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The Financial Crimes Enforcement Network (FinCEN) issued guidance today, which:
  • requested financial institutions affected by the COVID-19 pandemic to contact FinCEN’s Regulatory Support Section and their functional regulator as soon as practicable if they have concerns about potential COVID-19-related delays to their ability to timely file Bank Secrecy Act (BSA) reports, including Suspicious Activity Reports (SARs);
  • advised financial institutions to remain alert to malicious or fraudulent transactions involving bad actors seeking to exploit the pandemic.

FinCEN is not the only agency concerned about COVID-19-related fraud.  On Friday, Interpol issued a warning concerning financial scams related to COVID-19; yesterday, the FBI tweeted a warning on COVID-19 cyber-scams; and over the past week, New York’s Attorney General and its Department of Financial Services have issued warnings and, in the case of the Attorney General, multiple orders targeting price gouging and fake medical treatments.  (Update:  late in the day today, U.S. Attorney General William Barr released a memorandum directing U.S. Attorneys to clamp down on COVID-19-related crimes, including sales of fake cures and phishing email schemes.)

FinCEN’s alert builds on standing guidance issued in October 2017 concerning the identification of financial transactions related to disaster fraud.  Disaster fraud can include:

  • benefits fraud, where individuals apply for emergency assistance benefits to which they are not entitled;
  • charities fraud, where bad actors impersonate legitimate charities and ask for disaster relief donations; and
  • cyber-related fraud, including where bad actors set up crowdfunding sites to solicit donations.

Many forms of disaster fraud constitute federal crimes and, particularly since the establishment of the National Center for Disaster Fraud in 2005, federal and state prosecutors have actively prosecuted disaster fraud cases in the wake of natural disasters and other significant incidents.

In addition to the typical forms of disaster fraud, FinCEN’s guidance notes the following specific emerging trends connected to COVID-19:

  • imposter scams, involving charities fraud as well as schemes where bad actors impersonate governmental, inter-governmental or healthcare organizations to steal personal information or distribute malware;
  • investment scams, such as promotions that falsely claim that the products or services of publicly traded companies can prevent, detect, or cure coronavirus;
  • product scams, such as those involving companies selling unapproved or misbranded products that make false health or safety claims pertaining to COVID-19; and
  • insider trading related to COVID-19.  FinCEN did not further explain what might constitute COVID-19-related insider trading but, as a commonsense matter, this may include trading ahead of announcements by public companies on COVID-19 response plans and on how COVID-19 is affecting their businesses.

Where a financial institution files a SAR in connection with suspicious activity related to COVID-19, the financial institution should enter “COVID19” in Field 2 of the SAR-template.

If your institution requires further information on FinCEN’s guidance, or on responding to suspected COVID-19-related financial crime, please do not hesitate to reach out to D. Jean Veta, Nikhil V. Gore, or other lawyers in Covington’s bank regulatory enforcement and investigations practice.

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