Financial Crime and Employment

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Table of Contents

Cybercrime
Supply Chain Fraud
Investment Scams
Corruption
Employee Fraud
Conclusion
References

The COVID-19 pandemic has created a fertile ground for financial crime to thrive. As the number of infections continues to increase, most governments have tightened labor mobility restrictions in a bid to contain the virus. However, this policy response has caused economic uncertainty and massive stock-market drop, making firms and individuals more vulnerable to fraud. Assessing key forms of financial crime prevalent during this unique economic situation can inform due diligence measures to reduce the risk.

Cybercrime

Increased COVID-19 cybercrime risks require that firms enhance customer due diligence procedures to guard against identity theft and data loss. With banking institutions moving monetary transactions online and employees and students working or learning remotely, the risk of cyber-attacks and identity theft has increased (Galvao et al., 2020). Virtual private networks (VPNs) have become important to organizations and schools. As a result, VPNs are now the target of phishing and denial of service attacks (Deloitte, 2020a). Cybercriminals send malicious spams and ransomware disguised as legitimate brands to deceive employees and clients. End users downloading applications meant to combat the pandemic are also at risk of such attacks. Sensitizing staff to be more cautious when clicking on hyperlinks or emails with COVID-19 content and enhancing the security of VPN services would ensure the security of data and reduce this threat.

Supply Chain Fraud

The supply chain (SC) disruption occasioned by the COVID-19 pandemic has compelled firms to look for different suppliers urgently. Engaging new third parties without proper scrutiny poses the risk of contracting disreputable organizations (Deloitte, 2020b). Further, working with different suppliers with a lower capacity to supply the volume needed can affect inventory levels. One emerging SC fraud includes fraudsters receiving payment and failing to deliver the goods (Deloitte, 2020b). Organizations have been defrauded this way when purchasing products presently in high demand, such as alcohol gels and facemasks. Identifying genuine suppliers has been a problem. For this reason, some UAE firms have adopted the blockchain technology to address vulnerabilities in the supply chains. For example, Saudi Aramco has used the Blockchain Deployment Toolkit to manage suppliers and verify their credentials (Lacina, 2020). The technology has enhanced efficiency, decreased verification time, and helped reduce supply chain fraud.

Investment Scams

While various industries are grappling with challenges of reduced operations, closure, and revenue decline, the healthcare sector has received more investment to bolster efforts to combat the pandemic. However, the risk of fraud has also increased. Investment scams involving products or services for preventing, diagnosing or treating COVID-19 have risen (Galvao et al., 2020). Alerts on research reports claiming to predict low-priced stocks of listed firms have been issued. For example, scammers using a counterfeit LinkedIn profile of the Dubai Financial Services Authority (DFSA) officials announced a $10 million grant to start-ups in India (Rodgers, 2020). The authorities flag up the loan, which was purportedly offered by the DFSA to help recipients cope with the COVID-19 effects, as a scam.

Corruption

The risk of bribery has increased in the healthcare industry during the COVID-19 crisis. The procurement of medicines and medical supplies, which are in acute shortage globally, make this sector prone to corrupt practices. According to Galvao et al. (2020), the scramble for hospital drugs and equipment by countries has increased corruption cases and bribes to expedite delivery. Allegations of bribery by governments to receive testing reagents and protective gear have been reported globally. Another aspect of corruption witnessed today is the price gouging for essential medical supplies due to relaxed procurement procedures. Transparency International (2020) notes that rushed public tenders for the purchase of ventilators and personal protective equipment (PPE) have created a fertile ground for corruption. Locally, hospitals are forced into the dilemma of purchasing products at inflated costs or combating the virus without adequate protections for their staff.

Employee Fraud

Firms face an internal fraud risk facing firms due to relaxed controls during this period of the COVID-19 pandemic. Among the forms of employee fraud expected are theft of cash, larceny, misuse of data, and release of payments without the requisite approvals (Deloitte, 2020a). Further, as remote working becomes the norm, some workers may exaggerate individual productivity to satisfy supervisors or keep their job. Falsification of compensation claims and misappropriation of resources are other ways employees may commit fraud (Stokes et al., 2020). The scheme to defraud a firm often stems from financial pressure and opportunity. Weaker internal controls, reduced working hours, dwindling sales, and remote working often motivate opportunistic employees to commit fraud (Paterson, 2020). Mitigating this risk requires training and software that tracks computer use to safeguard critical data. Performing employee background checks can also help organizations avoid hiring fraudulent employees.

Conclusion

Financial crime during the COVID-19 crisis comes in different forms. With the heightened fraud risk, ranging from cybercrime to investment scams, organizations must be vigilant to stem out internal and external threats. Due diligence measures can help reduce financial crime and protect firms from loss. Adopting a risk-based approach and data protection methods can stop criminals keen on exploiting the speedy digitization of operations to defraud firms.

References

Deloitte. (2020a). COVID-19’s impact on cybersecurity. Web.

Deloitte. (2020b). COVID-19 operating in the ‘new normal’ – A backdoor to increased fraud risk? Web.

Galvao, R., Walters, R., & Walters, L. (2020, April 17). The COVID-19 financial crime risk. Refinitiv. Web.

Lacina, L. (2020). Thoughtful blockchain implementation is key to improving supply chains in a post-COVID world. World Economic Forum. Web.

Paterson, J. (2020). Internal fraud surging during COVID-19. Security Boulevard. Web.

Rodgers, W. (2020). Combating COVID-19: Dubai warns of $10 million loan scheme fraud. ShuftiPro. Web.

Transparency International. (2020). First response: Procure medical supplies at any risk (and cost). Web.

Stokes, P., Case, T., Humble, G., Butler, S., & Schloffer, J. (2020). Australia: Opportunistic fraud by employees and officers during COVID-19. Mondaq. Web.

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