Illegal Activity Risks Soar as Pandemic Spreads

The COVID-19 pandemic has created a perfect storm for illicit activity, with experts warning of increased risks of money laundering and terrorist financing (ML/TF). The situation is so dire that authorities are urging financial institutions to take extra precautions to prevent abuse.

A Growing Concern

According to recent reports, there is a growing concern that the pandemic could be exploited by criminal organizations to launder illegal funds. Charitable donations, intended to support those affected by the virus, could also be misused for ML/TF purposes.

FATF’s Warning

The Financial Action Task Force (FATF) has issued a statement urging countries to work closely with non-profit organizations (NPOs) to ensure that aid reaches its intended recipients in a transparent manner.

Key Risks Identified by the CSSF

Luxembourg’s financial regulator, the Commission de Surveillance du Secteur Financier (CSSF), is stressing the importance of effective systems and controls to prevent ML/TF. The CSSF is urging supervised professionals to focus on five key areas:

AML/CFT Business Continuity

Financial institutions must ensure that their anti-money laundering and counter-terrorist financing controls remain fully operational, even in the face of remote working arrangements.

Transaction Monitoring

Institutions must closely monitor transactions for unusual or suspicious patterns, particularly those related to customers affected by the economic downturn.

Customer Due Diligence

Financial institutions must ensure that they have adequate processes in place to verify the identity and legitimacy of their customers.

Cyber Security Concerns

The CSSF is also urging financial institutions to review their cyber security controls, as the pandemic has created a heightened risk of cyber attacks. Institutions are advised to:

Implement Cyber-Risk Awareness Campaign

Rapidly deploy a cyber-risk awareness campaign to educate employees on the risks and consequences of cyber attacks.

Review Access Arrangements and Controls

Check and confirm access arrangements and controls to ensure that they are secure and up-to-date.

Strengthen Monitoring, Logging, and Data Loss Prevention

Review current monitoring, logging, and data loss prevention arrangements to identify areas for improvement.

Identify Areas for Improvement

Identify areas where systems and application security needs strengthening to prevent cyber attacks.

Engage with the Cybersecurity Community

Engage with the cybersecurity community and proactively exchange “indicators of compromise” to stay ahead of potential threats.

Time for Action

The CSSF is urging financial institutions to take immediate action to mitigate these risks. The stakes are high, as the pandemic has created a perfect storm for illicit activity. It is crucial that institutions prioritize ML/TF prevention and ensure that their systems and controls are robust enough to detect and prevent illegal activity.

Conclusion

In the face of this growing threat, it is essential that financial institutions work closely with authorities and other stakeholders to prevent the misuse of charitable donations and ensure that aid reaches those who need it most.