In recent months, the world has been facing an unprecedented health crisis. Everyone is affected by this crisis: individuals, businesses, national and international entities. The tightening of health regulations announced by Emmanuel Macron on Wednesday, October 14, 2020 confirms that we now have to deal with a second wave of contamination, and that the new restrictions on both public and economic freedoms are irremediable.
While these new measures underline the need for vigilance and health precautions in the face of the virus, they also represent a further blow to all businesses, shops and craftsmen who have been severely weakened by confinement.
These structures, some of which benefit from state-guaranteed loans, lack equity capital and are on the verge of bankruptcy. Will the aforementioned loans, which are only being granted to some of them, be enough to prevent a cascade of bankruptcies? Unfortunately, nothing is less certain.
Companies in difficulty, even when assisted by the state, are tempted to find other means of financing, particularly illegal ones.
Indeed, Bercy has already warned of the risks of such financing, i.e. the risks of money laundering and fraudulent takeovers. Companies and enterprises have become extremely vulnerable, making them the perfect target for criminals determined to insert cash of suspicious origin into the economy, either by buying them out and taking control, or by setting up state aid scams. Such alerts are a wake-up call to the professionals responsible for reporting money laundering and terrorist financing.
TRACFIN, the intelligence service attached to the French Ministry of the Economy, Finance and Recovery, which fights against clandestine financial circuits, money laundering and the financing of terrorism, is already faced with a multitude of suspicious transaction reports warning of the risk of money laundering and fraud.
The Financial Action Task Force (FATF), a key intergovernmental body in the fight against money laundering and terrorist financing, expressed its concern in its May 2020 report.1)FATF, Money laundering and terrorist financing related to COVID-19, Risks and policy responses, May 2020 on money laundering and terrorist financing linked to Covid-19. More specifically, the economic downturn we are currently experiencing is an opportunity for criminals to invest in struggling businesses in order to “generate cash and conceal illicit proceeds”2)Ibid, p. 15.
The FATF also focuses on the risks of tax fraud. Entities in difficulty are more likely to commit fraudulent acts in order to reduce their tax burden or increase the state aid they receive.
The Organisation for Economic Co-operation and Development (OECD), in its May 26, 2020 report3)OECD, Tax Administration: Privacy, Data Confidentiality and Fraud Risks Associated with the COVID-19 Pandemic, May 26, 2020, p. 15, outlining the risks posed by the health crisis to the tax authorities, adds that such fraudulent practices may also include the creation of new businesses with the sole aim of benefiting from tax assistance and reimbursements.
Thus, the current health crisis has undoubtedly become an opportunity for criminals to launder the fruits of their illicit activity through companies and businesses likely to be subject to judicial liquidation.
In France, the Direction Centrale de la Police Judiciaire has set up an intelligence unit dedicated to combating money laundering and fraudulent takeovers in the specific case of companies affected by the health crisis. This is a first.
The creation of such a specialized team demonstrates the pro-activity of law enforcement agencies, who are thus fully exercising their mission to raise awareness among the general public of the critical situation facing companies in difficulty today.
This awareness campaign is supported by TRACFIN, which, in a publication dated
May 28, 20204)TRACFIN, Les risques de blanchiment de capitaux et de financement du terrorisme liés à la crise sanitaire et économique de la pandémie COVID-19, analyse typologique des principaux risques identifiés, May 28, 2020, informe des principaux risques de blanchiment de capitaux et financement du
terrorism linked to the health crisis. In this way, the intelligence service reminds us that increased vigilance is required at every stage in the life of a company, whether it is at the time of its creation, when it is facing difficulties, or even at the time of its liquidation.
For example, when setting up a company, it is necessary to “scrupulously check identity documents and the concordance of the company’s corporate purpose with the professional background of the director”5)Ibid, p. 2. If the company is in difficulty, “court-appointed administrators are asked to make a special effort with regard to safeguard procedures”6)Ibid, p. 2. Lastly, when a company is liquidated, TRACFIN asks receivers to ensure that “the wage guarantee scheme is legally activated, in particular by verifying the compatibility of remuneration and employment contracts, and by carrying out additional checks in the event of rotating management within the company”.7)Ibid, p. 2.
TRACFIN also highlights other considerable risks, such as fictitious sales of healthcare equipment, forged bank transfer orders, donation fraud and misuse of the state-guaranteed loan scheme.
