FinCEN issued an advisory on May 18, 2020 to alert financial institutions to medical scams related to the COVID-19 pandemic as well as new SAR key terms for reporting these scams. FinCEN reminds financial institutions that “detecting, preventing, and reporting COVID-19 scams and illicit activity is critical to our national security.” While this advisory is for medical-related scams, criminals may use similar methods for other COVID-19 related scams similar to those used before the pandemic.
The advisory references several red flags for detecting pandemic related fraud in three major areas:
- Fraudulent cures, tests, vaccines, and services
- Non-delivery of medical related goods
- Price gouging and hoarding of medical-related items, such as face masks and hand sanitizer
Within each of these categories many of the red flags center around customer due diligence processes such as review of business documentation, website review, negative news searches, and high-risk jurisdiction activity. If any of these red flags are detected, further due diligence should be conducted to determine if fraudulent activity is occurring.
Your transaction monitoring processes should include these transactional red flags related to COVID-19:
- Medical supply related transactions through a personal account
- Merchant requires pre-paid cards, virtual currency, or other hard to trace mean of payment
- High chargeback and/or return volume in the customer’s account
- Newly opened account received a large wire transaction that was not disclosed at account onboarding
- New accounts opened after January 2020 for the purpose of selling medical supplies or highly sought-after goods (toilet paper, masks, disinfectant, etc.)
- Customer begins to use an established account differently after January 2020 without an explainable purpose
- Customer’s account is receiving or sending electronic fund transfers (EFT) to/from a new business with no known physical or internet presence
- Customer’s account is used for COVID-19 related goods with a company that is not a medical supply distributor
- Customer makes unusually large deposits that are inconsistent with the customer’s profile or account history
If any of these red flags, along with other red flags mentioned in the advisory, leads to uncertainly of the legitimacy of the activity, it may be COVID-19 related fraud and a suspicious activity report (SAR) may be warranted. When filing a COVID-19 related SAR, FinCEN requests that SAR field 34(z) (Fraud Other) be selected and the key term “COVID19 FIN-2020-A002 be referenced in SAR field 2 (filing Institution Note to FinCEN) as well as in the body of the narrative.