Increased Financial Crime Risks to Businesses From All Sides at an Unprecedented Time

With humanity experiencing one of the deadliest pandemics in the modern era, industries have adapted to the change with accelerated digital transformation and remote work, keeping a physical distance from each other. Unfortunately, criminals have also morphed their tactics and schemes to take illegal advantage of people’s good faith and financial interest.

Ranging anywhere from financial scams and frauds to government imposters and cybercrime, not only individuals but also businesses have been targets of criminals. Especially for businesses, there are other financial crime risks other than financial scams, including but not limited to illegal activities in the supply chain which often involve money laundering.

Covid-induced financial hardship puts pressure

As many governments instated stay-at-home orders in their attempt to curb the spread of the virus, virtually all sectors have seen an unprecedented standstill in economic activity. Until experts and government officials have gathered data on the fatality of the Omicron variant and gradually reopened their borders, airplanes were parked in garages and ports were closed, paralyzing global logistics.

Likewise, businesses have also complied with their government’s policies, quickly shifting to work-from-home, though unpreparedly without establishing secure connections for their employees to access remotely. Consequently, there has been a noticeable increase in security breach attempts, targeting remote working employees to gain illicit access to businesses and organizations. McAfee, Intel’s computer security software company until 2017, reported that there has been a noticeable increase in the number of exposed remote desktop protocol ports since March 2020.

HSBC Canada reports that the financial crime risk (FCR) has increased for both individuals and businesses during the pandemic. Source: HSBC Canada

The International Criminal Police Organization, commonly known as Interpol, warned, “As the growing number of people relying on online tools overburdens the security measures put in place prior to the virus outbreak, offenders search for more exposures to steal data, make a profit or cause disruption.”

However, attacks from outside are not the only crime businesses have to worry about. When organizations focus more on recovering sales and revenues to have a firm standing during an unprecedented time, internal oversight and control inevitably become loose, making internal fraud more likely. Such a problem exacerbates as remote working further adds to the difficulty in oversight with limited employee interaction and much lacking security measures outside of the office.

Increasing organized crimes in supply chains

The global business market is also troubled by its trade partners. There is an increasing number of counterfeit reports, especially for pharmaceutical products, as the demand for such goods has skyrocketed worldwide since the pandemic started. Late last year, The New York Times reported that counterfeit masks are still a widespread issue in the United States even after almost two years of living through coronavirus. The National Institute for Occupational Safety and Health (NIOSH) under the Centers for Disease Control and Prevention (CDC) regularly releases a list of counterfeit respirators on its website to protect its citizens.

On the other hand, some scammers even planned to not send the promised products to the buyer. For instance, when the virus just started to spread in 2020, Laval University’s Quebec City University Hospital Center was put in charge of acquiring medical supplies, joining the fierce hunting for filtered masks. Quebec-residing businessman Patrick Ledoux approached the hospital officials offering that he could purchase 5 million N95 masks from a 3M plant in China for $45 million.

However, when he tried to transfer the funds to foreign bank accounts, TD Bank froze the account because the American Federal Bureau of Investigations and Interpol had previously warned governments about a spike in similar frauds. The government and bank later confirmed that 3M did not have large supplies of N95s available in China at the time. Although Ledoux was not charged for any specific illegal activity, a judge deemed that there was likely a fraud involved, allowing the funds to be frozen.

Few other caveats and suggestions

Companies must check whether they are unintentionally involved in illegal financial activity through their supply chains, especially money laundering. This is, in fact, not only a problem at the business level but also a problem at the governmental or national level, such as for internationally sanctioned regimes.

Microsoft reported that the state-backed hackers from North Korea (supposedly named Zinc and Cerium) and Russia (supposedly named Fancy Bear) attempted to break into at least nine health organizations, including Pfizer, in November 2020. Photo: Navy Petty Officer 1st Class Tim D. Godbee, U.S. Department of Defense / Licensed under Public Domain Mark 1.0

Take North Korea for example. Before the rogue nation reported its first Covid-19 case in early May of this year, the international community had suspected that the country’s garment manufacturers are trying to benefit from the interrupted production lines and supply chains in China and South Korea at the peaks of the pandemic.

As the regime struggles to climb out of the Covid-induced global economic slowdown, much more so than the free world nations experience, it has intensified its cybercrime efforts. Microsoft revealed that the state-backed hackers from North Korea attempted to break into health organizations, including Pfizer, in November 2020 to get their hands on the vaccine research data. It is also alleged that the regime’s hackers stole nearly $400 million in cryptocurrency in 2021 alone.

It is nearly impossible for businesses to predict the future course of the pandemic or when it is likely to end. And, even if the current coronavirus pandemic ends, many experts confidently warn that there will be many more pandemics in a shorter time frame, unfortunately. Companies, not just governments, must then prepare accordingly, adapting the lessons they have learned so far. They must continue thoroughly checking their supply chains to make certain that they are not inadvertently participating in illicit activities, such as money laundering. Businesses must also increase their financial crime risk assessment and internal oversight to prevent external and internal frauds. Lastly, in order to avoid security breaches and cybercrimes as much as possible, companies should provide secure connections and other necessary infrastructure for those who work from home.