Over the last few years, the size and reach of the online marketplace have fundamentally changed the way we do business; indeed, there now exists a multiplicity of ways in which money changes hands, allowing fraudsters to devise new and sophisticated ways of laundering money. Micro-laundering – steering clear of the attention of law enforcement agencies by moving small amounts of money over the course of a large number of transactions, often across geographies — is gaining traction.
It has now become imperative for eCommerce providers, gaming companies, payment processors — the various moving parts of the online marketplace — to take cognizance of how money launderers have discovered weaknesses in the system. Micro-laundering isn’t just a compliance issue, threatening regulated entities with the levy of heavy regulatory fines — its effects go beyond fines, tarring both a brand’s reputation, and users’ trust.
Why fraudsters are turning to micro-laundering
For money launderers, the traditional methods of cleaning money no longer appear to be feasible. Regulations on financial institutions, including Anti-Money Laundering (AML) and Ultimate Beneficial Ownership (UBO) requirements, make it difficult to move vast sums of money. Even online casinos are obligated to verify the identity of players, and maintain an audit trail which tracks the source of money placed for bets. Likewise, UBO requirements to establish the ownership of shell companies, have made it difficult to launder money through real estate and other sectors once patronized by money launderers.
Ultimately, the necessity of cleaning their illegal proceeds and the scarcity of avenues to move them force money launderers to take more discreet approaches that afford more anonymity.
There are three major steps involved in micro-laundering:
- Placement: Moving cash from its source
- Layering: Making it difficult to detect and uncover illicit funds
- Integration: Moving cash back to the launderer in a manner that makes it look legitimate
Gaming offers millions of buyers, anonymity
Online gaming is a global phenomenon; according to estimates, it is a $171.7 billion market. Jean-Loup Richet, a cybercrime researcher and expert at Harvard University, has conducted an immersive ethnographic study on the evolving forms of money laundering, particularly those involving online games.
According to Richet, money launderers gravitate to role-playing games — particularly the massively multiplayer online role-playing games (MMORPGs) which host millions of gamers. In the paper, Richet provides popular MMORPGs such as Second Life, World of Warcraft, as examples.
The launderers’ modus operandi is simple (yet it leaves no trail for law enforcement to follow):
- Launderers purchase credits (or gold, as gamers call them) on online games; the purchase is made using pre-paid cards, or stolen cards
- Once the gold is purchased, the launderer sets up shop on a gold-selling site. These reseller sites, as it were, attract a large number of gamers as the gold is often sold at a marked down price
- As with every other transaction on the site, a buyer purchases the gold, and the launderer, in effect, cleans his illegally obtained money. Neither the buyer nor the seller (the money launderer) are aware of the other’s identity; in fact, they could be living in different and distant parts of the world
Indeed, as Richet is quoted on Wired Magazine, online role-playing games provide “an easy way for criminals to launder money.”
Looking for a needle in a haystack
As micro-laundering becomes more common, regulators and law enforcement will have to look for ways to identity and prevent it. Micro-laundering presents new threats: It is harder to identify because it flies under the radar – the sheer volume of transactions at any second makes it difficult to identify cases of micro-laundering.
In the years to come, RegTech will play a much larger role in preventing micro-laundering; for example, by helping them verify the identity of their users, RegTech solutions can help gaming companies distinguish legitimate gamers from fraudsters.
Business Verification (KYB)Enhanced Due Diligence Procedures for High-Risk Customers
Identity VerificationProof of Address — Quickly and Accurately Verify Addresses
Business Verification (KYB)How to Verify Legitimate Businesses and Merchants