transactions. It’s an indicator of potential abuse of the current economic situation by criminals.
Has the FIU seen the volume of unusual transaction reports change since the beginning of the crisis?
It always fluctuates on a weekly basis. In a month’s time we may have a better idea of what the trend is, but so far we haven’t noticed a significant decrease or rise.
Is it possible for your staff to work from home and still handle financial intelligence in a secure manner?
Yes, luckily we had a number of things in preparation just in case it would become very difficult for people to come to the office, and those plans have now accelerated. We have special equipment that people can use at home, a device through which they can access our secure system.
Only for sharing information with our international partners a few people still have to work in the office, because that system is not integrated in our overall work systems, so cannot be done from home. But they can work at a suitable distance from each other.
Have public-private partnerships been disrupted by the crisis?
One of our projects, the Fintel Alliance, which is currently mainly about working with the major banks to share information and jointly analyze cases, is difficult to run at the moment because it requires physical proximity, and the locations we have available for that purpose cannot be adjusted in a secure way.
That also goes for other projects, such as the Serious Crime Task Force and the Terrorism Financing Task Force, though accounts for a secure system that allows people to carry on work through a video connection have been requested to resolve this temporarily. If the social distancing measures are going to be in place for much longer, we will have to think about how we can reorganize those partnerships in a safe way.
Contact Koos Couvee at firstname.lastname@example.org
|Topics :||Anti-money laundering , Counterterrorist Financing , Fraud|
|Document Date:||April 24, 2020|