COVID-19 Medical Scams Prompt FinCEN Guidance for AML Health

June 1, 2020

The U.S. government’s Financial Crimes Enforcement Network (FinCEN) is concerned that too many COVID-19 fraud cases are popping up as criminals find new ways to steal money using old tricks.

The agency issued an advisory May 18th to alert financial institutions to rising medical scams related to the coronavirus pandemic.

This advisory contains red flags, descriptions of COVID-19-related medical swindles, case studies, and information on reporting suspicious activity.

Bank Secrecy Act (BSA) data, as well as information from other federal agencies, foreign government partners, and public sources indicate possible illicit activities related to the COVID-19 pandemic regarding fraudulent cures, tests, vaccines, and services; non-delivery frauds; and price gouging and hoarding of medical-related items, such as face masks and hand sanitizer.

CaseWare RCM, makers of financial crime-fighting solution Alessa, has also been following the COVID situation closely and has provided tips on AML compliance during these times of fraud and scams.

Some of the latest red flags from FinCEN are common indicators of fraudulent merchant activity committed by shell or fraudulent retail or wholesale business operators. Additionally, some of the red flag indicators outlined below may apply to multiple COVID-19-related fraudulent activities.

Red flags from FinCEN:

  • U.S. authorities, such as the Federal Trade Commission (FTC), the Food and Drug Administration (FDA), or the DOJ, have identified the company, merchant, or business owners as selling fraudulent products.
  • A web-based search or review of advertisements indicates that a merchant is selling at-home COVID-19 tests
  • The customer engages in transactions to or through personal accounts related to the sale of medical supplies, which could indicate that the selling merchant is an unregistered or unlicensed business or is conducting fraudulent medical-related transactions.
  • The financial institution’s customer has a website with one or more indicia of suspicion, including a name/web address similar to real and well-known companies, a limited internet presence, a location outside of the United States, and/or the ability to purchase pharmaceuticals without a prescription when one is usually required.
  • The merchant is advertising the sale of highly sought-after goods related to the COVID-19 pandemic and response at either deeply discounted or highly inflated prices.
  • The product’s branding images found in an online marketplace appear to be slightly different from the legitimate product’s images, which may indicate a counterfeit product.
  • The merchant is requesting payments that are unusual for the type of transaction or unusual for the industry’s pattern of behavior. For example, instead of a credit card payment, the merchant requires a pre-paid card, the use of a money services business, convertible virtual currency, or that the buyer send funds via an electronic funds transfer to a high-risk jurisdiction.
  • Financial institutions might detect patterns of high chargebacks and return rates in their customer’s accounts. These patterns can be indicative of merchant fraud in general.
  • The merchant does not appear to have a lengthy corporate history (e.g., the business was established within the last few months), lacks physical presence or address, or lacks an Employer Identification Number. Additionally, if the merchant has an address, there are noticeable discrepancies between the address and a public record search for the company or the street address, multiple businesses at the same address, or the merchant is located in a high-risk jurisdiction or a region that is not usually associated with the merchandise they are selling. Searches in corporate databases reveal that the merchant’s listing contains a vague or inappropriate company name, multiple unrelated names, a suspicious number of name variations, multiple “doing business as” (DBA) names, or does not align with its business model.
  • Merchants are reluctant to provide the customer or the financial institution that is processing the transactions with invoices or other documentation supporting the stated purpose of trade-related payments.
  • The financial institution does not understand the merchant’s business model, and has difficulty determining the true nature of the company and its operations.
  • The merchant cannot provide shipment-tracking numbers to the customer or proof of shipment to a financial institution so it may process related financial transactions.
  • The merchant claims several last minute and suspicious delays in shipment or receipt of goods. For example, the merchant claims that the equipment was seized at port or by authorities, that customs has not released the shipment, or that the shipment is delayed on a vessel and cannot provide any additional information about the vessel to the customer or their financial institution.
  • The merchant cannot explain the source of the goods or how the merchant acquired bulk supplies of highly sought-after goods related to the COVID-19 pandemic.
  • Domestic or foreign governments have identified the merchant or its owners/incorporator are being associated with fraudulent and criminal activities
  • A newly opened account receives a large wire transaction that the account holder failed to mention during the account opening process.
  • In addition to the use of personal accounts for business purposes, a customer begins using their personal accounts for business-related transactions after January 2020 and sets up a medical supply company or is stilling COVID-19-relate goods online such as hand sanitizer, toilet paper, masks and anti-viral or disinfectant cleaning supplies.
  • The customer begins using their money services or bank account differently. For example, prior to January 2020, the customer never linked their account to the sale of goods on the internet. Since the COVID-19 pandemic began, however, the customer is receiving deposits with payment messages indicating that they are for the sale of medical goods, disinfectants, sanitizers, and paper products sold on the internet.
  • The customer’s accounts are receiving or sending electronic fund transfers (EFT) to/from a newly established company that has no known physical or Internet presence.
  • The customer’s account is used in transactions for COVID-19-related goods, such as masks and gloves, with a company that is not a medical supply distributor, is involved in other non-medical-related industries, or is not known to have repurposed its manufacturing to create medical-related goods. For example, the company is currently selling medical and sanitary supplies, and prior to January 2020, the company was listed as an automotive shop, a lumberyard, or a restaurant.
  • The customer makes unusually large deposits that are inconsistent with the customer’s profile or account history.

SAR filing instructions

FinCEN also addressed some changes it has seen in SAR filings in light of the COVID-19 pandemic.

“Some financial institutions have added COVID-19 statements to their disclaimers or are using SAR narratives to address COVID-19’s impact on their SAR filing abilities. Financial institutions should not include in the SAR narrative their challenges during the pandemic; the SAR narrative should include COVID-19 when it is tied to suspicious activity only.

FinCEN goes on to say that filers who have already included references to COVID-19 in matters not related to the pandemic do not need to file corrected reports.

Read the advisory here.

Check out CaseWare RCM’s special website section on battling the coronavirus and helping you meet your AML obligations.

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