Fraud in Government: Prevention and Detection

FinCEN issues advisory to alert financial institutions of COVID-19-related fraud

Authored by Jennifer Kincel

The Financial Crimes Enforcement Network (FinCEN) has developed a webpage that Bank Secrecy Act (BSA) officers should be periodically checking to stay up to date on new fraud trends and advisories that have been issued.

To date, FinCEN has issued five COVID-19-related advisories that call upon financial institutions to be alert to COVID-19-related fraud. The most recent advisory brings attention to unemployment insurance fraud observed during the pandemic. Due to the volume of unemployment claims, law enforcement and financial institutions have seen an uptick in fraud. The guidance lists the types of fraud activity as following:

  1. Fictitious employer-employee fraud: filers falsely claim they work for a legitimate company, or create a fictitious company and supply fictitious employee and wage records to apply for unemployment insurance (UI) payments
  2. Employer-employee collusion fraud: the employee receives UI payments while the employer continues to pay the employee reduced, unreported wages
  3. Misrepresentation of income fraud: an individual returns to work and fails to report the income in order to continue receiving UI payments, or in an effort to receive higher UI payments, an applicant claims higher wages than he/she previously earned
  4. Insider fraud: state employees use credentials to inappropriately access or change UI claims, resulting in the approval of unqualified applications, improper payment amounts, or movement of UI funds to accounts that are not on the application
  5. Identity-related fraud: filers submit applications for UI payments using stolen or fake identification information to perpetrate an account takeover

The FinCEN advisory listed red flag indicators that may alert banking institutions to these types of fraud. Financial institutions should be educating and training their employees on these additional red flags, and a process should be in place if an employee comes across this type of fraud. In addition, the BSA officer should be aware of this advisory since specific Suspicious Activity Reports (SAR)-related instructions are included. If the bank suspects UI fraud, they should be including all available information in the SAR and narrative.

FinCEN is requesting that in SAR field No. 2, “COVID19 UNEMLOYMENT INSURANCE FRAUD FIN-2020-A007” must be included and that the narrative indicate the connection between the suspicious activity being reported and the activities highlighted in this advisory. Financial institutions should select SAR field 34(z)(Fraud-other) “unemployment fraud” as the suspicious activity type to indicate to FinCEN the connection between the suspicious activity being reported and COVID-19.

BSA officers should be carefully reading these advisories and periodically reviewing their financial institution’s risk assessment to determine if their bank has any heighted risk due to the pandemic, which would cause the SAR monitoring process to be enhanced. In addition, BSA officers should be prepared to answer how their financial institution addressed and mitigated COVID-19-related fraud when regulators are on on-site.

For more information on this topic, or to learn how Baker Tilly’s Value Architects™ can help, contact our team.

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