How to Identify and Avoid COVID-19-Related Fraud

April 24, 2020 by Roy Kim


A crisis can bring out both the best and the worst in people. It is inspiring to see, hear, and read each day about the many acts of charity, kindness, sacrifice, thoughtfulness, and support that have come out of the COVID-19 pandemic. However, there are also fraudsters, scammers, bad actors, and criminals looking for opportunities to take advantage of the vulnerable and profit from illegal activities. Some experts project that 1% to 3% of the $2.2 trillion coronavirus government relief package will be lost or wasted due to fraudulent activities. Financial institutions can play a huge role in preventing and detecting fraud so relief funds make it into the hands of small businesses, hospitals, and the individuals who need it most.

Organizations like the Financial Crimes Enforcement Network (FinCEN), World Health Organization (WHO), Securities and Exchange Commission (SEC), Federal Trade Commission (FTC), and the Food and Drug Administration (FDA) are sounding alarms and warning the public about the different types of fraud that are likely to occur. The table below summarizes the various forms of fraud that financial institutions may encounter.

Fraud Categories
Examples
Imposter ScamsCriminals may try impersonating government agencies, international organizations, or healthcare organizations like the Center for Disease Control and Prevention (CDC) to try to solicit donations, steal personal information, or distribute malware.

Investment Scams

Fraudsters are currently using social media and other internet-based platforms to promote certain legitimate stocks using false claims that align with current news.

For example:

  • claiming a certain company’s products or services help to stop the spread of COVID-19
  • announcing that a company is getting ready to launch much needed tests

In both instances, the fraudsters are trying to lure investors to purchase the company’s stock and drive up the share price. If they are successful, they sell, or “dump”, their shares at a profit often causing the stock price to drop and investors lose a majority of their investment. According to the SEC, microcap stocks are the most vulnerable to this type of investment scam as these companies are small, their stock prices are low, and there is usually limited information about their management team, products, services and finances.

Product ScamsThe FTC and FDA have already identified seven sellers of unapproved and misbranded products like teas, essential oils, and colloidal silver that falsely claim they treat or prevent COVID-19. According to the FDA (as of March 9, 2020), “there are no approved vaccines, drugs or investigational products currently available to treat or prevent the virus.” In addition, FinCEN has also received reports of fraudulent marketing of COVID-19-related supplies, such as facemasks.
Insider TradingFinCEN has received a number of reports of COVID-19-related insider trading, which is illegal.
Benefits Fraud

Some individuals or businesses may not be entitled to the emergency assistance they are applying for. According to FinCEN, some possible signs of benefits fraud include:

  • Deposits of multiple emergency assistance checks or electronic funds transfers into the same bank account, particularly when the amounts of the checks are the same or approximately the same;
  • Cashing of multiple emergency assistance checks by the same individual;
  • Deposits of one or more emergency assistance checks, when the accountholder is a retail business and the payee/endorser is an individual other than the accountholder; and
  • Opening of a new account with an emergency assistance check, where the name of the potential accountholder is different from that of the depositor of the check.
Charities Fraud

Donors contribute funds to charities for specific causes or purposes. Criminals fraudulently solicit contributions for their own personal gain rather than directing funds to where donors intended. FinCEN provides some ways to identify charities fraud:

  • Payee organization’s name is similar to, but not exactly the same as, those of reputable charities;
  • Money transfer services are used for charitable collections, which are not generally used by legitimate charities; or
  • Donations are accepted through websites ending in “.com” or “.net”, while most legitimate charities’ websites end in “.org”.
Cyber-Related FraudHackers and other bad actors attempt phishing schemes by sending fraudulent emails and WhatsApp messages to trick people into clicking malicious links or opening harmful attachments.

ACA Guidance

The examples provided above are likely to recur as more COVID-19 relief funds are distributed. Financial institutions must fortify their controls, systems, and practices to detect and prevent financial crime.

How ACA Can Help

ACA Compliance Group can assist financial institutions like banks, broker-dealers, investment advisors and other financial institutions to identify, assess, mitigate, and monitor for fraud risk. ACA is committed to helping financial institutions protect their clients’ assets.

Set your firm up for success with our complimentary cybersecurity awareness training or connect with us directly to discuss how to combat fraud and ensure relief funds make it into the hands of those who need it the most.

Contact Us

ACA’s COVID-19 Resources

ACA is working to produce resources to help your firm navigate through the COVID-19 pandemic. Below are a few of our resources that can help you combat the fraudulent activities listed above:

Webcast

Articles

Visit our COVID-19 Resources page to access our full library of resources that may help your firm navigate through the restrictions in place to curb the pandemic.

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