The outbreak of COVID-19 has seen the world face extraordinary challenges to public health and the global economy. The pandemic has also driven unprecedented levels of cyber and financial crime.

The pandemic saw whole sectors of our economy and society move online overnight. This rapid and unplanned transition to remote working gave criminals an unprecedented opportunity scam and defraud the public. Criminals preyed on weakened IT security to access sensitive information. By impersonating legitimate businesses or government agencies, criminals could request payments or otherwise deceive customers through phishing tactics, thereby compromising the authorities’ ability to act swiftly in enforcing effective Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regulations.

The impact of COVID-19 has further proliferated the demand for cryptocurrency where cases of fraudulent trading and investment increased. A notorious example is the 2021 $1.1 billion Crypto Ponzi scheme Wotoken, where the culprits attracted around 715,250 investors by promising unrealistic returns and low menaces using non-existent algorithmic trading software. The culprits were able to continue their operation by reaping funds from new members and transferring them to old investors.

In 2020, the Central Bank of Bahrain (CBB) issued a warning about a fraudulent organization named ‘Bahrain.bitcoin’ who were involved in unlawful cryptocurrency trading. In attempts to deter similar occurrences, the CBB asserted that appropriate precautions must be taken prior to transacting with any entity and that these are in compliance with the CBB Rulebook regulations and the CBB and Financial Institutions Law of 2006 requirements.

Pursuant to the publication of the CBB’s guidance for financial institutions in May 2020, the CBB and the Financial Action Task Force (FATF) have stressed the importance of alleviating financial crime risks and implementing effective control measures. The FATF affirmed that coordination between governmental bodies and the private sector is crucial to curtailing illegal activity. Closer collaboration means that AML/CFT supervisors will be better equipped to identify and monitor risks.

The CBB advised that employees must promptly file a Suspicious Transaction Report where they suspect a customer is engaging in money laundering/ terrorist financing (ML/TF) related activities. In doing so, the entity is able to respond to the risks or potential misconduct efficiently.  To further mitigate ML/TF risks, the FATF stated that a more rigorous approach towards verifying a person’s identity should be enforced where reporting entities can accept recently expired and government-issued ID.

In instances where face-to-face customer onboarding has become strenuous, the CBB recommended that digital onboarding be implemented with accordance to its procedures. This includes ensuring that entities comply with the Financial Crime Module and that frequent risk assessments are conducted. The FATF further added that biometric authentication, facial recognition, and three-dimensional face matching algorithms are appropriate methods for verifying customer ID securely.

Considering the heightened issues generated by the pandemic, it is imperative for private and governmental entities to adhere to the CBB and FAFT guidelines. Not only should employees be better trained to identify ML/TF risks to further impede unprecedented and illicit activities, entities must warn caution their customers and warn them about phishing emails and other communication outlets.

Ronald Langat, Partner and Head of Banking and Finance, Al Doseri Law
Maryam Alhashemi, Associate, Al Doseri Law
https://www.aldoserilaw.com/