ABC and AML Enforcement Following COVID-19 Crisis

We have previously discussed how economic disruption caused by the COVID-19 crisis would change our strategies for working with clients, suppliers, agents and other third-party intermediaries and representatives. The companies should be mindful that relief packages and government aid offered by most countries to stimulate the economy will bring increased risks of fraud and abuse. With time it may trigger an uptick in a number of cases arising from anti-bribery and a corruption and anti-money laundering laws, securities laws and mail and wire fraud laws. A number of international organizations and enforcement agencies have issued statements and guiding principles in response to challenges caused by COVID-19.

In light of high corruption risks posed by the pandemic, the OECD Working Group on Bribery issued a statement reaffirming its commitment to fight foreign bribery and said that it will examine how it could be affected by the corona virus.[1] It further issued a policy brief with the focus on ensuring that the global response to the crisis is not undermined by corruption and bribery.[2] OECD asserts that identifying and addressing corruption risks will be “crucial to protect trust in public institutions and businesses,” as COVID-19 emergency measures take greater effect. Private sector actors are urged to:                - maintain good governance and robust internal controls;
               - carefully consider the use of business intermediaries, especially in manufacturing, supply chains and exports;
             - discourage facilitation payments (in case those have not been already prohibited).

The US Securities and Exchange Commission, which is responsible for the civil enforcement of the Foreign Corrupt Practices Act (FCPA) along with the Department of Justice, issued a statement emphasizing “the importance of maintaining market integrity and following corporate controls and procedures.” While the statement is primarily concerned with inside information and illegal securities trading, the overall message highlights that in these unprecedented times, the main priority is to ensure protection from fraud and illegal activities and maintain fairness of the markets.[3] As corruption tends to thrive in times of crisis, we can anticipate increased enforcement, as it happened, for instance, in the aftermath of the 2008 financial crisis that brought about much more FCPA enforcement actions resulting in higher civil fines.

In the field of combating money laundering and terrorist financing, the Financial Action Task Force (FATF), whose recommendations are recognized as the global standards, has issued a report, identifying challenges and good practices related to threats and vulnerabilities arising from COVID-19.[4] Among the emerging money laundering risks, FATF identified increased fraud (including impersonation of government officials, counterfeiting of essential goods, fundraising for fake charities and fraudulent investment scams) and cyber crime (attacks using links to fraudulent websites or malicious attachments). In addition, other money laundering vulnerabilities relate to changing financial behaviors:
                - transactions are increasingly conducted online, including customer on-boarding and identity verification;
               - with tighter credit and some of the traditional financing sources becoming unavailable, individuals and companies may be seeking financing                    outside the formal economy, including non-traditional or unlicensed lenders;
                - various government stimulus packages involving loan arrangements may be abused by criminals to launder funds.

Overall, while acknowledging difficulties in implementing anti-money laundering obligations, caused by financial and operational pressures, FATF is encouraging full-use of flexibility built into the risk-based approach to combating money laundering and terrorist financing.

Similarly, the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, playing a central role in the fight against money laundering, emphasized that during the COVID-19 pandemic, it expects financial institutions to continue following a risk-based approach and diligently adhere to their obligations, where appropriate, implementing “innovative approaches” to meeting compliance obligations.[5] It acknowledged however that there may be some reasonable delays in compliance.

The above indicates that the private sector response to the crisis should involve mechanisms for preventing and detecting corruption, bribery and money laundering. Good governance and strong internal controls will help mitigate long term consequences of COVID-19, as efforts will shift from addressing immediate health crisis to fostering economic recovery.

[1] Statement by the OECD Working Group on Bribery, April 22, 2020, https://www.oecd.org/corruption/the-global-response-to-the-coronavirus-pandemic-must-not-be-undermined-by-bribery.htm
[2] OECD (2020), Policy Measures to Avoid Corruption and Bribery in the Covid-19 Response and Recovery, https://read.oecd-ilibrary.org/view/?ref=133_133216-hn3bqtlvkw&title=Policy-measures-to-avoid-corruption-and-bribery-in-the-COVID-19-response-and-recovery
[3] Statement from Stephanie Avakian and Steven Peikin, Co-Directors of the SEC’s Division of Enforcement, Regarding Market Integrity, March 23, 2020, https://www.sec.gov/news/public-statement/statement-enforcement-co-directors-market-integrity
[4] FATF (2020), COVID-19-related Money Laundering and Terrorist Financing - Risks and Policy Responses, FATF, Paris, France, http://www.fatf-gafi.org/publications/fatfgeneral/documents/covid-19-ml-tf.html
[5] FinCEN’s April 3, 2020 COVID-19 Notice: https://www.fincen.gov/news/news-releases/financial-crimes-enforcement-network-provides-further-information-financial