Perspective: Coronavirus and Money Laundering Concerns

EghtesadOnline: The coronavirus pandemic can have some impact on the anti-money laundering process of financial institutions throughout the world.

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12 April 2020

Financial institutions have recommended clients to conduct their transactions through non face-to-face instruments, which are inherently considered risky., according to Financial Tribune

Therefore, if loopholes had not been found and addressed earlier (subject of Recommendation 15 of the Financial Action Task Force on New Technology), problems could arise. The irony is that the mitigation process for threats also relies on technology, like the efficient technology-based KYC-CDD procedures applied by financial institutions.

As the COVID-19 pandemic started taking a heavy toll, financial felons rushed to abuse and exploit the situation.  Fraudulent actions are considered as predicate crime for money laundering, and therefore financial institutions should be required to look for patterns related to fraud linked to COVID-19 and send Suspicious Transaction Reports (STR) – very likely an extra burden under the present difficult times. Besides, many employees of financial institutions are working from home due to the virus lockdowns and may not have access to critical data centers.

This can and will adversely affect the ability of staff at banks to prepare STRs related to COVID-19.

Migrants and workers in large numbers who were paid daily wages are forces to stay at home due to the deadly virus. Their families may resort to the so-called ‘Hawallah’ centers to send them money and in the process unanticipated problems could arise.

Foreign branches of financial institutions which are also supervised by their parent institutions or are members of financial groups, may have lost their supervisory contact with the parent institution and this may pose a risk for the host country where those branches operate.

In some countries, regulators and supervisors of financial institutions are separate and independent entities. Such structures may prove useful when the regulator adapts regulations to make them compatible with new conditions. The supervisor body conducts its task and ensures that old and new regulations are complied with by those subject to the law.

If the two tasks are carried out by the same entity, there might be overload and overlapping on the regulatory side  and the critical supervisory role could be undermined.

To be able to control and remove such threats, competent authorities and experts need to meet and discuss the issues; but this is not easily possible and doable these days.

In the initial phase what is needed is a pooling of minds between heads of departments of one bank, later meetings between two to three countries for making arrangements and boosting coordination. What can and should follow is meetings of key agencies like the FATF.

Three months after the first case of COVID-19 was reported, FATF brought together 800 officials from 205 countries and jurisdictions. A feat that seems highly unlikely, if not impossible, in the current corona climate.