Covid-19 has sparked a global recession potentially more serious than that of 2008. It has also accelerated the growth of online working. These two developments are combining to bring about a heightened risk of financial crime.
Even before the pandemic, the amount of suspicious commercial activity was increasing across the world. For example, the Chinese coffee chain Luckin posted $310 million of fake revenue and is currently being investigated by regulators.
NMC Health, listed in London and based in the Middle East, revealed that its debt was over $4 billion more than the $2.1 billion it had declared in its 2018 financials.
Wirecard, a German payments processing company, “did not provide sufficient documentation to address all allegations of accounting irregularities made by the Financial Times”.
Where the 2007/08 crash prompted a rise in criminal activities such as Chinese reverse merger frauds, what will the post-Covid-19 2020s bring?
Banks and auditors should be especially vigilant in monitoring businesses hit hardest by the pandemic and struggling to survive, such as airlines, restaurants and concert venues.
The forensic accountant Elizabeth Woodward said in a Journal of Accountancy podcast: “Fraudsters really have an opportunity when people feel vulnerable.”
Her fellow commentator Howard Silverstone described how Ponzi schemes have deceived accountants, lawyers and bankers: “It doesn’t matter if it’s your mental weakness or your financial weakness, you are susceptible either way.”
With numerous phishing scams targeting home workers, vulnerable people are already being exploited. Others who are vulnerable may be tempted to commit fraud themselves.
How can banks and other financial firms use technology to prevent financial crime, or detect it quickly and put a stop to it?
Firstly, technical infrastructures must be more secure, addressing widespread remote working by tightening up networks. Brian Fox, founder of Confirmation, explained recently that “talking about sensitive client data, it’s vital that we use all the available security tools”, including defences such as multi-factor authentication to protect cloud-based data.
It is important to build strong bonds with clients and suppliers. By using videoconferencing platforms more effectively and collaboratively, meetings can take place when needed and with greater ease of interaction.
Firms can also adopt innovative software to automate repetitive tasks and improve performance. AI machine-learning systems can explore large volumes of financial data and indicate potentially fraudulent activity or detect cybersecurity anomalies that may indicate a network attack.
The online confirmation platform Confirmation enables organisations to protect themselves and their clients against fraudulent activity such as misappropriating assets or inflating revenue.
Financial firms cannot make themselves invulnerable, but they have many resources to deploy against a rising tide of fraud.
To learn more about the role of technology in detecting and preventing financial crime post a Covid-19, join our upcoming webinar where we take a deep dive into the consequences of Covid-19 on the financial services industry, and consider how using technology can future-proof your business to keep moving forward.