Particularly in the context of companies in difficulty, these must be the subject of reinforced and specific vigilance. It’s a fact that when they go to court, their financial situation turns out to be extremely critical.
It should also be noted that the Public Prosecutor’s Office of the Paris Judicial Court, in a press release8)PARQUET DU TRIBUNAL JUDICIAIRE DE PARIS, Communiqué de presse du Procureur de la République, “Le parquet de Paris enquête sur des fraudes au chômage partiel”, Rémy HEITZ, July 10, 2020 signed by the Public Prosecutor, Rémy HEITZ, has taken charge of investigations into fraud involving short-time working, an essential aid to companies and businesses in difficulty.
More specifically, on July 6, 2020, the Paris public prosecutor’s office “referred to itself two investigations initiated by the Toulouse and Limoges public prosecutor’s offices into organized gang fraud involving the payment of benefits to employees on short-time working and the organized gang-laundering of such fraud”.9)Ibid.
In fact, the benefits paid to employees on short-time working, designed to avoid a cascade of redundancies, are also the target of organized criminals.
In its minutes of September 8, 202010)Assemblée Nationale, Commission d’enquête relative à la lutte contre les fraudes aux prestations sociales, report n°32, September 8, 2020, p. 4The French National Assembly’s Commission of Inquiry into the fight against social security fraud is keen to see the partial activity scheme, which has already allocated 30 billion euros to support economic activity, subjected to even tighter control.
To counter short-time working fraud, the French Ministry of the Economy, Finance and Recovery has issued a press release taking stock of the situation and outlining action plans.11)Ministère de l’économie des finances et de la relance, Communiqué Renforcement du dispositif de contrôle des fraudes au chômage partiel, September 17, 2020. 220,000 ex-ante checks (before compensation is paid) and 50,000 ex-post checks (after compensation is paid) have already been carried out. In addition, it is stated that short-time working fraud amounts to 225 million euros, more than half of which has been recovered.
The action plans envisaged are, for example, “a priori control via an on-board system detecting inactive SIRETs or multiple requests”12)Ibid, p. 2, “a check by the ASP paying agency of fraudulent e-mail addresses”13)Ibid, p. 2 or “a posteriori control on documents and in companies by teams from the Ministry of Labour”14)Ibid, p. 2.
To provide further support for companies in difficulty, the French Minister for the Economy, Bruno Le Maire, recently announced his intention to strengthen solidarity funds. In fact, the list of sectors eligible for these funds has been extended, meaning that 75,000 new companies will be able to benefit.
The French government is therefore taking concrete action to support companies weakened by the health crisis. It is crucial to continue supporting and accompanying them.
So many risks fueled and accentuated by the current crisis reinforce the fact that all those subject to anti-money laundering and anti-terrorist financing obligations, listed in Article L561-2 of the Monetary and Financial Code, must increase their vigilance in order to detect and denounce these dangers. Preventing money laundering and the financing of terrorism, which is one of the obligations of all those subject to the law, must be even more effective in these times of crisis.
|↑1||FATF, Money laundering and terrorist financing related to COVID-19, Risks and policy responses, May 2020|
|↑2||Ibid, p. 15|
|↑3||OECD, Tax Administration: Privacy, Data Confidentiality and Fraud Risks Associated with the COVID-19 Pandemic, May 26, 2020, p. 15|
|↑4||TRACFIN, Les risques de blanchiment de capitaux et de financement du terrorisme liés à la crise sanitaire et économique de la pandémie COVID-19, analyse typologique des principaux risques identifiés, May 28, 2020|
|↑5||Ibid, p. 2|
|↑6||Ibid, p. 2|
|↑7||Ibid, p. 2|
|↑8||PARQUET DU TRIBUNAL JUDICIAIRE DE PARIS, Communiqué de presse du Procureur de la République, “Le parquet de Paris enquête sur des fraudes au chômage partiel”, Rémy HEITZ, July 10, 2020|
|↑10||Assemblée Nationale, Commission d’enquête relative à la lutte contre les fraudes aux prestations sociales, report n°32, September 8, 2020, p. 4|
|↑11||Ministère de l’économie des finances et de la relance, Communiqué Renforcement du dispositif de contrôle des fraudes au chômage partiel, September 17, 2020|
|↑12||Ibid, p. 2|
|↑13||Ibid, p. 2|
|↑14||Ibid, p. 2|
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