As the world enters its eighth month of a global pandemic, employees of many organisations and government agencies continue to work either from home or, at best, episodically visit their brick and mortar office. Some of the consequences for the financial community are obvious - in the U.S. the Department of the Treasury has highlighted concerns regarding scams and fraudulent activities related to the dissemination of Covid-19 stimulus checks. Similarly, small business related Covid-19 relief measures created new opportunities for fraudsters. In Illinois, on June 16, the U.S. Department of Justice charged a Chicago-based business owner for fraudulently seeking more than $400,000 in a forgivable Paycheck Protection Program loan guaranteed by the Small Business Administration. And, of course, the FBI has reported a spike in cybercrime and business email compromise scams during the pandemic.

While private sector compliance shops must remain mindful of these types of threats to the financial system, as a former government practitioner who directed State Department terrorism sanction and finance programs, I have additional concerns. As I write this blog in early July, the State Department has carried out only one set of terrorist designations (on April 6) pursuant to E.O. 13224 since its employees were sent home to work remotely. The Treasury Department shares terrorism designation authorities in the U.S. with the State Department and like State, its employees have been working remotely since late March. Since then, Treasury has carried out one tranche of Islamic Revolutionary Guard Corps-Qods Force sanctions pursuant to terrorism sanction authorities. Both the State and Treasury Department E.O. 13224 designations are colloquially referred to as ?Specially Designated Global Terrorists? (SDGTs) and are heavily reliant upon a dossier of evidence that includes sensitive (classified) information. Without access to their offices, those charged with sanctioning terrorists are unable to pursue their jobs with vigour. And, therefore, this represents a risk to compliance sanctions. Terrorism hasn't stopped because of Covid-19. The money launderers and financiers who provide funding to terrorist groups no doubt continue to operate.  With only a small handful of SDGT additions to the OFAC SDN list since April, it is highly likely that there are nefarious individuals who should be sanctioned but haven't been because government experts can't access the classified information they need to complete a designation.

This information challenge is both a government and private sector problem. Government officials responsible for sanctions are likely to have restricted access to their classified systems for the foreseeable future. As such, State and Treasury Department officials will need to draft dossiers for terrorism designations that depend upon unclassified information. For instance, purchasing new unclassified data sets may increase the possibility that terrorism designations could rely predominantly on unclassified info. If Treasury and State had those capabilities already, there is a good chance the OFAC SDN list could have included more SDGTs between April-July. The infrequent additions are important for non-U.S. financial institutions, too, since they are heavily reliant upon OFAC SDN updates to ensure they aren't being abused by terrorist financiers.

The time scale for governments to enhance technical and open-source information capabilities is often slow. As such, financial institutions would do well to consider what new data sets they can also tap into. More and better data can illuminate the threat landscape, especially as it evolves during Covid-19. Specifically, overlaying existing client (or prospective client) financial data with targeted and detailed social media information could enhance FI (and non-bank) risk management capabilities.

Finally, the lack of terrorism designations (and not just in the U.S. for the record) isn't the only threat to the financial system. Because of Covid-19, the Financial Action Task Force's (FATF) June plenary met virtually, and multiple FATF style regional bodies have had to cancel their meetings. At the same time, multiple government-related (some of which were designed to include private sector participation) capacity building training programs related to anti-money laundering (AML), counterterrorism financing (CTF), and counterproliferation financing (CPF) capabilities have been cancelled. I know this because I often work for governments and UN bodies as an AML, CTF, and CPF trainer. I have had multiple trainings cancelled. In order to keep up with the latest laws, regulations, financing methodologies, and money-laundering schemes, government and private-sector personnel should frequently attend training sessions. While online training is certainly feasible for some, many potential training partners simply do not have the internet bandwidth at home to attend remotely convened capacity building sessions. Until the pandemic passes, it is very likely that those charged with curtailing terrorism financing in both the private and public sector will see their skills diminish. As skills erode, especially coupled with infrequent SDGT updates, banks and non-banks alike are in a precarious position during the pandemic.

--About the Author: Jason M. Blazakis is a Professor of Practice at the Middlebury Institute of International Studies where he also serves as the Director of the Center on Terrorism, Extremism, and Counterterrorism. He also serves as a senior research fellow at the Soufan Center. Jason is the CEO and founder of the Riptide Threat Mitigation Group, a geo-political consultancy. Between 2008-2018 he was the Director of Counterterrorism Finance and Designations at the U.S. Department of State's Counterterrorism Bureau.