The digital ways of money laundering
By SHAHID ILYAS KHAN
Money laundering is the process of making illegally-gained proceeds appear legal and clean. Money obtained from certain crimes, such as extortion, insider trading, drug trafficking, and terrorist activities is “dirty” and needs to be “cleaned” to appear to have been derived from legal activities. The use of the Internet allows money launderers to easily avoid detection. The rise of online banking institutions, anonymous online payment services, peer-to-peer transfers using mobile phones and the use of virtual currencies have made detecting the illegal transfer of money ever more difficult. Moreover, the use of proxy servers and anonymizing software makes the third component of money laundering, integration, almost impossible to detect, as money can be transferred or withdrawn leaving little or no trace of an IP address. Money can also be laundered through online auctions and sales, gambling websites and even virtual gaming sites. Here are some unconventional methods to watch out for:
Today’s sharing economy has enabled individuals to earn additional income off of their resources. Whether it’s sharing their accommodation, their ride, or some skill they possess, the sector is exploding. As a result, there has been a rise in micro-merchants, individuals who offer their products or services through an online marketplace. In one example, money launderers make fake bookings and share the revenue with the host and the value can add up quickly – $3000 a pop.
The growing trend of instant messaging apps have quickly gone from simply sending text and images to offering a number of services, including payment functions. One of the most significant, used daily by 600 million users, is WeChat Pay. It allows people to pay with a tap or a photo snap and it, along with main competitor Alipay, have made cash transaction in China almost non-existent. Similarly the Facebook’s Messenger service has integration with PayPal, MasterCard, American Express, TransferWise, and Western Union. While the volume and number of accounts are enormous, all the transactions are digital, making tracking and monitoring for illegal activity that much easier.
A digital currency, designed to work as a medium of exchange, offers a new avenue for criminals to clean their money. The most well-known digital currency is Bitcoin, created in 2009 by a hacker who wanted to create a currency that would be free of government regulation. Bitcoins can either be earned by competing against others to solve complex math problems, or bought from someone on a currency exchange website. The cryptocurrencies are so volatile, disparate and subject to decentralised control, it is easier to make anonymous payments that are difficult to track. Recently the crypto exchange Coinbase has released a debit card that let people use their stored digital assets to pay for goods online and in stores. The Facebook has recently announced issuing its own cryptocurrency namely Libra which shows the popularity.
The most common scheme is transaction laundering, in which illicit merchants use an approved merchant’s payment credentials in order to process e-commerce transactions. It’s easy enough to set up an online storefront for illicit sales, and then reroute transactions through a legitimate merchant.
5.Digital Payment Platforms
Criminals use everyday digital payment platforms to launder money. For instance, a Paypal transaction of $10,000 would flag AML alerts. But 100 Paypal transactions of $100 each would attract no notice from watchdogs. Other digital payment platforms such as Venmo are also used to move illegal funds. FBI busted a gang involved in laundering $6 billion online under the guise of a digital currency called “LR,” by using “third-party ‘exchangers,'” from countries like Malaysia, Russia, and Nigeria, where government oversight was negligible. These exchangers received payments, and then credited back into criminals account, avoiding detection.
6.Online Bid Sites
Criminals use online bid websites for micro laundering. From fraudulent auctions on Ebay to imaginary job postings on Fiverr, money can be transferred easily and quickly. In 2017, the FBI thwarted a terrorist attack on American soil. They found that the perpetrator received his funding by posting fraudulent auctions on eBay that were “purchased” by ISIS agents.Individuals may be hired as “mules” to apply for online job postings, only to transfer the money back to the employer later.
In this scheme, fraudsters may load cash onto a variety of prepaid cards, such as Visa gift cards or store cards. With a little legwork, those amounts can be extracted into cash deposits into bank accounts.Fraudsters can copy the serial numbers of the cards; scratch off the security code and then cover them up. Then, when the card is activated, they then can access the funds on the card. While they can’t redeem the funds for cash directly, they can use them to buy products that they sell for cash (shipping the product directly to the purchaser).
By using stolen debit or credit cards, criminals quickly purchase prepaid cards in bulk. They can then sell cards for hard cash. The prepaid cards are traded face to face to avoid any record.
The ill-gotten money is converted into gaming currency, then transferred back into real, usable and untraceable “clean” money. The criminals set up numerous accounts in multiple jurisdictions, purchase in-game credits and transfer those credits around to wash the money.
Criminals participate in a casino and buys chips with online payment. They play for a while and then encash the chips by getting a receipt so to show the proceeds as gambling winnings.
- Other gambling methods
Money is spent on gambling, preferably on high odds games. One way to minimize risk with this method is to bet on every possible outcome of some event that has many possible outcomes, so no outcome(s) have short odds, and the bettor will lose only the vigorish and will have one or more winning bets that can be shown as the source of money.
The author is an officer in the Federal Investigation Agency. He regularly writes about different issues including HR, gender, cyber security, white collar and other organized crimes. He can be contacted at email@example.com