The business landscape that’s emerging from the COVID-19 pandemic is rife with uncertainties, but not every vulnerability makes for above-the-fold headlines. It’s certainly not news that dislocations in the foundations that underpin business — from labor markets and supply chains to a resized global economy — are creating a bumpy recovery ride. What’s lacking on today’s risk management radar, in our view, is the insinuation of sophisticated COVID-era white-collar crime and fraudulent schemes into business life.
Such schemes found fertile ground in the confused and distracted regulatory and enforcement ecosystem that materialized in the pandemic’s earliest days. Enterprises’ lack of preparedness is understandable. Many were caught unaware of what was quietly unfolding while risk officers, HR professionals, and COOs were preoccupied with managing the intense demands of the global health crisis.
Forewarned is forearmed, however, and here we offer some insights into a few troubling patterns in the world of fraud and white-collar crime that aren’t getting the attention, or preventative action, they deserve.
1. Fraudulent and predatory schemes targeting the Paycheck Protection Program (PPP), Economic Injury Disaster Loan (EIDL) program, and Unemployment Insurance (UI) program have US enforcement authorities scrambling to keep up. As of late March 2021, the Department of Justice publicly charged 474 defendants with criminal offenses based on COVID-19 fraud schemes.
- The cases, which almost certainly represent only the tip of a vast criminal iceberg, involve efforts to obtain over $569 million from the US government and “unsuspecting individuals” through fraud. From March 2020 to April 2021, the US Small Business Administration (SBA) Office of Inspector General hotline reported receiving a record-breaking 150,000 complaints related to loan fraud — up dramatically from 2019 when the hotline had well under 1,000 complaints.
- In what appears to be one of the largest single attempts to scam the federal COVID relief program, a Chinese national admitted to authorities in June that he planned to take $20 million in funding by defrauding the PPP. Prosecutors note that Muge Ma — who goes by the name ‘Hummer Mars’ — claimed he employed hundreds of workers receiving millions in wages. Ma, in fact, was the sole person working for the two companies he owned.
PRO TIP: BE AUDIT-READY
PPP recipients are ripe for audit because the unprecedented volume of government-backed loans made routine monitoring difficult and the speed with which PPP loans were processed and approved supersized the potential for fraud. The SBA announced it will audit all PPP loans over $2 million and reserves the right to ‘spot check’ any smaller loan.
2. Counterfeit versions of the COVID-19 vaccine and coronavirus tests are popping up globally at an alarming rate. The ongoing battle against COVID-19 is being undercut by a thriving trade in counterfeit vaccines, PPE, and testing kits. Criminals are eager to exploit the world-wide vaccination campaign and demand for coronavirus testing.
- In Mexico, where the black market has long been riddled with stolen, adulterated, and expired medicines, COVID-19 vaccines are now on the list of profitable drugs coming into the market illegally through scams. Speaking about the vaccine, Lev Kubiak, Pfizer’s global head of security, told the Wall Street Journal in April, “Everybody on the planet needs it. Many are desperate for it. We have a very limited supply, a supply that will increase as we ramp up and other companies enter the vaccine space. In the interim, there is a perfect opportunity for criminals.”
- The FDA reports that it has seen unauthorized, fraudulent test kits for COVID-19 online and has warned consumers of the risk of unknowingly spreading the virus or not getting treated appropriately if an individual uses an unauthorized test.
PRO TIP: SHORE UP SUPPLY CHAIN SECURITY
Mark Stevenson, professor of Operations Management at Lancaster University, warned in June that counterfeiters of vaccines and other related products may infiltrate the supply chains of genuine producers. He advises firms to take a closer look at their own practices and increase their supply chain vigilance. He suggests working with a smaller number of “local, trusted suppliers and to limit supplier involvement in product development in order to minimize the risk of design and production knowledge leaking outside the firm.”
3. COVID-related e-commerce frauds skyrocketed during the pandemic, are showing no sign of letting up, and contribute to a brewing reputational crisis for many businesses. Fraudsters stealing payment information or fraudulently acquired bank or credit card accounts to attempt retail transactions without the account owner’s knowledge exploit pandemic anxiety to shore up their coffers.
- A recent global study of consumers revealed that rising e-commerce scams are doing serious harm to organizations’ reputations. “Just receiving a scam message purporting to be from any brand,” according to HelpNetSecurity, is enough for 45 percent of consumers to lose trust in the organization. This loss of trust happens regardless of any actual association with the message.
- Creating an extremely convincing web page that can mimic authentic services has never been easier. As a result, fraudsters have almost unfettered access to platforms to house all manner of scam web pages and the ability to blast consumers with mass communications.
PRO TIP: REMAIN ON HIGH ALERT FOR RED FLAGS
Staying abreast of the most common fraud schemes is essential. No one knows your business as well as you do, so it’s vital to look for signs of trouble that only your business can detect, such as inconsistent billing and shipping information. Be attentive, too, to the geographic location of customers. Ecommerce antifraud specialists advise extra vigilance during holidays when preoccupied customers are slack about safety precautions: fraudsters rely on busy and distracted merchants to enable them to fly under fraud-detection radar.
Enterprises today are served well by taking the same approach to COVID-era fraud risk as lifeguards do when it comes to keeping swimmers safe from riptides — keeping a continuous eye out for the dangerous fraud currents emerging on the horizon. Looking for an ally to help unmask all manner of internal and external threats to your organization? We’ve had extensive, pressure-tested experience customizing life preservers to help keep the targets of white-collar crime and fraud schemes afloat and out of trouble. Feel free to reach out to us.