Advisory on Medical Scams Related to the 2019 Novel Coronavirus (COVID-19) (FinCEN Advisory FIN-2020-A002 Spanish)

FIN-2020-A002 May 18, 2020

Advisory on Medical Scams Related to the 2019 Novel Coronavirus (COVID-19)

Detecting, preventing, and reporting scams and illicit activities related to COVID-19 is vital to our national security, as well as to preserve legitimate relief activities and protect innocent people from harm.

This advisory should be communicated to: • Chief Executive Officers • Chief Operating Officers • Heads of Compliance Offices • Risk Directors • AML/BSA Departments • Legal Departments • Cybersecurity Departments • Customer Service Agents • Bank Tellers

Suspicious Activity Report (SAR) Filing Request: FinCEN requests that financial institutions cite this advisory in field 2 of the SAR (Institution’s Note to FinCEN) and the narrative by introducing the following key phrase: “COVID19 FIN-2020-A002” and by selecting field 34(z) of the SAR (Fraud-Other). Additional guidance for completing SARs appears at the end of this advisory.

The Financial Crimes Enforcement Network (FinCEN) issues this advisory to alert financial institutions to the increase in medical scams related to the COVID-19 pandemic. This advisory contains descriptions of such scams, case studies, red flags, and information on reporting suspicious activities.1

1. While this advisory focuses on scams related to medical activity, financial institutions should note that criminal actors may employ similar fraudulent methods with non-medical goods or services. Many COVID-19-related scams are similar to those observed before the pandemic, and illicit actors have modified their schemes to exploit and benefit from the pandemic by victimizing innocent people and businesses.

This is the first of several advisories that FinCEN intends to publish on financial crimes related to the COVID-19 pandemic. The advisories are based on FinCEN’s analysis of COVID-19-related information obtained from public reports, data provided under the Bank Secrecy Act, and collaborators from law enforcement agencies. FinCEN will publish financial analysis and intelligence information, as appropriate, to help financial institutions detect, prevent, and report suspicious illicit activities.2

2. For updated information on FinCEN publications related to COVID-19, visit the coronavirus updates site: https://www.fincen.gov/coronavirus.

Additionally, FinCEN has temporarily expanded its Rapid Response Program, which helps financial institutions and law enforcement agencies recover funds stolen through fraudulent activities, theft, and other financial crimes related to COVID-19.

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Red Flags for COVID-19 Related Fraudulent Activities

Data provided under the Bank Secrecy Act (BSA), as well as information obtained from other federal agencies, foreign government partners, and public sources, indicate potential illicit activities related to the COVID-19 pandemic regarding: 1) fraudulent remedies, tests, vaccines, and services; 2) non-delivery scams; and 3) price speculation and hoarding of medical items, such as masks and hand sanitizer. FinCEN has defined the following red flags to help financial institutions identify COVID-19-related medical scams and also to help them detect, prevent, and report suspicious transactions associated with the pandemic of said disease.

Since no single alert is necessarily an indication of illicit or suspicious activity, before determining whether a transaction is suspicious or indicative of fraudulent activity related to COVID-19, financial institutions should consider other contextual information and related facts and circumstances, such as the customer’s financial activity history, whether the transactions align with prevailing business practices, and whether the customer presents multiple indicators. In accordance with the risk-based approach for BSA compliance, financial institutions are also encouraged to conduct additional inquiries and investigations when appropriate. Some of these alerts are common indicators of fraudulent commercial activity, practiced by fictitious or fraudulent retail or wholesale operators. Additionally, some of the red flags described below may apply to multiple fraudulent activities related to COVID-19.

Medical-Related Fraud, Including Fraudulent Cures, Tests, Vaccines, and Services

Several federal agencies have detected the offer to the public of fake remedies, tests, vaccines, and fraudulent services related to COVID-19.3

3. See the press release from the U.S. Department of Justice (DOJ) “Georgia resident arrested for selling illegal products claiming to protect against viruses” (April 9, 2020); the newsletter from the U.S. Department of Homeland Security “ICE HSI arrests Georgia resident for selling illegal pesticide, claiming it protects against coronavirus” (April 14, 2020); the national press release from the U.S. Customs and Border Protection (CBP) “CBP Officers Seize Fake COVID-19 Test Kits at LAX” (March 14, 2020); the press release from the U.S. Federal Trade Commission “FTC, FDA Send Warning Letters to Seven Companies about Unsupported Claims that Products Can Treat or Prevent Coronavirus” (March 9, 2020); and the press releases from the Federal Bureau of Investigation (FBI) “FBI Warns of Emerging Health Care Fraud Schemes Related to COVID-19 Pandemic” (April 13, 2020) and “FBI Warns Health Care Professionals of Increased Potential for Fraudulent Sales of COVID-19-Related Medical Equipment” (March 27, 2020).

