The two scourges of Corruption and Money Laundering are so interdependent, intertwined, and inseparable that they have assumed an infamous notoriety. All over the world, governments are striving to root out this pestilence with limited success. The emergence of the pandemic has provided a wider arena for the players of this detestable game.
Unmindful of the harm brought about to society, corrupt officials tend to create ill gotten wealth by indulging in bribes in exchange for favors conceded and then routing the criminal proceeds to money launderers to ultimately channel the funds into the mainstream of legal finance. Corruption and Money Laundering have become deep rooted in both developed nations and in developing countries.
AML legislation, if properly implemented, has the potential to limit the spread of these activities. However, the fact remains that novel technology is helping perpetrators of financial crimes to innovate newer methods of deception.
Traditionally, Corruption and Money Laundering have co-existed for decades. These criminal activities have silently made deep inroads into the global financial system and have almost succeeded in merging with the flow of legality.
COVID-19 has opened several gateways for corrupt officials and other players to engage themselves in dubious money transactions. As per research carried out by Transparency International, illicit financial flows drain Africa of USD$50 billion annually. At times, funds set aside for COVID-19 support packages adopted by the government risk being diverted from their original purposes.
While governments all around the world are busy combating the crisis caused by the COVID-19 pandemic, huge expenses are warranted to sustain the fight against the virus and the impact on the economy, which involves enormous resources. Funds are made available for purchase of essential items, such as medicine, ventilators, and PPE. The increased demand and disrupted supply chain create scarcity or opportunities to price gouge. There is an increase in trade for these essential items during this pandemic, which has resulted in money launderers abusing this demand by creating shell companies, bribing customs and other government officials. There are substantial opportunities for misallocation, false profit margins, graft, and other corrupt activity.
Finally, corrupt officials, private facilitators, criminal organizations, narcotraffickers, and terrorists need to move funds and create stores of value. The new corruption spawned in the pandemic mixes with traditional money laundering activities at a time of disruption. There is an urgent need for banks and other non-banking financial institutions to address this risk.
The US Financial Crime and Enforcement Network (FinCEN), the UK Financial Conduct Authority (FCA) and the European Banking Authority (EBA) have urged institutions to monitor customers transactions for unusual patterns and large flows of funds during the pandemic.
When a lot of governments have implemented lock downs, which has created a reduction in international trade, it is important to monitor accounts of retail sector and other businesses which show unusual financial flow and the origin of funds for the transactions need to identified.
It is more deplorable that corrupt persons are taking advantage of the pandemic and are forging ill gotten gains at a time when people all over the world are suffering.
How can Lysis help?
We work with Financial Crime compliance functions to review their firm’s financial crime provisions and to design and implement improvements.
We can review and enhance AML policies, proceduralise them ,and provide training on those policies and procedures and on general AML themes.
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By Vanitha Vinayak, Consultant at Lysis Group