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Pandemic Fraud Crackdown: US Bank Employees Indicted Over Document Fraud

Richard Marley
September 28, 2021
3 minutes read
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Bank employees and tax preparers fraudulently applied for $3M+ in pandemic relief loans through fake documents.

As the first case reported against bank employees, US prosecutors have charged various individuals for exploiting multi-billion dollar COVID relief programs aimed at helping small businesses survive the pandemic.

According to the prosecutors, Anuli Okeke, a former branch manager at Popular Bank in New York, conspired with other bank employees and tax preparers to fraudulently apply for $3M+ in pandemic relief loans administered by the U.S. Small Business Administration.

A spokesperson for Popular Bank, Alex Moncion, stated on Monday that the bank had taken necessary measures following the detection of fraud and alerted law enforcement and bank regulators to terminate the employees involved.

“This behaviour is contrary to our commitment to integrity and to our values and business practices, which are guided by the highest ethical principles,” said Moncion.

U.S. pandemic fraud crackdown yields first case against bank employees https://t.co/1U7m06Hume pic.twitter.com/2h81m69u5f

— Reuters (@Reuters) September 27, 2021

The prosecutors further explained that Okeke conspired with others to recruit applicants for loans from the Paycheck Protection Program and the Economic Injury Disaster Loan Program, and created false documents to avail monetary benefits. At least two other individuals have pleaded guilty in connection with this scheme.

The loan program, which provided forgivable and low-interest loans to small businesses, was part of Congress’ multi-trillion-dollar response to the pandemic. However, the relief efforts have been plagued by “unprecedented levels of fraud,” the U.S. Special Inspector General for Pandemic Recovery said in June.

Since the lockdown, a 40% rise has been recorded in scams and fraudulent cases. Among the prevalent COVID-19 related frauds are fake vaccine emails for phishing attacks, vacation and travel scams, peer-to-peer mobile payment scams, data breaches in healthcare, fake investment scams, and employment benefits scams.

While more than 500 individuals in the US have been charged with pandemic-related fraud, the current case appears to be the first involving a fraudulent scheme within a bank.

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US Rated as The Most Secretive Financial Jurisdiction in the World
The US has been ranked the most secretive financial jurisdiction in the world due to deterioration prior to Financial Secrecy Indices (FSI), as per lax rules in US anti-money laundering (AML) and tax laws.

As per the Finacial Secrecy Index (FSI) 2022, the United States has been classified as the most secretive financial jurisdiction in the world. Due to the unaddressed loopholes and flexible rules in US tax and anti-money laundering (AML) laws, the US ranking is worsening prior to Financial Secrecy Indicies.

Ian Gary, Executive Director of the FACT Coalition stated “These findings point accusations towards US secrecy and should be a rallying cry for monetary clarity” While talking about the Biden Administration, he further said “The Biden Administration is continuously working for the making a number of anti-corruption reform for implying effective penalties. Now it is the responsibility of the Administration and the Congress to execute and fund them”.

Identified as the second most financial jurisdiction in the world in 2020 by FSI, Congress issued a Corporate Transparency Act (CTA). The CTA will put restrictions by requiring corporations and similar entities to register their authentic beneficial owners to a central directory maintained by the Financial Crimes Enforcement Network (FinCEN) at the Treasury Department.

The expected rule was to be enforced on January 1, 2022, but only one of the three proposed rulemaking has been implemented till now due to the funding and capacity constraints of FinCEN.

“To fight corruption, we need to execute the CTA Act and for that purpose, we need to generate funding for FinCEN now” as made evident by Congresswoman Carolyn B. Maloney, the co-author of the CTA.

The US treasury is devoted to only finalising rules executing the CTA Act by 2024, as made clear in the “National Strategy for Combating Terrorist and Other Illicit Financing” report on Friday. These structural reforms will authorise law enforcement and national security officials to refrain from the sanctions “whack-a-mole” in favour to comprehend the nature of US entity ownership and tackle large-scale sanctions evasion.

The 2022 International Anti-Corruption Conference to be held in Washington, D.C. later this year has been called in for the final implementation of the CTA Act, whose delays have been warned by the FACT Coalition.

Suggested Read: US DOJ Stresses Disclosure of Beneficial Ownership Information to Curb Illicit Finance

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KYC Verification - Fraud Prevention in FinTech & the Payments Industry
The growth of the online payment industry and FinTech companies comes with a simultaneous increase in fraud and financial crime. According to a recent study, about 10% of the average spending in the online payments industry and FinTech is taken up by fraud prevention measures. This is because detecting and preventing payments fraud is significant to avoiding financial and reputational losses in any given firm.

In order to ensure that their operations are fraud-free and they are compliant with international regulations, financial firms incorporate KYC verification solutions. Finding the balance between effective fraud prevention and cost management is one of the biggest challenges for businesses.

