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COVID fraud: unlocking the full potential of financial intelligence

Author: ICAEW Insights

Published: 30 Mar 2021

How following fraud money trails can have an “unexpected benefit” when uncovering networks of crime, explained by Australian Professor of Business Government and Law, Russell Smith.

The global pandemic has created opportunities for economic crime targeting emergency relief packages across the world. Recovering funds and prosecuting fraudsters who stole this money is going to be difficult but is there a way to use financial intelligence to solve crimes worth more than the sums that were stolen?

An “unexpected benefit” of collecting financial intelligence

Dr Russell Smith, Professor of Business Government and Law at Flinders University in South Australia, said that having people confined to their homes has created a range of crime problems that people wouldn’t normally think about, especially terms of family violence, which has (in Australia at least) increased quite a lot.

“We did research looking at online child abuse material using the financial intelligence that is collected by government and this gave us some insight into where money was going to pay for getting access to livestreaming of child abuse in particular countries”, said Smith.

He said it was very clear from the transaction patterns that the facilitators of these livestreams were located in specific countries. It was then possible to allow law enforcement to take action in the local environment where it was occurring, resulting in some children being rescued from slavery or very violent situations. 

“That is an unexpected benefit of collecting financial intelligence which you don’t normally think about,” he explained. “Usually, it’s related to revenue collection and fraud detection, but it’s also possible to track other types of crime as well. The quality of the data in financial intelligence systems is as such that we are able to track things internationally quite well.”

What should accountants be doing?

Russell says that from the accounting profession point of view, practitioners have a responsibility to track what’s going on in a pandemic, and work with their client-base to monitor what people are experiencing. Accountants can assess how their clients are coping with the economic situation and look at those who are getting into financial trouble. They can assess the different ways their clients are dealing with the economic crisis, the strategies they are taking to save their business and protect their assets and analyse the various risks in what is proposed.

“Lots of people start committing fraud through positive motivation in trying to protect their business or save their assets, or even look after their family or community”, said Smith. “Then as matters get worse they end up in a spiral of fraud that gets out of control. Accountants working closely with their clients can identify the risks that their clients are facing and provide advice about how to protect themselves.”

Smith also stresses that accountants must gather evidence of what has happened in the current situation. He continued: “there is good current research by people in commerce and economics departments about the trajectory of how fraud in the pandemic developed over time, and we can make use of some of that information to try and predict what will happen in the future and give people advice on how to protect themselves.”

Research prevents history repeating itself

Smith believes it is imperative that financial professionals record information for fraud risk assessment purposes today and in the future. This way, governments dealing with future pandemics can reference the struggles suffered during COVID-19 in order to prevent similar problems arising in the future. After looking back through previous research himself to assess how fraud occurred in past pandemics, he found that “pretty much the same strategies are being used today, stretching right back to the Spanish flu in 1919”.

Smith added: “Even going back to the black death of the 1600’s, scholars described situations that are remarkably similar to what is occurring today I terms of fraud. Even common scams relating to ineffective remedies and treatments, are pretty much the same as we have now.”

Russell Smith has written a paper with Professor Michael Levi from Cardiff University which 

compares different pandemics and economic shocks since World War I around the world and how people have been defrauded over the different periods of time. The paper is due to be released in April and will be available here. 

Further resources:

Company reform and economic crime

The Economic Crime Act 2022 became law in March and part two of the bill is incoming. From risks to required changes, we explore key considerations for accountants on the issue.

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