With 2021—a year full of interesting developments and thought-provoking incidents within the world of financial crime and compliance—nearing its end, now seems time to reflect on the last 12 months and recap three major topics and talking points that have stood out this year.
Covid-19’s impact on fraud
The ongoing pandemic has provided a perfect storm for an increase in both new and traditional frauds. The combination of health and financial threats has made individuals and companies vulnerable, creating more opportunities for fraudsters to operate. Criminals have exploited and adapted to the uncertainty, with a rise in online data harvesting and a fall in check and contactless card fraud.
With individuals across the globe being forced to work from home and companies and government agencies often understaffed or unprepared, fraudsters took the opportunity to ramp up their efforts through a range of schemes, including:
- Targeted email scams;
- Bank loan scams;
- Vaccine fraud;
- Fake tech support scams;
- Fake or nonexistent personal protective equipment (PPE) scams;
- Social media scams requesting donations for illegitimate or nonexistent charitable organizations;
- Online romance scams; and
- Furlough scheme or stimulus check fraud.
Fraud statistics from the past 12-18 months support the assertion fraudsters are thriving in the current climate. In July, the Crime Survey for England and Wales estimated there were 4.6 million fraud offenses in the year ending March 2021, a 24 percent increase from the year ending March 2019. In September, further reports revealed how more than £4 million (U.S. $5.4 million) on average was stolen by fraudsters per day in the United Kingdom in the first half of the year, an increase of 30 percent on the same period in 2020.
The International Compliance Association (ICA) is a professional membership and awarding body. ICA is the leading global provider of professional, certificated qualifications in anti-money laundering; governance, risk, and compliance; and financial crime prevention. ICA members are recognized globally for their commitment to best compliance practice and an enhanced professional reputation. To find out more, visit the ICA website.
Other countries have faced similar challenges. In the United States, the Department of Justice states law enforcement is on “high alert to investigate reports of individuals and businesses engaging in a wide range of fraudulent and criminal behavior.” The Central Bank of the United Arab Emirates, meanwhile, published a report in September on the risk of money laundering and terrorist financing, fraud, bribery, corruption, charity and disaster fraud, cyberattacks, and external fraud caused by the pandemic.
The ongoing evolution of crypto assets
The growth and development of cryptocurrencies and crypto assets has been fascinating to follow over the past 12 months. The price of Bitcoin, the most well-known cryptocurrency, has risen from approximately $29,000 at the beginning of 2021 to approximately $47,000 at the time of writing, with hundreds of new cryptocurrencies being released every month. According to CoinMarketCap, the number of cryptocurrencies increased from 10,115 in May to more than 16,000 as the end of the year approaches.
With the crypto space expanding, it comes as no surprise to see enhanced scrutiny and further regulatory developments, including the following:
El Salvador adopts Bitcoin as legal tender. In September, El Salvador made history by becoming the first country to adopt a cryptocurrency as legal tender. Bitcoin now operates alongside the U.S. dollar as a means of paying for goods and services within the country, in addition to the cryptocurrency being accepted as a method of payment for tax contributions.
The news raised concerns and criticism, including the consequences of such a volatile form of currency for both merchants and consumers and increased risks of money laundering, financing of terrorism, and other financial crimes. While the government has promised to introduce the necessary safeguards to mitigate these risks, it will be interesting to see how the situation develops over 2022.
Crypto asset mining bans. Throughout the year, several countries made the decision to either ban, or begin the process of banning, crypto-related activity, including cryptocurrency transactions and crypto asset mining.
In May, China banned financial institutions and payment companies from providing any service related to transactions involving cryptocurrencies. The move came amid concerns highly volatile digital cryptocurrencies could undermine the existing financial and monetary systems in place within the country. China also made the decision to ban crypto asset mining. The reason given was the electricity consumption required to conduct the practice.
More recently, Swedish regulators have also called for a mining ban, citing concerns surrounding the environmental impact of the process.
Other countries might impose similar restrictions in the months and years to come.
The rise of the NFT. “Non-fungible tokens” have taken the world by storm over the past 12 months, with the popularity and value of NFTs soaring. An NFT is a unique digital token that is used to represent an asset.
NFTs, once acquired, can be held by their owners as memorabilia or investments, traded with other NFT dealers or collectors, or sold for cryptocurrency or fiat currency.
NFTs are often purchased via cryptocurrencies, and it has been well-documented the money laundering risks crypto poses. In addition, NFTs are also a target of forgers and hackers. Using sophisticated techniques, criminals could hack the accounts on NFT marketplaces and transfer the assets to their own account before selling them on.
With NFTs being a relatively new phenomenon, they are currently not specifically regulated in most jurisdictions. However, like many activities surrounding crypto assets, NFTs could fall within existing regulatory frameworks.
The importance of ESG
Over the last few years, particularly the past 12 months, we have seen increased importance and corporate focus placed on environmental, social, and governance (ESG) factors. Shifting demographic changes, public awareness, and social consciousness has accelerated the need to embrace ESG responsibilities. Policymakers are now implored to factor ESG components into their decision-making process.
Companies taking a conscientious ESG approach provide many obvious benefits to the environment and society, but it can be overlooked the firms themselves can also benefit greatly from implementing strong ESG strategies. These benefits include:
- Improved reputation and enhanced public perception;
- Increased appeal to investors;
- Long-term sustainability;
- Ability to attract and retain employees;
- Increased employee happiness;
- More revenue opportunities;
- Bettering the environment and society; and
- Reduced regulatory risk.
One of the main questions surrounding ESG is who should be responsible for implementing and governing the process. Some believe it is the responsibility of the board or human resources; others contend an organization’s compliance department is better suited given it is already well-equipped to perform many of the necessary ESG functions, including overseeing policies and procedures, managing risk, testing, measurement, and surveillance.
The past 12 months serve as a reminder compliance professionals need to be agile and adaptable to change. We look forward to what 2022 has in store—and the potential novelties we could be reviewing this time next year.
The International Compliance Association is a sister company to Compliance Week. Both organizations are under the umbrella of Wilmington plc.