Some time ago, I wrote a post for the FCPA Blog stating that pandemic-related fraud was a ticking time bomb, and that global governments and financial institutions were perched uncomfortably atop this explosive device. Those of you who work in the counter-fraud/insolvency fields will no doubt have predicted these consequences too, but I believe the problem may be even larger than anticipated.
Some of the losses being attributed to Covid fraud are staggering. A dog-eat-dog scenario emerged, where countries had to bid against one another for protective equipment, and in other cases countries such as the UK were subject to massive levels of Covid loan frauds. Now these states are heavily indebted, having borrowed money to fund furlough and other Covid-related schemes to maintain their economies during the pandemic.
Covid has profoundly changed commerce, too. National lockdowns propelled digital shopping to become the method of choice for many, exacerbating the move away from the high street and the mall. Again, this movement to online spending has opened the door to even more fraud.
As the effects of Covid (thankfully) diminish, the long-term impact of the pandemic can only be guessed at. Some countries may well find themselves unable to repay their loans. The Russian invasion of Ukraine complicates matters further.
According to the 2021 Merchant Risk Council Global Fraud Survey, thanks to Covid, online merchants now identify counter-fraud measures as being “very or extremely important.” In consequence, fraud management costs have increased fivefold, with 30 percent of merchants saying that they have had to “quickly” implement changes to protect their business model. These counter-fraud measures come at a cost, which increases exponentially when they must be implemented at short notice.
Many of the frauds in the UK’s furlough scheme were perpetrated by “opportunists” – ordinarily honest individuals who succumbed to temptation. They now find themselves under investigation and potentially facing prosecution. The public may sympathize, or they may not, but during cost of living crises these crimes have diverted taxpayers’ pounds and dollars at a time of extreme need.
For example, of the £98 billion ($117 billion) that the UK invested into its Covid furlough and other schemes, and according to the UK government figures, approximately £4.5 billion ($5.4 billion ) was lost to fraud. Critics blame administrative incompetence, while government sources point out that, given the urgency of providing Covid relief, government authorities were only able to “risk assess” rather than thoroughly vet relief measures.
One must feel a degree of sympathy for governments like the UK’s: on the one hand faced with a Covid-induced meltdown of the economy, while on the other hand putting huge amounts of public funds at risk due to the urgent nature of the crisis and the expediency required. Like most global governments, it was faced with a no-win situation.
This position was mirrored in the United States, where hundreds of billions of dollars may have been stolen, leading one former U.S. Attorney speaking to NBC News to describe the situation as the “biggest fraud in a generation.” The estimated losses vary significantly because nobody knows the true figure, but they are thought to be in the region of $500 billion, with much of the losses being attributed to international fraudsters.
So, to return to the ticking time bomb of state debt and the effect this will have on global financial institutions, we can anticipate some half-hearted and underfunded attempts at recovery. But the prevailing situation will likely be chaos over the forthcoming years before countries inevitably write off their losses.
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