How is Covid-19 likely to impact financial crime?

  • How is Covid-19 likely to impact financial crime?

    How is Covid-19 likely to impact financial crime?

    COVID and Financial Crime (23 March)One might suppose that with economic activity nose-diving everywhere as a result of Covid-19 financial crime will follow. Don’t be too sure.

    For many crimes of deceit and exploitation opportunities are narrowing. But whilst restrictions on movement and businesses might limit some activity, it takes little imagination to see where opportunities are going to open-up.

    Sure enough, on cue, news has emerged of insider trading by those responsible for protecting the public. Senator Richard Burr, Chairman of the Senate Intelligence Committee stands accused of selling his shareholdings into a still resilient market whilst re-assuring the public that Covid-19 was under control in the US. The only problem is that he was privy to information that was telling him otherwise, and he was at the same time (Feb 27th) briefing VIPs that the economic impact from Covid-19 was going to be anything other than benign[1].

    It is hard to imagine he is the only person who has traded on privileged non-public information related to Covid-19.

    In the “retail” market, however, financial crimes related to Coronavirus are appearing on-line and in social media. Inevitably the victims of these Covid-19 scams will be those least able to tell fact from fiction.

    But financial crime has many facets. One is that it often operates in an informal economy beyond the reach of the taxman. Cyber-sex (illegal in the Philippines), is one such activity.

    …. more people than ever are turning to cyber-sex in order to survive the Coronavirus shut-down.

    In a small sub-division not far from Manila cyber-sex has always been a way to make a living. Anecdotal evidence suggests, however, that more people than ever are turning to cyber-sex in order to survive the Coronavirus shut-down.

    Ironically one group of people who might be swelling the ranks of on-line “performers” are professional sex-workers. As bars, night-clubs, and short-stay hotels close the option to go on-line offers some salvation, and “working from home” is, after all, the socially responsible thing to do!

    For ordinary families the drivers towards cyber-sex are clear. A good “performer” can earn between five and ten times the average labourer’s wage (approximately 9 USD a day). With the economy at a stand-still, people are desperate. The paltry food hand-outs promised by municipal governments will not cover baby milk, medicines, rent, utilities, petrol, and the host of other expenses survival depends upon. Add sheer boredom to the desperation, and it would be a poor “recruiter” who wasn’t having an easy time. And easy it is. All you need is a smart phone.

    Unfortunately cyber-sex is not without its victims. Leaving aside those who do not get paid for their work, the industry is highly exploitative. Ask “performers” how they feel, and most will say they find the experience degrading. At the very least they would not want their loved ones earning their livelihood this way.

    Moreover, “Recruiters” add followers in a business model that apes pyramid sales. Eighty percent of the earnings go to the recruiter, and only twenty percent to the performer.

    If “Performer” volumes increase as expected, increased competition is likely to increase willingness to satisfy customers. The unconscionable demand side will no-doubt be indulging their lurid imaginations to the full, and enjoying the discounts. It is hard to think of a more damaging social ill.

    Except that inevitably some of the performers will be asked to co-opt vulnerable minors under their control. Then cyber-sex becomes a form of human trafficking.

    ….. The longer the shut-down continues, the more certain darker corners of the economy will find sustenance.

    How much activity increases (if indeed it does) will be hard to track. Those best able measure the extent of the trade are the “enablers” themselves – including the offending websites, and companies promoting their white label debit cards to performers. Spotting trends related to the industry will require the ability to track enabler fund flows, and activity on websites such as “live Jasmin” and “Streamate”. More in a coming article. 

    The longer the shut-down continues, the more certain darker corners of the economy will find sustenance. Crime will always find a way, and its associated financial crimes are no exception. In the midst of a pandemic idleness and desperation may supersede greed as the primary drivers, but for many the shift to the “informal” economy is inevitable.

    [1] Pro-Republica 20th March 2020

    The author leads TSG’s Advisory Services. He has spent many years in law enforcement and banking specialising in financial crime risk and compliance. TSG is a Research (including due diligence) specialist, also offering Ethics Compliance and Advisory services to its clients. TSG offers expertise in Eastern Europe, as well as East Asia.

     

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