Examples of fraudulent medical services include claims related to alleged cures or vaccines for COVID-19, claims regarding products that allegedly disinfect homes or buildings, and the distribution of fraudulent or unauthorized COVID-19 screening tests for home use.

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Some of these scams may be perpetrated by illicit actors who have recently created unregistered or unauthorized medical supply companies. Some red flags related to these scams may be as follows:

• U.S. authorities, such as the Federal Trade Commission (FTC), the Food and Drug Administration (FDA), or the Department of Justice (DOJ), have determined that the company, merchant, or business owners are selling fraudulent products.

4. To view current lists of warning letters and fraudulent products related to COVID-19, visit the FDA pages: “Fraudulent Coronavirus Disease 2019 (COVID-19) Products” and the FTC “FTC Coronavirus Warning Letters to Companies”. For information on actions taken by the DOJ regarding COVID-19, visit: “Coronavirus Fraud News”.

• Web investigation or ad examination indicates that a merchant is selling diagnostic tests for home use

5. At the time of publication of this advisory, the FDA has authorized three diagnostic tests for home use: the “LabCorp COVID-19 RT-PCR” test, the test developed by the Molecular Laboratory of Rutgers Clinical Genomics Laboratory, and the Everlywell “Test Home Collection” COVID-19 diagnostic team. See the following FDA newsletters: “Coronavirus (COVID-19) Update: FDA Authorizes First Test for Patient At-Home Sample Collection” (April 21, 2020); “Coronavirus (COVID-19) Update: FDA Authorizes First Diagnostic Test Using At-Home Collection of Saliva Specimens” (May 8, 2020); and “FDA Authorizes First Standalone At-Home Sample Collection Kit that can be used with Certain Authorized Tests” (May 16, 2020).

, vaccines, treatments, or cures for COVID-19.

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Case Study: U.S. Authorities Take Action Against Fraudulent COVID-19 Diagnostic Tests and Treatments.

Non-Delivery Scams for Medical Items

The COVID-19 pandemic has altered global transportation and generated unexpected and considerable demand for certain products, especially those related to medical issues. This demand creates a situation where criminals can scam consumers and businesses through non-delivery of items. In these scams, a customer pays a company for the purchase of items that they will never receive. These fictitious companies advertise diagnostic equipment, masks, medications, and other items that they never intend to deliver and, in some cases, do not even possess. Victims of these scams include businesses, hospitals, governments, and unsuspecting consumers. These fraudulent transactions are carried out through websites, automated calls, or the dark web. Some of these maneuvers require the use of shell companies6

6. A “shell company” is understood as companies that are not publicly traded or limited liability companies (LLCs) that have no other physical presence than a postal address and generate little or no independent economic value. See FinCEN guidance FIN-2006-G014 “Potential Money Laundering Risks Related to Shell Companies” (November 2006); and the Suspicious Activity Report (SAR) study: Edition 1 (October 2000), Edition 2 (June 2001), and Edition 7 (August 2004).

to facilitate transactions. In its March 27, 2020 warning directed to the healthcare sector, the FBI requested that the medical community exercise due diligence and appropriate caution when dealing with unknown providers and when relying on unidentified third-party intermediaries in the supply chain.7

7. See the FBI press release “FBI Warns Health Care Professionals of Increased Potential for Fraudulent Sales of COVID-19-Related Medical Equipment” (March 27, 2020).

Some financial indicators of these scams may be as follows:

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Case Study: A financial institution in the state of Virginia alerted the U.S. Secret Service (USSS) and successfully helped prevent a non-delivery scam for an amount of US $317 million.

