As Covid-19 creates the ‘perfect storm’ for fraudsters, the pressure is on for regulated firms to ensure their AML solutions are fit for purpose

There is no doubt that Covid-19 has impacted - and will continue to impact - the way businesses function. A combination of restricted travel, remote working and an increased reliance on technology has meant businesses all around the world have had to adapt.

And while we are all well aware of the logistical and operational challenges this has created, many may not be aware of the fact that the increased pressure, the uncertainty and the often ‘rushed’ move over to remote working has also made organisations more vulnerable to fraud and other financial crime.

According to a recent report by the Association of Certified Fraud Examiners (ACFE)* the pandemic has opened the door to “the increased pressure, opportunity, and rationalisation that can lead to fraud” with 68% of anti-fraud professionals saying they have experienced or observed an increase in fraud levels during the pandemic.

Furthermore, 93% said they expect to see an increase in fraud over the next 12 months - more than half of whom said they expect this increase to be ‘significant’.  

And it is not just the pandemic that has increased the threat of fraud and other financial crime. The FCA has also warned that the US’ decision to leave Afghanistan is also likely to have an impact on global financial crime. It recently issued a warning to regulated firms about the heightened risk that they may be used to ‘further financial crime’ urging them to establish and maintain systems and controls to counter this increased danger.

So, what does this mean for those responsible for compliance and anti-money laundering within regulated businesses? There clearly needs to be a bigger emphasis on fraud prevention, but this is tough, especially when you consider that most respondents to the ACFE survey said that preventing, detecting and investigating fraud is notably more difficult in the current ‘remote;’ working environment.

According to John Dobson, CEO of anti-money laundering firm SmartSearch, a key weapon in the fight against fraud and money laundering is proper customer due diligence and verification, something that many firms were already failing to do, and others have failed to do properly as a result of the pandemic.

“One of the biggest enablers of money laundering and other financial crime is poor customer verification,” said Dobson, “and it is getting worse, with the ACFE report showing 57% of professionals have observed an increase in fraud related to ID theft during the pandemic and 79% expect a further increase over the next 12 months.  

“Unfortunately, many firms were already failing to run proper checks even before Covid-19 hit, while others have struggled to adapt their verification methods to a remote working environment.”

Dobson says that the vast majority of regulated firms still rely on manual AML procedures to run verification checks and customer due diligence on their clients and have therefore struggled to keep on top of compliance while working remotely.

Plus, says Dobson, not only are manual checks problematic because they cannot be done remotely, but also, that they are simply not robust enough to be relied upon.

“As a result of the pandemic, many businesses are now working more flexibly, with staff spending at least some of their time working from home, and therefore, any regulated firms still relying on manual checks of physical documents are struggling to identify and verify their customers.

“But, if these businesses were to switch to a cloud-based online platform, not only would they be able to check customers without having to see them or their documents in person, they’d save time and money because it is so much quicker and easier to run an electronic check and they’d be able to rely on the accuracy of the result.”

Dobson also argues that, unlike legacy systems, SaaS solutions such as cloud-based verification platforms, are much more agile because they have the power and freedom to adapt, develop and innovate to ensure they are always one step ahead. For example, in response to the increased risk of fraud, and the problems many firms are facing in trying to complete checks remotely, SmartSearch has launched SmartDoc - the most advanced document verification system on the market.

It uses a combination of cutting-edge facial ID technology and a level of expert analysis at the same level as border security officials to provide a highly accurate and robust customer due diligence check. SmartDoc not only confirms whether an ID document is genuine and unaltered, but also that it belongs to the person presenting it, providing an additional layer of security to identity checks.

Once SmartDoc has verified the ID, SmartSearch then automatically screens against politically exposed persons (PEP) and sanctions lists and delivers the result in seconds. Each and every check is then recorded and monitored on an ongoing basis, alerting clients to any changes they need to be aware of.

Dobson concludes: “With fraud on the increase and regulators coming down hard on any firms not meeting their AML obligations, there has never been a better time to ditch the documents and switch to an online AML solution.”

*stats taken from FRAUD IN THE WAKE OF COVID-19: Benchmarking Report  a survey of 1,851 Association of Certified Fraud Examiners (ACFE) members about how fraud risks and anti-fraud programs are changing in the current environment