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April 16, 2021

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Contact tracing and COVID-19 director’s briefing

Banking & finance

COVID pushes criminals away from cash and into digital banking

Statistics show that the COVID-19 global pandemic has had a major impact on the criminal economy and led to a dramatic increase in fraud. Dr Nicola Harding, Academic Advisor at We Fight Fraud and Lecturer in Criminology at Lancaster University Law School, explores how the pandemic has changed criminal behaviour and its implications for the banking and finance industries.

Dr Nicola Harding

In “#CRIME: How COVID-19 forced ‘everyday’ criminal commerce into the digital banking age”, my recent whitepaper with We Fight Fraud (WFF) shows how criminals are moving towards transacting the proceeds of their crimes via bank transfers and trading illegal goods on social media.

We used the WFF team’s unique access within the criminal world to help understand the human behaviours, decision making, needs and pressures that have driven fraud and financial crime during the COVID-19 pandemic.

By taking a holistic approach and using our unique access, our research shows how entwined criminal and legal social and financial networks are – and offers insights into current criminal financial activity.

The paper produced two significant findings. Firstly, it shows how individuals seeking illicit products and services use social media networks to engage with criminal elements. Social media has opened the criminal world to clients that would normally struggle to access illicit products due to lack of knowledge or connection to the criminal world.

Secondly, it reveals how, thanks to the ubiquity of the digital world, criminals now accept payments via bank transfer.

Our study highlights how ‘everyday’ low level criminal commerce is now entering the legitimate financial services sector through multiple small denomination bank transfers. The mixture of social media activity and increased use of bank transfers to facilitate criminal behaviour has meant that COVID-19 has played a significant role in pushing criminal commerce into the digital banking age.

This poses new challenges for the policing of low-level crime, as the use of social media, third-party communication apps, and digital payments rather than cash-based in person transactions can obscure criminal activity in the short term.

Crime statistics show the significant social changes brought about by multiple and enduring “lockdowns”. England and Wales have seen a drop in physical crimes such as burglary (theft offences fell by 21%), but rises in serious violence, stalking and harassment (mostly online), most types of fraud (notably a 61% increase in “remote banking” fraud and 27% increase in “online shopping and auctions” fraud), and drug related offences (up 16%).

There is an overall statistical crime drop of approximately 5% in England and Wales. However, this is misleading as there has been significant rises in areas that have a great impact on wider criminal behaviour. Computer misuse is a crime category that is excluded from this national statistic, and “hacking – social media and email” saw a 53% increase, while “computer viruses and malware” saw a 40% increase during the pandemic.

This indicates that though persistent and prolific low-level offenders have been diverted away from their usual criminal activities, such as shoplifting, the pandemic has created additional criminal opportunities for serious organised crime, fostering a boom in the illicit economy.

One of the most significant findings from the study is how criminal commerce has had to transition into digital transactions. This new “cashless” criminal economy was a repetitive theme within all of those interviewed, who either admitted to sending or receiving money by bank transfer for illicit goods.

Cash-BankingFinance-21

Frankie Dowling, Head of Compliance at fintech company, Amaiz, offers a view on how banks are taking action against these methods: “Amaiz, takes a zero tolerance approach to crime. We use cutting edge technology to identify and interpret transaction patterns and identify any potential proceeds of crime. We also have human beings at the other side of that technology, with a heart, who care about what we do! People often forget that those involved in compliance are not there to meet a standard or tick a box, we do this because we feel passionately about preventing crime.

“Challenger banks and smaller institutions, like Amaiz, are obviously subject to the same regulations and screening as larger institutions. However, in my experience of both, smaller institutions tend to conduct more manual reviews and often identify concerns earlier. We know that we’re likely to be targeted so are extra vigilant.

The operational changes we found mirror those experienced by legitimate businesses during the pandemic, who reported a dramatic decrease in the use of cash. We found that the preferred option for criminals is now bank transfers, while some are also using PayPal or premium rate telephone numbers to send funds.

This suggests that there are opportunities for fraudsters and other more serious organised criminals, as other parts of the criminal economy need regular and reliable access to bank accounts or money mules to transfer money undetected.

Our findings will alarm legitimate businesses, especially banks and FinTech organisations, who are being used to launder money, in breach of the regulations governing them.

WFF’s whitepaper will be made available and discussed in a panel session at We Fight Fraud Live on 28th April 2021. Places are free, and the event, sponsored by Lexis Nexis, is designed to help greater understanding about the impact of COVID-19 on criminal behaviour, and to hear from leading fraud and financial crime experts on the most current threats and how to manage them.

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