Combating the Six Types of Financial Crime That Spiked During the Pandemic

By John Edison

Criminals have a canny ability to adapt to the latest consumer trends and behaviors. For instance, when pet adoptions soared early in the pandemic, fraudsters were quick to call people asking for money for animal rescue assistance or to help fund pet adoption.

Similarly, soon after the launch of the Paycheck Protection Program, criminals mobilized to get their take. In fact, the Justice Department has brought criminal charges against at least 209 individuals in 119 cases so far totaling $445 million in fraudulent loans related to the PPP, according to an analysis from Project On Government Oversight. However, the full scope of the criminal activity may not be completely understood for years.

In response to the uptick in recent financial crimes, the Financial Crimes Enforcement Network published an advisory in early 2021 that outlined six unique and most common financial criminal activity: fraudulent checks, altered checks, counterfeit checks, payment theft, phishing schemes and the inappropriate seizure of funds.

Banks and corporations need to fight against these and more in the overarching financial crime war. In the name of protecting clients’ hard-earned money and a bank’s reputation, the best defense is to prepare against crime as comprehensively as possible.

Building a multi-pronged response

Just as a football team must anticipate and defend against its competitor’s next play, banks’ anti-crime and compliance functions must be able to respond quickly to changing criminal behaviors—especially since we expect fluctuating business conditions and evolving criminal activities to become the new normal.

The financial services industry has accelerated its digital offerings in light of the pandemic. But with that progress comes new security risks. Banks are hunting the right balance between enabling new digital customers to be onboarded quickly, while still ensuring that crime-detection capabilities are adaptable and automated to rule out bad agents.

One-way banks can effectively onboard new customers by utilizing third-party data providers and entity-resolution capabilities to gather and process both internal and external data, such as information culled from social media profiles. This granularity and segmentation allow banks to create more accurate risk profiles on potential customers and meet Know Your Customer requirements more quickly. By further integrating the bank’s KYC system with its compliance backend and case-management capabilities, bank analysts and investigators have access to all the information they need in one spot to write reports and complete onboarding processes.

Another way banks can respond to today’s quickly changing criminal activity is by incorporating flexible fraud-detection controls that allow them to create or adjust rules on the fly. For example, at the start of the pandemic, banks adjusted their thresholds for lower transaction volumes to detect new money laundering and fraud patterns that were starting to emerge thanks to COVID-19. Having a flexible architecture in place allows data science and data engineering teams to test, tune and re-deploy fraud-detection rules and models, then measure them against their existing detection data pipeline.

Navigating a challenging moment

While the adoption of artificial intelligence and machine learning at banks’ financial crime and compliance departments has historically been slow, more are starting to leverage the technology to identify a criminal’s digital “fingerprint.” Machine learning algorithms constantly learn from historical and current data, which helps identify recurring or shifting criminal behavior patterns and connect suspicious money movements between criminal organizations. Many banks are implementing improved KYC processes such as biometric facial recognition for customer verification.

Financial crime and compliance leaders have had to navigate a challenging moment. They have responded to sudden market changes, grappled with the nearly industry-wide shift to online banking (with customers remaining remote) and have met turbulent regulatory requirements and backlogs.

Banks can more seamlessly react to fluctuating business conditions and ever-changing criminal tactics in the future by focusing on making detection capabilities more adaptable, improving the customer onboarding process and leveraging new technology such as machine learning and facial ID. So, whether it’s a fraudulent loan application, or identifying a shell company, banks can do more to keep money out of criminals’ coffers.

John Edison is head of financial crime and compliance management products at Oracle Financial Services.