Some Commentary on the Unfortunate Relationship Between Crisis and Fraud
The Financial Crimes Enforcement Network (“FinCEN”) released today an update (“Update”) on its March 16, 2020 COVID-19 Notice, on which we previously blogged, for the stated reason of assisting “financial institutions in complying with their Bank Secrecy Act (BSA) obligations during the COVID-19 pandemic, and announc[ing] a direct contact mechanism for urgent COVID-19-related issues.” Further, the Update states that “FinCEN is committed to promoting the success of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), including the need to facilitate expeditious disbursal of CARES Act funds.” This post will summarize briefly the Update, and make a few high-level comments.
The COVID-19 pandemic — pernicious, unpredictable and continually evolving — resists facile pronouncements. With that caveat, it is rational to predict that many financial institutions subject to the BSA will face significant issues in the very near future because of the unfortunate confluence of increased fraud schemes seeking to capitalize on the pandemic, coupled with the fact that many BSA/AML compliance teams will be straining in this age of “social distancing” and enforced working remotely to maintain an adequate amount of staff and degree of communication needed to catch and report suspicious activity, among other obligations under the BSA. Stated otherwise, we are entering a time of maximum fraud and a reduced capacity to stand guard.
Further, as the pandemic continues and then recedes, the previously existing fraud schemes will come to light — just like during the financial crisis of 2008, when the Bernie Madoffs of the world were exposed — because desperate investors will be demanding their cash back, and some soon will discover that their money actually was stolen a while ago. Investigations, prosecutions and litigations will ensue.
Turning to the Update by FinCEN, we summarize here greatly. In our view, the Update provides some generally helpful information, but little in the way of concrete guidance.