Written by John Clary, Practice Leader – Governance, Risk and Compliance
For banking and financial leaders, navigating the world of fraud can feel like a full-time job. The landscape is constantly changing as swindlers find more sophisticated ways of stealing money and personal information. This has become an even larger issue as world events set off an avalanche of compliance changes.
From political instability to ongoing issues with fraud related to COVID-19 relief payments, financial crime continues to make its mark on a variety of industries, including traditional banking and cryptocurrency. The more leaders know about financial crime, the better they can protect their organizations.
Here are the top 5 financial crime trends leaders need to be aware of today.
While the government is no longer issuing COVID-19 relief payments, banks are still dealing with the repercussions of related fraud.
This fraud centers around two types of payments: Paycheck Protection Program (PPP) loans and economic impact payments.
Experts believe that fraud accounted for as much as $80 billion, or about 10% of the entire PPP fund. Bad actors exaggerated the number of workers they employed or created fake businesses to receive funding. With few processes in place to verify the information on their loan applications, many were able to swindle millions of dollars from the government. Prosecutors and financial institutions continue their attempts to track down these fraudulent payments, but it could take years to find fraudsters.
Opportunities for fraud also stemmed from economic impact payments—funds sent directly to taxpayers during the pandemic. This took the form of phishing scams—emails and text messages purportedly from the IRS telling individuals they needed to provide sensitive information in order to receive their stimulus checks. Another sophisticated phone scam involved fraudsters contacting taxpayers, telling them they owed money to the IRS and encouraging them to pay those fees by signing over their stimulus check.
Alongside these intentional fraudulent acts, mistakes by the government led to unintentional fraud. In some cases, families received economic impact payments for relatives who were deceased and were often required to return these payments to the IRS.
Whether COVID-19 payment-related fraud was intentional or the result of a government mix-up, it continues to cause huge headaches and extra work for banks.
Even as employers begin to implement return-to-work plans, remote work opportunities are still on the rise. While a flexible option for workers, remote work can lead to new opportunities for fraud.
Most companies have password protection, firewalls and other systems in place to make sure their networks are secure. However, many employees are now working on their home internet or public Wi-Fi networks. These less secure networks make it easier for bad actors to break in and commit fraud with access to sensitive company information. Some common techniques include the “man-in-the-middle” attack, which allows cybercriminals to intercept data between you and the websites you visit, along with rogue hotspots, which use names similar to legitimate hotspots to trick users into connecting to unsecure networks.
The Office of Foreign Assets Control, through the Department of the Treasury, levies sanctions to ensure that targeted regions, companies or individuals are cut off from U.S. financial services.
Recently, there has been an uptick in sanctions targeting Russia, Belarus and other countries involved in the invasion of Ukraine. With sanctions guidance from the government constantly changing, financial institutions are scrambling to keep their teams informed and in compliance. Beyond this, they also need to ensure their technology is updated to accurately filter through all financial transactions and report any suspicious activity.
This constant change and need to update technology impacts banks and financial agencies of all sizes. All transactions, no matter how small, have the potential to be flagged and reviewed for suspicious activity. Computer systems are scanning transactions for everything from suspicious keywords to foreign IP addresses to large dollar amounts. With work volume potentially increasing by tens of thousands of cases per week, sanctions analysts must review every suspicious transaction flagged by the system. This spike in cases means companies must hire more workers with the specialized skill sets to review and process these reports.
In 2020, Congress passed the Anti-Money Laundering Act (AML), which aims to help financial institutions detect and report suspicious activity involving money laundering and terrorist financing. This act requires that banks know the beneficial owner of any entity they do business with, making it significantly harder for bad actors to hide behind shell companies and disguise their identity to access funds.
Failure to comply with AML rules can lead to hefty fines for financial institutions. Banks and financial institutions of all sizes had to quickly begin monitoring transactions for suspicious activity under the new guidelines. This led to more work for analysts and raised the level of risk for companies not closely following new compliance procedures.
With the rise of cryptocurrency, the question remains if it will one day be widely accepted as currency by traditional financial institutions.
Banks will need to consider how to best regulate crypto, putting processes in place to monitor transactions as they would more traditional forms of investments. This, along with the Anti-Money Laundering Act and sanctions reporting requirements, creates additional challenges to working with a currency that gives users anonymity when transferring funds.
Establishing the Framework
Each of these fraudulent threats causes many of the same headaches for financial leaders.
Companies must ensure they have enough employees in place to handle the increase in financial crime reporting. These employees must then be trained to recognize and comply with new regulations, some of which can change frequently.
On top of this, leaders must also make sure they have the appropriate technology to help manage an influx of new cases. Faulty or old technology runs the risk of identifying false positives in transactions, leading to additional, unnecessary work for analysts.
And, of course, leaders must put the proper processes in place to address potential threats in a timely manner. This ensures they remain compliant with regulations and avoid massive fines.
Working with a Managed Solutions Consultative Partner
Businesses should consider working with a partner that provides workforce management solutions (e.g., managed solutions) in addition to staffing support to help navigate the current regulatory landscape and protect themselves from the impact of fraud.
Often, financial institutions do not have the in-house workforce to manage the vast amount of work that comes with remaining compliant and fighting fraud. A true consultative partner will deliver a team of subject matter experts with years of experience, deep knowledge of the regulation landscape and the ability to holistically manage the full process. As a more flexible option to keep up with changing workforce dynamics, many institutions are hiring a contingent workforce onsite or remotely who can offer a breadth of specialized tactics for short-term projects or assignments.
Working with a partner who has industry-wide experience and is knowledgeable about the current market can also bring significant cost savings. Not only can it help financial institutions avoid fines, but it also allows our specialized sellers the ability to tap into a strong candidate pool of key talent at a better value than big-name consulting firms.
Financial fraud will continue to change and evolve with current events and new trends in technology. By staying up to date on the current regulation landscape and partnering with solutions-focused companies, financial institutions can ensure they remain one step ahead of fraudulent activity.
Review our case studies to learn how managed solutions through Aston Carter help financial institutions meet reporting requirements and protect them from fines.
Contact us to learn how managed solutions through Aston Carter help financial institutions meet reporting requirements and protect them from fines.
Having been with Aston Carter and its affiliates for over 10 years, John Clary leads Aston Carter’s Governance, Risk and Compliance practice. In his role, he leads the delivery of our managed and talent solutions to our banking and financial services clients across the East Coast.