Report: Six kinds of financial crime spiked during the pandemic

Banks are using artificial intelligence to thwart COVID-19-related fraud.

By Margaret Lindquist | April 2021

Report: Six kinds of financial crime spiked during the pandemic

Pet adoptions skyrocketed in the early days of the COVID-19 pandemic, as quarantine-weary folks went searching for a new best friend. But another COVID-19-related increase was a surprising companion to the puppy boom: fraud.

Criminals saw an opportunity when social distancing meant that many shelters were closed for visits, and demand for adoptable pets quickly outpaced supply. Pawneet Abramowski, chief compliance officer for Community Federal Savings Bank, believes people were more susceptible to sketchy situations because they were eager to support animal shelters and rescue groups. “Fraudsters were calling up people and saying, ‘Hey, I have a pet for you to provide rescue assistance or to adopt,’” says Abramowski. “People were sending money to save animals that they thought were in danger because of COVID.”

6 types of COVID-19 financial crime

  • Fraudulent checks. Victims receive fraudulent checks and are instructed to verify information online to cash the checks. Fraudsters get personal or banking information under the guise of speeding up the process.
  • Altered checks. Fraudsters deposit altered checks, often via mobile device or ATM, with changes to the name of the payee or the amount of the check.
  • Counterfeit checks. Criminals create counterfeit checks reproduced from digital images of checks issued by the US Department of the Treasury.
  • Payment theft. Thieves steal checks from the mail, make a fraudulent claim for money, or use a stolen identity to apply for funds.
  • Phishing schemes. Phishers use emails and texts containing keywords such as COVID and coronavirus to obtain personal information, passwords, and bank account numbers.
  • Inappropriate seizure of funds. Private companies that have control over an individual’s finances illegally seize payments as wage garnishment or debt collection.

Pet adoption fraud is just one novel criminal enterprise to arise from the COVID-19 pandemic. The US Treasury’s Financial Crimes Enforcement Network (FinCen) published an advisory on February 24, 2021, that outlined 6 different types of criminal activity and provided 14 red flag indicators that financial institutions are using to determine whether a transaction is suspicious (see sidebar).

For example, Security magazine estimates that 40% of all Paycheck Protection Program (PPP) loans were fraudulent or contained misrepresented or falsified information on the application form. And the losses may be more significant: The scope of the criminal activity may not be known until 2022 or 2023. Bank leaders had to walk a fine line between quickly distributing government funds to citizens and safeguarding the relief programs from fraudulent claims. “If the banks can’t get the loans out fast enough, it’s a bad experience,” says Jason Somrak, Oracle’s chief of product and strategy for advanced analytics in the financial services group. “There was this push and pull of ‘We want to help people and get this money out to them. But at the same time, how do we protect the bank?’”

John Edison, Oracle’s global head of financial crime and compliance management products, says that the current environment makes it even more critical for banks to increase the effectiveness and efficiency of their anti-crime and compliance functions. For example, he notes, “Banks need to adjust their fraud detection controls or create new ones to find new money laundering or fraud patterns designed to take advantage of the pandemic.” Banks are focusing on two critical areas: streamlining digital customer onboarding and ensuring that crime detection capabilities are adaptable and automated.

“Machine learning can look at hundreds of features to determine a criminal’s fingerprint and detect similarities,” says Somrak. And he believes that for most banks, the improvement in detection capabilities won’t mean a reduction in headcount. “It’s the opposite—we want to surface contexts quickly and easily, so analysts are going down the right rabbit holes and more criminal activity is discovered,” he adds. AI enhancements to a bank’s fraud detection capabilities will help reduce the number of false positives that rules-based systems generate and will help detect unknown risks, such as customers who are connected to entities that have already been reported for financial crimes.

At the same time, banks are implementing enhanced Know Your Customer (KYC) processes, such as asking prospective customers to display their ID next to their face on a video screen. “There’s technology in the background that looks at all the particulars of that ID and verifies in real time that the face that’s talking to you is the same face that’s on the passport or national ID,” says Frederic Boulier, Oracle’s global head of financial crime and compliance management solution consulting.

“We expect fluctuating business conditions and changing criminal activity to become our new normal,” says Edison. “These actions will also give banks the resilience and agility they need to navigate this period successfully.”

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Photography: Laurence Dutton/Getty Images

Margaret Lindquist

Margaret Lindquist

Margaret Lindquist is a senior director and writer at Oracle.