Economic stimulus by governments may be exploited by terrorists, says FATF
Global money laundering watchdog – Financial Action Task Force (FATF) – has claimed that the stimulus measures and international financial assistance announced by various countries to mitigate the economic impact of Covid-19 pandemic are likely to be exploited by the terrorists and criminals by posing as genuine businesses seeking assistance, according to report released by it.
It warns that terrorists and criminals will use this economic downturn to move to new cash-incentive and high-liquidity lines of business in developing countries – both for laundering of proceeds as well as fund their terror operations.
“In an economic downturn, criminals may seek to invest in real estate or troubled businesses to generate cash and mask illicit proceeds. Criminal groups can also introduce illicit proceeds into the financial system by restructuring existing loans and lines of credit. In addition, corporate insolvency proceedings can free up illicit cash contained in businesses whilst masking the funds’ origins,” FATF says in the first such report since the pandemic forced worldwide shutdowns in February-March this year.
Tax evasion and related crimes may increase as individuals and companies facing economic difficulties look to reduce their fiscal burdens, the report adds.
Many countries are reporting an “overall” increase in banknote withdrawals, which the FATF claims is likely to be used by criminals/terrorists to cover their illicit funds with “redeposit funds” when the markets stabilise. “Banknotes can be used to purchase safe haven assets (e.g. gold), which are less easily traceable,” the FATF states.
Some of the countries have also reported an increase in fundraising scams where criminals posing as international organizations or charities circulate emails requesting donations for Covid-19 related fundraising campaigns (purportedly for research, victims and/or products), according to the report.
The health crisis, the Paris-based body says, is also impacting the government and private sectors’ abilities to implement anti-money laundering measures and counter terrorist financing as well as international cooperation. Formal cooperation, such as mutual legal assistance and extradition are already impacted by the crisis due to limitation or suspension of court operations, and the delayed execution of orders caused by travel restrictions.
The anti-money laundering/counter terror financing (AML/CFT) ‘on-site’ inspections have been postponed or substituted with desk-based inspections. Several countries, according to the report, have even suspended their decisions to impose monetary penalties on the violators. In fact, some Financial Intelligence Units (FIUs) in lower capacity countries are either significantly “reducing their operations” or even “shutting down completely”. There is also reporting of delay or postponement of prosecutions due to suspension of trials and hearings.
“There are reports that diversion of law enforcement and security resources to Covid-19 responses in high-risk, poorly resourced countries, may embolden terrorists and terrorist financiers in their activities,” FATF states.
While banks worldwide are trying to follow anti-money laundering measures, several countries have flagged that there is increased activity in non-banking sectors like online gambling, the insurance sector, dealers in precious metals and stones and securities, while there is decreased activity in other sectors like real estate and casinos.
The movement of migrant workers in various countries – India is one of them – will particularly cause disruption for money value transfer service sector due to confinement measures and company shutdowns.
“Should the current economic situation further deteriorate, there is a risk that financial institutions may re-prioritize their AML/CFL efforts and focus on broader prudential and stability measures,” FATF notes.