Voice of the Industry

Financial crime risks in a recession

Tuesday 6 June 2023 08:43 CET | Editor: Raluca Ochiana | Voice of the industry

Brace yourself for the global economic challenge ahead in 2023. Discover expert insights from Victoria Sztanek at FINTRAIL on how economic downturns impact the financial crime landscape.


Economic conditions are likely to remain challenging around the world well into 2023. Against this backdrop, financial institutions should be aware of how economic downturns affect the financial crime landscape.  As they often lead to more extreme behaviours, anti-financial crime teams are likely to see an uptick in criminal activity. We analyse three major risk areas for financial institutions.

Customer fraud

Trying economic conditions mean that even ‘ordinary’ people with no history of financial crime can be lured into illegal activity out of desperation. Individuals pushed to a financial brink may commit acts of fraud such as making fake insurance claims, lending fraud (securing loans or credit cards using false information), or chargeback fraud (making a legitimate payment but then disputing it). They may also falsely claim they have been the victims of fraud and demand reimbursement from their bank - for instance alleging they have been tricked into sending money to a fraudster posing as a genuine payee (authorised push payment fraud).

In the workplace, acts such as forging timesheets or claiming false expenses, known as employee fraud, also tend to increase during a recession. This type of fraud can also involve more complex dealings like procurement fraud, where an employee pays a friend or family member to pretend they are a supplier or steal company data to sell to a competitor.

In a similar vein, individuals and companies may also commit tax evasion by inflating expenses or under-declaring profits to reduce the value of income tax or corporation tax they are required to pay. All these types of fraud rely on falsifying facts for economic gain.


As people look for ways to supplement their income, they are also more susceptible to scams. Investment scams offer imaginary opportunities, promising high, guaranteed returns, and quick turnarounds. They can involve cryptocurrency, gold, stocks, foreign exchange, or even real estate. Taking advantage of cryptocurrency’s elusive and volatile nature, crypto scammers impersonate businesses offering virtual coins or tokens, seeking investment, or giving faulty advice on fake cryptocurrencies. All these bogus investments typically involve a heightened sense of urgency and result in massive losses for victims. 

Individuals looking for additional income may also become involved with multi-level marketing (MLM) scams. MLM promoters advertise an easy income stream, offering people a way to make money from selling products and gaining referral fees by recruiting new people into the scheme. In reality, selling the merchandise can be incredibly difficult, the schemes have hefty hidden fees, and promised commissions or referral payments are never made. 

Romance scams involve social engineering tactics that falsify a romantic relationship with someone online. Once romantic feelings have been established and the scammer has gained the victim’s trust, they will ask for money for emergencies such as fake medical bills. People are often more emotionally vulnerable when facing financial difficulties and may be seeking solace in companionship, leaving them more trusting and exposed than normal. Such people are the perfect victims of scammers, and financial institutions should be aware of the associated red flags. 

Also, on the theme of impersonation, impersonation scams are rife where fraudsters mimic genuine government bodies offering support such as energy and council tax rebates or encouraging people to apply for a ‘cost-of-living payment’. Worryingly, almost a quarter of people in the UK feel uncomfortable saying no to a request for personal information from a stranger over a phone call. Coupled with the fact that these scammers can be very persuasive, impersonation scams pose a significant threat.

Organised crime activity

Organised crime groups (OCGs) are smart opportunists during periods of economic recession. In addition to the money laundering risk, financial institutions should consider how vulnerable customers may become involved with criminality to alleviate financial hardship. Money muling is a crime that disproportionately affects the most vulnerable including students, young people, or unemployed people. It involves customers allowing criminals to move dirty money through their accounts to disguise the original source and flow of funds. Mules may make a commission per payment, or hand over their account to criminals for a fee. OCGs may also recruit individuals desperate for other sources of income for menial and not obviously criminal tasks. These may include translation services for human traffickers, couriers for drug traffickers, or ‘running errands’ that support the gangs’ operations.

Difficult economic conditions make people more liable to take greater risks, increasing the number of potential human trafficking victims. During a recession, people may turn to riskier employment opportunities and can find themselves forced into sex work, paying traffickers to take them to more economically promising regions, or falling into debt bondage.

Finally, as cash and credit become more difficult to access, the risk of illegal loan sharking rises. This involves an unlicensed money lender offering loans at extremely high-interest rates. They often target individuals or families with low incomes and may use intimidation or the threat of physical violence to ensure repayment.

What you should do

As economic hardship is foreseen to continue well into 2023, these financial crime risks will persist. Financial institutions should identify relevant red flags, be aware of changing risk profiles, and fortify their controls accordingly. Now is a good time to refresh risk assessments, do targeted assurance checks on anti-financial crime systems, and plan ahead to identify the need for increased resources, interim support, or more headcount as increased financial crime levels may arise.


This editorial was initially published in the Financial Crime and Fraud Report 2023 which dives into the captivating world of fraud management, digital onboarding, and financial crime in the financial services industry. You can download your free copy here.


About Victoria Sztanek 

Victoria Sztanek is a research and content consultant at FINTRAIL. A passionate anti-financial crime writer and researcher, she supports innovative anti-financial crime compliance teams and technology providers to develop effective approaches and solutions for preventing financial crime.




FINTRAIL is a global anti-financial crime consultancy, working with leading banks, fintechs, and other regulated institutions. We help firms address the risks associated with the current cost-of-living crisis with custom-designed fraud monitoring programmes, risk assessments, systems testing, and training.  For more information, please contact us at contact@fintrail.com.

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Keywords: financial crime, fraud prevention, financial institutions, risk management, money transfer
Categories: Fraud & Financial Crime
Companies: FINTRAIL
Countries: World
This article is part of category

Fraud & Financial Crime


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