Price Speculation and Hoarding of Medical Items

FinCEN and the Department of Justice (DOJ) have received numerous reports of alleged hoarding and price speculation related to the COVID-19 pandemic. On March 24, 2020, the DOJ created a Hoarding and Price Gouging Task Force to address the manipulation, hoarding, and price speculation of the market related to COVID-19. According to the DOJ, hoarding and price speculation are defined as the act by any person or company of accumulating excessive quantities of any of these materials for personal use or to sell them at amounts far exceeding prevailing market prices8

8. See the DOJ article “Department of Justice COVID-19 Hoarding and Price Gouging Task Force” (March 24, 2020).

. In many cases, people have sold excess or newly acquired wholesale shipments of goods, such as masks, disposable gloves, isopropyl alcohol, disinfectants, hand sanitizer, toilet paper

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and other paper products at exorbitant prices due to the COVID-19 pandemic. Payment methods vary depending on the strategy and may include the use of prepaid cards, money service businesses, credit card transactions, bank drafts, or electronic fund transfers. On March 23, 2020, President Trump issued Executive Order 13910, pursuant to Section 102 of the Defense Production Act, which prohibits the hoarding of designated items9

9. See Executive Order 13910 “Executive Order on Preventing Hoarding of Health and Medical Resources to Respond to the Spread of COVID-19” (March 23, 2020). The Executive Order does not define hoarding; it delegates authority to the Secretary of Health and Human Services to prevent hoarding and designate materials whose supply would be threatened by persons accumulating the material either in excess of reasonable demands for commercial, personal, or domestic consumption, or for the purpose of reselling it at amounts far exceeding prevailing market prices. Additionally, the U.S. Attorney General indicated that the Department will investigate and prosecute those who acquire medical supplies in excess of what they would reasonably use or for the purpose of charging exorbitant prices to healthcare workers and hospitals that need them. See DOJ, “Department of Justice COVID-19 Hoarding and Price Gouging Task Force” (March 24, 2020).

. Some financial indicators of these scams may be as follows:

Case Study: FBI arrests a Brooklyn man for possession and sale of limited medical equipment.

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Case Studies10

10. See the Financial Action Task Force (FATF) publication “COVID-19-related Money Laundering and Terrorist Financing Risks and Policy Responses” (May 2020), which identifies the challenges, best practices, and policy interventions of FATF countries regarding the money laundering and terrorist financing threats and vulnerabilities arising from the COVID-19 pandemic.

Medical-Related Fraud, Including Fraudulent Cures, Tests, Vaccines, and Fraudulent Services11

11. Measures taken by U.S. law enforcement agencies include arrests related to COVID-19 carried out by partners of the law enforcement agencies of the Intellectual Property Rights Coordination Center (IPR Center). These arrests were related to the shipment of unapproved and mislabeled “treatments” for patients suffering from COVID-19. See in the IPR Center Press Room the DOJ press release “U.K. National Charged with Shipping Mislabeled and Unapproved ‘Treatments’ for Patients Suffering from COVID-19” (April 1, 2020) and the FDA “Coronavirus Disease 2019 (COVID-19)”. In a week-long operation between March 3 and 10, 2020, INTERPOL, the World Customs Organization (WCO), and Europol, in collaboration with the United States and other partners, seized more than 37,000 counterfeit medical devices, counterfeit surgical masks, and illicit pharmaceuticals, and detected more than 2,000 websites with false advertising and online markets selling counterfeit products. See INTERPOL news “Global operation sees a rise in fake medical products related to COVID-19” (March 19, 2020) and the article “COVID-19 Urgent Notice: counterfeit medical supplies and introduction of export controls on personal protective equipment” in the WCO press room (March 23, 2020).

U.S. Authorities Take Action Against Fraudulent COVID-19 Diagnostic Tests and Treatments.

On March 12, 2020, officials from the U.S. Customs and Border Protection (CBP) intercepted at Los Angeles International Airport (LAX) a package containing counterfeit or fraudulent COVID-19 diagnostic tests from the United Kingdom. Officials found six plastic bags with various vials labeled as “Purified Water Vials,” and filled with a white liquid labeled as “Corona Virus 2019nconv (COVID-19)” and “Virus1 Test Kit”12

12. See the national press release from CBP “CBP Officers Seize Fake COVID-19 Test Kits at LAX” (March 14, 2020).

. The seizure led to a joint investigation between the United States and the United Kingdom, as well as other seizures13

13. See the article “COVID-19 Urgent Notice: counterfeit medical supplies and introduction of export controls on personal protective equipment” in the WCO press room (March 23, 2020).

