News

Suspicious transaction reports filed on potential fraud and embezzlement schemes against government financial assistance programs during the novel coronavirus pandemic in Europe have shown higher quality in general than STRs submitted on other financial crimes.

In March 2020, the EU and several member nations disclosed plans to brace the private sector against the economic shockwave triggered by COVID-19 and rapidly began financing employee furloughs, approving tax discounts, forgiving prior debts and disbursing hundreds of billions of euros in direct loans before putting proper safeguards in place.

Fraud and misappropriation quickly followed, prompting warnings from the Financial Action Task Force and national directives throughout Europe requiring financial institutions to more thoroughly monitor pandemic-related payments for signs of illegality.

“COVID” now unsurprisingly ranks near the top of the most commonly used words in European STRs, according to publicly available data. Reports marked “COVID” also stand a higher chance of being reviewed in Europe, where judicial authorities have made investigations into suspected schemes to defraud government programs a top priority.

Switzerland’s financial intelligence unit, MROS, received more than 1,300 pandemic-related STRs from March 2020 to April 2021, a total that would comprise 17 percent of the nation’s reporting volume for 2019, the last full year before the pandemic. Given that Swiss banks gained ability to group several related suspicious transactions into a single report in January 2020, the hypothetical percentage is in all likelihood much higher.

COVID-related STRs “accounted for almost one-third of all communications to MROS in 2020,” Anne-Florence Debois, a spokesperson for the agency, told ACAMS moneylaundering.com. By April 2021, the Swiss Federal Police had come to view €164 million of government-backed loans as suspicious.

Germany’s financial intelligence unit, or FIU, received 9,500 reports of suspected schemes against the country’s €353 billion COVID-19 economic aid package in 2020, or one in every 10 reports filed.

The relevance of pandemic-related STRs in Germany and Switzerland is perhaps more noteworthy than their volume.

Fully 84 percent of the 1,326 COVID-19 STRs filed in Switzerland from March 2020 to April 2021 ended up in the hands of law enforcement, nearly double the average pre-pandemic rate.

The gap is even wider in Germany, where investigators reviewed 86 percent of COVID-19 STRs filed from March 2020 to December 2020 after reviewing only 36 percent of all STRs in 2019.

Pandemic-related STRs have been as numerous and successful in Italy, where the Financial Intelligence Unit, UIF, received 2,800 reports on €8.9 billion of potentially illicit transactions involving COVID-19 financial assistance from March 2020 to February 2021.

“COVID 19-related STRs have been promptly forwarded to competent judicial authorities and the share of positive feedback … on these STRs was three times the average, which, at the moment, is estimated around 17 percent,” a UIF official told moneylaundering.com.

UIF crosschecks individuals whose names appear in COVID-19 STRs against a national database for possible links to organized crime, and prioritizes any hits for investigation.

Familiar patterns, scaled up

Government officials attribute the generally better quality of COVID-related STRs to several factors.

In the first days of the pandemic, Italy’s UIF and law enforcement agencies set up specific protocols for quickly sharing information on individuals and transactions flagged in STRs and deciding which suspected fraud and misappropriation schemes to investigate first.

Tracfin, France’s FIU, “carefully studied the measures of the recovery plan to anticipate possible diversions for fraudulent purposes and quickly alert public authorities to those most likely to be targeted by fraudsters,” a spokesperson for the agency told moneylaundering.com.

French authorities also communicated extensively and early with the financial services industry. Tracfin published analysis of financial patterns associated with COVID-19 schemes two months after the recovery plan’s unveiling, while its Belgian counterpart CTIF, also communicated at an unprecedented frequency, releasing three reports in four months.

German officials published a list of COVID-19 scam typologies in May 2020 and an updated report in October.

That taxpayers funded the programs may have contributed to a “virtuous circle of information,” the UIF official said. “Certainly, the involvement of public money raises the attention of reporting entities as well.”

Fraudsters have also tended to use a limited set of methods for obtaining and laundering COVID-19 funds, making their schemes easier to discover and investigate.

“Unlike very complex cases such as FIFA, these credit fraud cases are straightforward and therefore easier to frame and to report,” said Olaf von der Lage, founder of Complias, a consulting firm near Zurich. “After detecting some fraud cases, the pattern and the clues are pretty much the same and, in the end, the STRs are of good quality.”

European authorities have now sounded the alarm over the next challenge of pandemic-related illicit finance, one that is entrenched, long term and more difficult to identify: the takeover of weakened cash-intensive companies by criminals.

“The probability of seeing parts of our economy in difficulty turn to criminal circles is not excluded,” Belgian officials warned in a May 17 report. “Many struggling establishments in the hotel and catering industry, or in the textile sector, could no longer find bank credit and had no other option than to turn to criminals for fresh money and become easy prey.”

Contact Gabriel Vedrenne at gvedrenne@acams.org