Fabian Sanchez | COVID-19 and money-laundering implications for Jamaica

It is said that in every crisis, there is opportunity. As such, one should never waste a good crisis. In as much as this is true of those engaged in honest enterprise, it is also true for those who are involved in enterprises which society, through its laws, frown upon. Jamaica, as a small open economy is vulnerable to money laundering and increasingly so during this period of global pandemic.

Money laundering is, in simple terms, the use of the established financial system to ‘wash’ the proceeds of crime – meaning monies obtained through illegal means. Such means include fraud, extortion, drug running, arms trafficking and corruption, just to name a few.

In the Jamaican context, we are not unfamiliar with the lottery scam, which has been illicitly enriching many within our society and influencing the level of violence and criminality, particularly in the western end of the island. This serves as a prime example of fraud, perpetrated on unsuspecting and vulnerable individuals.

The Financial Action Task Force (FATF), in its recent publication, COVID-19-related Money Laundering and Terrorist Financing, Risk and Policy Response, May 2020, lists “Increased Fraud” among its evolving money-laundering and terrorist-financing risk. Other activities associated with fraud include impersonation, fraudulent fundraising for charities, and counterfeiting.

Against this background, it is likely that Jamaica will continue to be affected by the lottery scam, and since fraudsters are not confined to a jurisdiction, Jamaicans should be increasingly vigilant about protecting themselves and their financial assets against pilferage through activities such as skimming.

Jamaica’s Major Organised Crime and Corruption Agency, in a publication on its website dated July 3, 2019, cited that in 2016, Jamaica lost J$12 billion to cybercrime. It went on to indicate that according to the 2018 Financial Stability Report published by the Bank of Jamaica, there were 62 counts of Internet banking fraud in Jamaica totalling J$38.2 million in losses between January and September 2018.

The COVID-19 pandemic has brought into sharp focus the benefits of the digital economy and has also escalated the adoption of digital platforms for business in this age of social and physical distancing and limitations on gathering in public places. In as much as businesses must adopt their platforms to meet the needs and demands of this period in history, fraudsters are also using this opportunity to adopt and increase their efforts digitally.

If we continue to explore the issue of fraud with its money-laundering implications, we can explore how this could be an issue for the Government of Jamaica as it implements its COVID-19 Allocation of Resources for Employees (CARE Programme).

EXPLOITATION OF STIMULUS

The FATF publication, in exploring the COVID-19 money-laundering and terrorist-financing risk, raises the issue of the exploitation of stimulus measures. According to the FATF, “FATF and FSRB members report that a small proportion of economic support directed to businesses and individuals may present potential fraud risks and consequent ML”.

One could say that this reality is further underscored by an article published in the The Gleaner on June 5 entitled “Christie serves notice – Integrity Commission CEO says oversight body will monitor COVID-19 spending.” Of note, the minister of finance appears very cognisant of the potential for exploitation of the CARE Programme and has invited Auditor General Pamela Munroe Ellis to audit the programme.

With fraud risk associated with government stimulus being a possibility, financial institutions through which such payments are channelled should ensure that their ‘Know Your Customer’ programmes are strong in order to mitigate the risk of facilitating money laundering.

While the risk profile of a customer and the product risk will determine the extent of the due diligence performed and monitoring required, accounts opened by financial institutions with reduced due diligence requirements still carry an inherent money-laundering risk, which could manifest itself if robust controls and monitoring are not in place to ensure that customers who use the opportunity to open such accounts to facilitate the COVID-19 benefits from the Government, do not change the profile of the account by way of transactions.

Money laundering traverses a three-stage process: placement, where the illegitimate funds enter a financial institution; layering, the converting of funds within the financial system to different asset classes; and integration, the stage at which the money has been washed and enters the financial ecosystem through transactions appearing legitimate.

In the context of COVID-19, where there may be a downturn in financing opportunities for businesses, the opportunity exists for illegitimate cash within the economy to find a foothold within legitimate businesses. This point is underscored by the FATF in highlighting the vulnerabilities of economic downturn where “criminals may seek to invest in real estate or troubled businesses to generate cash and mask illicit proceeds.”

On the cusp of the COVID-19 pandemic, financial institutions must, therefore, remain vigilant, and their money laundering and counter terrorism financing programmes must be robust to mitigate their risks during this period as the lottery scam continues to be an issue locally.

Further, as the society increases its reliance on digital commerce, both financial institutions and consumers must remain aware of the risk of cybercrime and the crippling effect it can have on an organisation and personal finances.

In this period when government spending is significantly increased in providing stimulus to Jamaicans negatively affected by COVID-19 through job losses, the potential for exploiting the CARE programme is a real concern, which could bring the programme into disrepute.

With financial institutions innovating to meet the demands of customers and to open low-risk accounts in support of the Government’s CARE programme, they must implement robust controls to ensure that these accounts do not graduate to higher-risk transactions without the commensurate due diligence, controls, and monitoring. Finally, businesses in desperate need of financing should be keen on ensuring that any financing they obtain is through legitimate and verifiable sources so as to mitigate the risk of being infiltrated by criminal proceeds.

- Fabian Sanchez is a certified anti-money laundering specialist. Send feedback to AMLFundamentals@outlook.com.