FinCEN Advisory Warns COVID-19 Risks For Financial Industry

Jul 02, 2020

The Financial Crimes Enforcement Network or (FinCEN) has released an important advisory to warn all financial institutions of the surge in medical scams that have cropped up since the COVID-19 pandemic. The advisory gives specific details related to case studies, medical scams, red flags, as well as instructions on how to report this criminal activity. 

This is the first installment of various advisories that FinCEN plans to release about financial crimes related to COVID-19. These advisories were derived from FinCEN’s investigation of COVID-19-based information gathered via public reports, law enforcement partners, and Bank Secrecy Act (BSA) data. 

FinCEN will also provide financial analysis and intelligence to financial solutions, to equip them to, “detect, prevent, and report suspected illicit activity.”

Medical-Related Fraud

Federal agencies have discovered fraudulent COVID-19-related tests, cures, vaccines, other related services offered to the public. The “financial indicators” of these scams involve:

  • The Federal Trade Commission (FTC), the Food and Drug Administration (FDA), or the DOJ, have identified a merchant, a company, or business owners involved in selling fraudulent products. 
  • A review of advertisements or an online search shows a merchant selling “at-home” COVID-19 tests, treatments, vaccines, or even cures.
  • A customer is involved in transactions through personal accounts that are related to selling medical supplies. This raises a red flag to the possibility that the merchant is either unregistered, an unlicensed business, or carrying out “fraudulent medical-related transactions. 
  • The client of a financial institution has a website that has a name/web address identical to existing, well-known companies, a restricted internet presence, headquartered outside the U.S., and/or the capacity to buy pharmaceuticals without a prescription when that is typically required.
  • The branding images belonging to the product that appear on an online marketplace is different from the real product’s images. This usually means that the product is a counterfeit.
  • The seller is publicizing the sale of highly in-demand products related to COVID-19 and its response. The prices are either highly inflated or deeply discounted. 
  • The merchant is asking for payments that are rare for the type of transaction and rare for industry’s “pattern of behavior”. 
  • Financial institutions may identify patterns of high chargebacks and rates of returns in customer’s accounts. This pattern usually points to merchant fraud.

Both FinCEN and DOJ have received various reports of hoarding and price gouging due to the COVID-19 pandemic. Suspects have been selling goods such as masks, isopropyl alcohol, disposable gloves, disinfectants, hand sanitizer, toilet paper and other related products at exorbitant prices. The different payment methods used include pre-paid cards, wire transactions, or electronic funds transactions. 

FinCEN further advised.

“As no single red flag is necessarily indicative of illicit or suspicious activity, financial institutions should consider additional contextual information and the surrounding facts and circumstances—such as a customer’s historical financial activity; whether the transactions are in line with prevailing business practices; and whether the customer exhibits multiple indicators—before determining if a transaction is suspicious or otherwise indicative of fraudulent COVID-19-related activities.

FinCEN’s Mission

The Financial Crimes Enforcement Network exists to protect the financial industry from illegal use. It also plays a key role to combat money laundering and other crimes closely related, including terrorism. Through the distribution of financial intelligence, FinCEN aims to advance national security.

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

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A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

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