Financial crime’s movement online is not a new phenomenon. Since the internet’s arrival, subsequent boom, and the remarkable increase of technological capabilities from then on, criminals have altered their tactics to maintain fraudulent activity on the web. And no other time frame seems to have altered the course of online fraud more than the covid-19 pandemic.
As reported a few months ago, since March 2020, cyber-fraud has experienced a 42% increase and has surely risen all the more since. More time has been spent online, as we are all bombarded with advertisements from locked-down locations. And with the rise of internet streaming, opportunistic financial criminals have targeted vulnerable online personas more than ever. It is now crunch time for internet-based companies, and banks responsible for monitoring transactions and adopting rigorous AML protocols, to work together to beat the spread of online fraud.
Above (and below) the surface
The scope of the internet seems infinitely boundless; indeed, not only taking to account scams that occur on the ‘surface’, but also the depths of the darkweb where criminals lurk in the shadows to sell and share stolen credit cards, peddle drugs, and traffic illegal animals.
The covid-19 pandemic has boosted the prevalence of these respective acts: credit card marketplace Joker’s Stash was closed, receiving worldwide news coverage; the selling of ‘essential’ materials became a shroud for wrongdoing; and the continuing trade of banned animals such as the pangolin and ill-bred puppies to isolated owners have been blamed for the spreading of disease.
All these occur on online forums either in, or out of, the range of usual internet users, even to the point where victims become ‘money mules’ for suspected launderers, unwitting criminals themselves that profit from the proceeds. Users of social media are targeted through well-crafted fraudulent advertisements, and the rise of online streaming opens new avenues for fraud.
Streaming services, the most popular rising star being Twitch, is a phenomenon among gamers, musicians and Internet personalities and vloggers. In 2020, live streaming hours rose a staggering 99%. The model provides the opportunity for fraudsters to set up fake accounts that transfer illegal cash, as users can transfer funds to streamers using the platforms.
The crypto problem
Where online transactions are concerned, and concurrently rising with the transfer of funds through live streaming services, cryptocurrencies have become more popular as a commodity which maintains its notoriety. Although financial services are looking to legitimise the commodity and hold it under tight scrutiny, the evidence is clear that covid-19 has done little to uphold a great reputation for the asset.
Coinfirm has conducted a look into darknet markets and how digitalisation in the pandemic has made it difficult for financial institutions to turf out crypto-crime. Of all the fraudulent activity attributed to cryptocurrencies, trade through darknet markets accounted for 18.4% – difficult to track, and also alarming to see how much continues through legitimate internet browsers. Crypto exchanges have come under fire for their lack of KYC protocols, hence some wariness from financial institutions to outweigh its pros over its cons.
Alarmingly, the research identified how vendors in the US, Russia and elsewhere have been selling vaccines in bulk through marketplaces, claiming to have receipt of vaccine certificates, and customer’s data entered into national health systems with doctor’s approval. Health-based corruption sparked by the pandemic is rife, and seemingly identifies poor standards in KYC.
Changing the game through cooperation
Social media platforms and other internet-based companies that host streams have been constantly reminded that they need to more accurately protect its users from fraud, psychological harm, and the risk of money muling.
Multiple regulations are being put in place to manage the threat that virtual currencies can bring across the world. FATF have assessed that their recommendations for fiat money should extend to the non-financial businesses and professions at risk of money laundering such as crypto exchanges, and the EU and the US have upped their games to mitigate risk.
OFAC has issued penalties to two large internet companies for sanctions violations. While it is difficult for internet platforms to maintain a compliance programme that does not compromise their reputations to customers, it is through the partnership with banks that have adopted AML protocols that they can understand and manage financial crime compliance better.
Also positive is the news, in the UK at least, that Google has announced ad restrictions to help curb the risk of financial crime through its platform. These advertisements may be linked to cryptocurrencies, gambling, and other industries open to exploitation, with financial services advertisers having to meet stringent requirements passed by the Financial Conduct Authority, the UK regulator. This is coming into play on 6 September. All this culminates from online fraud being included in the Online Safety Bill published in May.
Clearly, with a swathe of users maintaining their online presence throughout this pandemic, fraudsters are still using it to their advantage. But that is not to say that the internet giants are not aware of the protection they need to assure to their customers; they are starting to actively seek the compliance advantage from financial institutions that look to stop the spread of fraudulent transactions and activity.
Team work and expertise has helped finance and technology work together to assist in the confident spending of money, now they must combine to stop those hindering that progress.