Increasing Global Financial Crime in the post-covid era

The pandemic has served as an incentive for financial criminals to take advantage of online transactions and threat the economic as well as financial stability of countries across the world. With the stemming financial crime post Covid, numerous challenges were faced in both intra-state and inter-state policy formulation to deal with these threats.

This article analyses the impact of Covid in the global financial world. First, it deals with impact on international cooperation to tackle the multiplying crime rates and policy formulations. Further, it deals with the approaches individual nations could undertake given their financial backing.

Impact of the pandemic on the international cooperation to combat financial crime

Global growth is an accumulation of country-level growth. While the policies formulated by the states to benefit their national growth and prosperity while combating the crisis should benefit at the domestic level, such policies should also benefit global financial growth and prosperity through coordination on some aspects. With the world dealing with an unprecedented event, policy formulation at the country level became pertinent to tackle the stemming financial crime, particularly money laundering and terrorist financing. It was realized that these problems need global cooperation. Information sharing is one such aspect of policy formulation. Financial imbalance is inevitable if inter-state mutual support is withdrawn.

The efficiency of international cooperation to combat financial predicament has been debatable across delegations. On one hand, concerns were expressed that delays in cooperation were under the possibility of being intensified with time due to remote working of authorities responsible to share information on the subject. Additionally, the law-enforcement agencies and supervisory authorities had prioritized their efforts. In such a scenario, formal cooperation in the form of mutual legal assistance to formulate a common plan was significantly impacted. In result, provisions for technical assistance in financial crimes arenas like Anti- Money Laundering and Counter- Terrorist Financing was also reduced or suspended.

Again, cross-border arrangements established in the recent years, though facilitated timely information sharing, the participants in these mechanisms had been a part of physical meetings and thus established trust. Authorities relied on physical documentation for exchange of supervisory information with the foreign counterparts and such exchange in a financial crisis with increasing financial crime posed challenges of coordination during the lockdown period.

On the other hand, a considerable amount of views suggest the contrary. The already established security systems, which had become stagnant with time allowed the authorities to share materials via email and other digital means across jurisdictions while the crisis subsisted. For people supporting this view, the pandemic brought forth opportunities to enhance information sharing. Repositories of policy measures devised by various states in response to the financial crisis facilitated by the pandemic were developed with the aim of states sharing their experiences. The impact and effectiveness of the policy measures were assessed on an international level to lay down the factors which answer the questions of whether, when and how to extend or amend those undertaken measures.

Along with cooperation, comes coordination. The global economy was already at a critical juncture even before the pandemic. The positive surprise of this crisis has been the accelerated speed and aggression of fiscal response to the financial as well as economic challenges which the pandemic posed.

The pro-creditor and pro-debtor approach to better tackle the stemming financial crime

Having dealt with the challenges that global cooperation is dealing with during the crisis, focus is now shifted upon the approaches that individual legal systems must undertake in order to best deal with the unprecedented event.

The pandemic left many debtors in a dilemma. With increasing losses, the liability to satisfy the creditors of their claims became a challenge that only few could undertake. While much strict legal compliances were put in abeyance considering their position, a huge number rather opted for bankruptcy fraud wherein the debtors concealed their assets in order to avoid having to forfeit them.

The legal systems across the world have been broadly classified on the basis of legal theory dividing the world into pro-debtor or pro-creditor systems. The pro-creditor approach focuses on the ability of the people to avoid losses resulting from default of the debtor. On the other hand, a pro-debtor jurisdiction aims to maximize the assets of the defaulter in order to increase the assets available for distribution. The choice between the two to deal with bankruptcy fraud should be based on the broad criteria of- the availability of insolvency set-off, receivables and payables, the scope of security interests if available, the availability of commercial trust and the traceability of delinquent money. These criteria do not exist in isolation but are only relevant when analysed with their efficient enforceability.

At this juncture, the criteria laid down for differentiation would assist in determining whether a pro-debtor or a pro-creditor approach would be suitable. Insolvency set-off is the alternate dispute resolution for insolvency proceedings where parties settle their claims by mutual dealings. In countries where such mechanisms can lead to effective results, a pro-debtor approach would maximize the assets of the debtor while providing relief that he will not take recourse to bankruptcy fraud. Similarly, presence of high commercial trust and efficient mechanisms to trace delinquent money would also favour a pro-debtor approach. On the other hand, stringent rules of security interest may tempt a debtor to resort to fraud, wherein the pro-creditor approach would serve the cause to secure the creditor.

Thus, the rise in bankruptcy fraud post pandemic has made different jurisdictions retrospect on their approach to financial laws within the ambit of bankruptcy laws in order to prevent the economy from suffering.

Conclusion

With the stemming financial crime across the world, the countries across the world would have to formulate ways and manners in which they could all share a common platform for exchange of information. It is impertinent for the nations to finalize the approaches they would be undertaking to deal with the same because notwithstanding the global consensus on a particular issue, the individual conditions in which a country operates is best known to it.

Author: Shailza Agarwal, Symbiosis Law School, in case of any queries please contact/write back to us via email chhavi@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney.

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