What your credit union should do in response
COVID-19 will be an event talked about for many years to come. It will be known as the time when everyday lives changed and a new normal was adapted. However, one thing that will never change: Fraudsters and money launderers will always find ways to exploit new situations. Fraudsters adapt, sometimes more quickly than their prey. Credit unions must ensure they have evolved their detection and prevention practices to best protect their members.
Methods Fraudsters Are Likely to Use
As a majority of Americans receive relief funds and stimulus checks, the fraudsters are licking their lips to get as much of that as possible. Below are the top fraud vectors expected to increase in the new environment.
1. Phishing, Vishing, Smishing. These types of exploits will rise at an exponential rate as fraudsters use this pandemic as a scare tactic. They smell blood in the water and are taking advantage of the fear.
For example, consider these ploys:
- You have a relative overseas who is trying to get home. How might you respond to a caller saying, “This is the U.S. Embassy and we need you to wire us money to send your relative home. Wire the money to this account: XXXXX.”
- You have a family member on life support whose health insurance is no longer covering the care. “We need $5,000 to keep them alive for the next week. Wire the money to account XXXXX to keep your family member on the ventilator.”
As you see, the fraud vector hasn’t changed, but the messaging has, preying on the victims’ vulnerability. This means scrutinizing every wire. Does it look legitimate? Is it in line with the members’ normal activity? Wire fraud was the No. 1 fraud vector in 2019 at $50 billion in losses. That number is expected to increase in 2020 due to the rise in pandemic-related scams.
2. U.S. Stimulus Relief Fund Post Disbursement. For many, the stimulus relief check will help them pay everyday bills, but some members won’t be so financially wise. Some will spend their stimulus check almost immediately after they receive it. As credit unions analyze fraud trends, they must prepare now for a slew of transactions that appear fraudulent or out of the norm, simply because the influx of money into our financial system is out of the norm. Monitoring cannot as business as usual.
3. Elder Abuse. The elderly population is more vulnerable to the COVID-19 virus than any other demographic. Most elder abuse cases are crimes of opportunity; as opportunities increase, so will elder abuse.
Credit unions should pay close attention to this threat in their anti-money laundering programs. Programs should be looking for sudden increases in spending and withdrawals. They should also watch for increased overall activity. Elderly citizens count on their credit unions to protect them financially, and now is the time to step up to the plate.
4. Cash, Wires, ACH, Checks. The pandemic has dramatically challenged the “cash is king” mantra as many businesses have transitioned to card-only payments. Credit unions’ anti-money laundering programs should look at lessening the importance of cash and making it a normal channel with wire, ACH and checks.
Money launderers and fraudsters will also move to wire, ACH and check channels to conduct their business in the near future. This will likely be a short-term change. As we get through the crisis, cash usage is expected to rise again, but certainly not to the pre-pandemic level.
5. Loans. A significant portion of the $2 trillion stimulus package is dedicated to loans. The government is cutting some of the red tape to speed up the loan processes, and a spike in fraudulent loans is expected. Loan fraud already created more than $30 billion in losses in 2019.
With many small businesses trying to stay afloat, stimulus loans will be used to help them keep their doors open. Fraudsters will also file for loans in an attempt to defraud institutions and government programs.
6. Card Transactions. The way we buy goods is changing. Members are increasingly using such web services as Amazon, Wal-Mart pick-up, GrubHub, Shipt, etc., which will cause card-not-present fraud to continue to rise. As card-present transactions dramatically decrease across the globe, it is becoming more difficult to identify fraud than in the past. In response, savvy credit unions are creating new patterns for card-not-present-spending detection to boost their efforts.
What Should Your Credit Union Be Doing Right Now?
- Assemble a financial crimes task force to review your credit union’s coverages. One or more people should review all systems to account for the changes. Ensure check and deposit fraud detection systems are covering all the ways checks and deposits come into the institution. Confirm that AML processes are accounting for all transaction types. Ask the question, “How does COVID-19 and the U.S. stimulus relief situation affect my institution and my members’ spending habits?” Close any gaps as quickly as possible, whether through process improvement or new software.
- Comb through your systems in detail and recalibrate them for the changes in how members are conducting transactions. Review all parameters and settings. Start with fresh eyes, like this is a new install, and work on re-designing those parameters for the way the world does business today. Credit unions that are proactive will be ahead of the curve.
- Conduct your review of scenarios, rules or models more frequently. Most credit unions now conduct a semi-annual review. Make that monthly for the time being. As the world continues to change, financial crimes prevention systems should too.
The more things change, the more they stay the same. This has proven true with fraudsters during the pandemic. As our lives have changed, the fraudsters continue to try to exploit the situation. Those credit unions that take the steps to adjust their fraud identification and prevention techniques will be able to protect their members and communities throughout the crisis, preserving trust and strengthening relationships that will last.
Rene Perez is financial crimes consultant for Jack Henry & Associates, Monett, Missouri.