Risks Faced by Financial Institutions

Financial operations comprise numerous stages and each of them is a potential target for fraudsters. For this reason, businesses are now offered robust identity verification solutions that can be easily integrated as part of their online platforms. With these verification solutions, mobile and web platforms of eCommerce service providers can detect fake identities and fraudulent transactions. That being said, emerging technologies and the latest fraud techniques have made payment fraud detection more and more difficult for firms operating in the payments industry.

Looking on the bright side, it’s not necessary that the solution to a complex and unpredictable problem must also be complicated. For instance, technology has also improved the system of verifying and screening identities against sanctions lists using numerous AI algorithms. This means that the detection and prevention of payments are not that problematic after all. Compared to the complex and time-consuming verification measures that were used previously, today’s solutions take mere seconds to verify identities using nothing more than a selfie from the customer. What’s important for businesses is to adopt a risk-based approach toward fraud prevention while taking into consideration the latest trends in fraudulent activity. Developing customer trends through transaction monitoring and background screening also requires a robust AML Screening solution.

KYC – Identity Verification

Unlike banks and financial institutions that constantly face the risks of fraudulent activities and bigger risks of money laundering, the payments industry is relatively less regulated. Banks are bound to implement procedures to verify the identity of their customers and analyse risks associated with their transactions.

The Know Your Customer (KYC) measure is incorporated for the purpose of detecting fraudulent entities at the onboarding stage to prevent money laundering. The onboarding stage is the best for KYC because it eliminates the fraudulent entity before their account is created. For legitimate customers, the process doesn’t delay or create any problems for the rest of the operations throughout the customer journey.

Transaction Monitoring

KYC verification in itself is not enough when the aim is to protect financial institutions from crimes like money laundering and terrorist financing. As customers with legitimate identities can also be part of a money laundering scheme, it is equally important to perform ongoing transaction monitoring to analyse trends. By implementing AI-driven measures to mitigate the risks of financial crime, the payments industry and FinTech firms can prevent becoming the source of money laundering.

A FinTech company can never know which online transaction involves money coming from illegitimate sources. For this purpose, they require robust AML screening measures to detect, flag, and report suspicious transactions. Furthermore, the increasing rate of online payments accounts for more and more transaction records with every passing second. To cope with this speed, businesses operating in the payments industry need to incorporate innovative solutions that can detect anomalies in real-time.
Additional Authentication Measures

Apart from transaction monitoring to analyse fraudulent transactions, FinTech companies also need measures to ensure that only their real customers have access to their online platforms. In the European Union, financial firms are required by law to incorporate sufficient customer authentication measures. Although these firms usually have set limits for the maximum amount that can be deposited into an account, it is also important to know who is accessing the customers’ accounts. With the help of additional authentication measures like 2 factor authentication, firms add a layer of security and are able to determine that their real customers are performing the particular transaction.

Apart from 2-factor authentication, there are new and emerging fraud detection techniques that can allow firms to have better oversight of their customers’ transactions. Financial firms are urged by financial regulators to look out for deviations in normal transaction patterns, exceeding thresholds, unusual transactions from foreign sources, and discrepancies in IP addresses.

How the Payments Industry can Be Fraud-Free

Most of the authentication techniques mentioned above are heavily dependent on the analysis of trends. This is because online transactions offer a variety of data points that can be used to analyse behavioural patterns and high-risk transactions. Organisations that consider fraud prevention measures as an extra activity that can be skipped are often under the weather with regulatory fines. When it comes to operations that involve money, it is always advisable to make security the top priority.

When it comes to prominent FinTech firms, securing their operations with measures like encryption and tokenisation can work. However, smaller businesses do not afford these practices. Startups and SMEs should opt for measures that verify other aspects of their customers to be sure about their identity and their background. Address verification is one such technique that verifies the numbers and addresses given along with the credit card details to get better oversight of customers. For instance, businesses that use address verification can verify the zip code and street number from a billing address by matching it against the information provided for the owner’s credit card registration.

What Shufti Pro Offers

Considering the fast-paced growth of the Fintech sector and the payments industry, businesses have to re-evaluate and implement customer due diligence protocols according to the updated regulations. If you are a business operating in the Fintech industry, it all comes down to the following questions:

Are you complying with the country’s KYC/AML laws that you are serving?

What customer due diligence protocols are you currently following?

Is your screening process providing a higher customer acquisition rate or your drop-off is increasing?

Is the process effective in all regions of the world?

Shufti Pro’s identity verification solution allows your business to avoid the hassle of a manual verification system and saves it from regulatory fines. The system deploys thousands of AI models to verify identities in less than a second with an accuracy of 98.67%.

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Pandemic Fraud Crackdown: US Bank Employees Indicted Over Document Fraud

Risks Faced by Financial Institutions

KYC – Identity Verification

Transaction Monitoring

Additional Authentication Measures

How the Payments Industry can Be Fraud-Free

What Shufti Pro Offers

Let’s prove your

customer’s identity

with Shuftipro.

Let’s prove your customer’s

identity with Shuftipro.