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In another case, the DOJ charged and arrested a UK citizen for sending from that country to California and Utah mislabeled medications that were allegedly treatments for COVID-19. In this scheme, the scammer created packages labeled as “Trinity COVID-19 SARS Antipathogenic Treatment” equipment, although these equipment had not been approved by the FDA to treat COVID-19, nor for any other use. This case was the subject of a joint investigation by the FDA Office of Criminal Investigations and the Office of Homeland Security Investigations, with the assistance of CBP and the U.S. Postal Inspection Service14

14. See the DOJ press release “U.K. National Charged with Shipping Mislabeled and Unapproved ‘Treatments’ for Patients Suffering from COVID-19” (April 1, 2020).

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Non-Delivery Scams for Medical Items

A financial institution in the state of Virginia alerted the U.S. Secret Service (USSS) and successfully helped prevent a non-delivery scam for an amount of US $317 million.

A foreign government contacted a reputable New York law firm requesting help to acquire between 30 and 50 million N95 masks for the country’s national police department. The law firm, in turn, contacted a healthcare and telemedicine marketing company (Company A), which then contacted Company B, which allegedly represented a “conglomerate of doctors” who had purchased millions of masks. Company B supplied Company A with contracts that falsely claimed Company B had 50 million masks stored in Houston (Texas) and requested a payment of US $317 million to be deposited in a blocked escrow account.

To execute the transactions, the foreign country’s government sent US $317 million to New York for further transfer to Company A’s account at a financial institution in Virginia. This financial institution began to have suspicions, as Company A’s account had been opened only the day before and its holder had never mentioned to the financial institution that they were expecting a draft for an amount of US $317 million. The Virginia financial institution contacted the USSS.

The USSS examined the data provided under the Bank Secrecy Act and interviewed the holder of Company A’s account. The investigation revealed that, although Company A had suspicions about Company B, Company A appeared to be a victim hired as an “intermediary” to carry out the non-delivery scam for an amount of US $317 million. The USSS interviewed the CEO of Company B, who admitted to not having masks and never having possessed 50 million units of that item.

Price Speculation and Hoarding of Medical Items

FBI Arrests a Man in Brooklyn for Possession and Sale of Limited Medical Equipment.

On March 30, 2020, FBI agents arrested a Brooklyn (New York) resident for making false statements about the hoarding and sale of surgical masks, medical gowns, and other medical supplies15

15. See the DOJ press release “Brooklyn Man Arrested for Assaulting FBI Agents and Making False Statements About His Possession and Sale of Scarce Medical Equipment” (March 30, 2020).

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The person allegedly sold certain designated materials, such as N95 respirators, to doctors and nurses at exorbitant prices. On one occasion, a doctor from New Jersey contacted this person through a WhatsApp chat group called “Virus2020!”. The person agreed to sell the doctor approximately 1,000 N95 masks and various other items for a sum of US $12,000, representing a price increase of approximately 700% compared to the normal price of those materials. The person sent the doctor to an auto repair shop in Irvington (New Jersey) to pick up the order. According to the doctor, the shop had enough supplies, including hand sanitizers, disinfectants, cleaning chemicals, and surgical supplies, to supply an entire hospital. On another occasion, the person allegedly offered to sell surgical gowns to a nurse, whom they sent to their residence in Brooklyn.

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Suspicious Activity Reporting Information

Instructions for Filing Suspicious Activity Reports (SARs)

The filing of Suspicious Activity Reports (SARs), along with effective compliance by financial institutions with due diligence requirements, is fundamental to detecting potential financial crimes related to the COVID-19 pandemic, as well as fraud and financial crimes unrelated to the pandemic related to national and foreign political corruption, money laundering, terrorist financing, and other types of illicit financing. Financial institutions should provide all relevant available information in the SAR form and narrative. Compliance with the instructions below will improve FinCEN’s and law enforcement agencies’ ability to properly identify SARs and actionable information and extract them from FinCEN’s Query systems to support COVID-19-related cases.

• FinCEN requests that financial institutions cite this advisory by including the key phrase: “COVID19 FIN-2020-A002” in field 2 of the SAR (Institution’s Note to FinCEN) and the narrative to indicate the link between the suspicious activity being reported and the activities highlighted in this advisory.

• Financial institutions should also select field 34(z) of the SAR (Fraud-Other) as the type of suspicious activity related to ind