FinCEN advisory details coronavirus risks for financial industry

“While this advisory focuses on medical-related scams, financial institutions should note that criminal actors may use similar fraudulent methods involving non-medical-related goods or services,” FinCEN’s advisory states. “Many COVID-19-related scams are similar to those observed before the pandemic, and illicit actors have modified their schemes to take advantage of, and profit from, the pandemic by victimizing innocent people and businesses.”

As described by FinCEN in the guidance, common scams and a non-exhaustive list of their related red flags are summarized below.

Fraudulent cures, tests, vaccines, and associated services. Financial indicators of these scams may include:

• A web-based search or review of advertisements indicates that merchant is selling at-home COVID-19 tests, vaccines, treatments, or cures.
• The customer website includes a name/web address similar to that of a well-known company, has a limited Internet presence, or is located outside the United States.
• The product’s branding images found in an online marketplace appear to be slightly different from the legitimate product’s images, which may indicate a counterfeit product.
• The merchant is advertising the sale of highly sought-after pandemic-related goods at either deeply discounted or highly inflated prices.
• The merchant is requesting payments that are unusual for the type of transaction or unusual for the industry’s pattern of behavior.

Non-delivery fraud of medical-related goods. Financial indicators of these scams may include:

• Merchants are reluctant to provide the customer or the financial institution that’s processing the transaction with invoices or other documentation supporting the stated purpose of trade-related payments.
• The financial institution doesn’t understand the merchant’s business model and has difficulty determining the true nature of the company and its operations.
• The merchant cannot provide shipment-tracking numbers to the customer or proof of shipment to a financial institution so it may process related financial transactions.
• The merchant claims several last minute and suspicious delays in shipment or receipt of goods. For example, the merchant claims the equipment was seized at port or by authorities, that customs has not released the shipment, or that the shipment is delayed on a vessel and cannot provide any additional information about the vessel to the customer or their financial institution.
• The merchant cannot explain the source of the goods or how the merchant acquired bulk supplies of highly sought-after goods related to the COVID-19 pandemic.
• A newly opened account receives a large wire transaction that the accountholder failed to mention during the account-opening processes.

The FinCEN advisory also lists several suspicious identifiers compliance officers should watch for. These include businesses that have been established within the last few months, lack a physical presence or address, and/or lack an Employer Identification Number.

Other red flags include businesses that have a vague or inappropriate company name, multiple unrelated names, a noticeable discrepancy between the address and a public record search for the company or the street address, and/or the merchant is located in a high-risk jurisdiction or region that’s not usually associated with the merchandise they are selling.

Price-gouging and hoarding of medical-related supplies. Financial indicators of these scams may include:

• The customer begins using money services or the bank account differently—such as receiving deposits for the first time with payment messages indicating they’re for the Internet-based sale of medical goods, disinfectants, sanitizers, and paper products.
• The customer’s account is receiving or sending electronic fund transfers to/from a newly established company that has no known physical or internet presence.
• The customer’s account is used in transactions for COVID-19-related goods, such as masks and gloves, with a company that’s a non-medical supply distributor, involved in other non-medical-related industries, or isn’t known to have repurposed its manufacturing to create medical goods.
• The customer makes unusually large deposits inconsistent with the customer’s profile or account history.

FinCEN also recommends keeping an eye on circumstances where the company, merchant, or business owners have been identified by a U.S. authority—such as the Federal Trade Commission, the Food and Drug Administration, or the Department of Justice—as selling fraudulent products, or where domestic or foreign governments have identified the merchant or its owners as being associated with fraudulent and criminal activities.

Also, be weary of customers who use their personal accounts for business purposes or for business-related transactions for COVID-19-related items, “which could indicate that the selling merchant is an unregistered or unlicensed business or is conducting fraudulent medical-related transactions,” FinCEN said.

More guidance to come

FinCEN noted this is the first of several advisories it intends to issue concerning financial crimes related to the COVID-19 pandemic. FinCEN also issued a companion notice that provides detailed filing instructions for financial institutions, which it said will serve as a reference for future COVID-19 advisories.

The advisories are based on FinCEN’s analysis of COVID-19-related information obtained through public reports, Bank Secrecy Act (BSA) data, and law enforcement partners. FinCEN said it “will issue financial analyses and intelligence, as appropriate, to financial institutions to help them detect, prevent, and report suspected illicit activity.”

“As no single red flag is necessarily indicative of illicit or suspicious activity, financial institutions should consider additional contextual information and the surrounding facts and circumstances—such as a customer’s historical financial activity; whether the transactions are in line with prevailing business practices; and whether the customer exhibits multiple indicators—before determining if a transaction is suspicious or otherwise indicative of fraudulent COVID-19-related activities,” FinCEN advised.

“In line with their risk-based approach to compliance with the BSA, financial institutions also are encouraged to perform additional inquiries and investigations where appropriate,” FinCEN added. “Some of these red flags are common indicators of fraudulent merchant activity committed by shell or fraudulent retail or wholesale business operators.”