Money Laundering in the Gig Economy

57 million people in the US are part of the gig economy, according to Forbes. Further still, 29 percent of US workers consider independent contracts or temporary work to be their primary job. In comparison, the coal industry employs approximately 80,000 people in the US, and steel employs around 150,000 directly. Since the emergence of the gig economy, a broad rubric encompassing everything from taxi service aggregators, freelancer platforms, vacation rental platforms etc., it has ballooned into a sizeable sector, contributing – according to some estimates – $792 billion to the US economy in a year.

With hundreds of billions of dollars changing hands across gig economy platforms every year, this emergent sector is slowly attracting the attention of bad actors, who have devised new and sophisticated ways of laundering money over these platforms.

“Ghost-rides” and fake vacations

Earlier this year, one of the largest taxi aggregators in the world came under media scrutiny after it was reported that it was being used to launder money. The modus operandi was simple – fraudsters, from one corner of the world, would book rides with complicit drivers thousands of miles away. In reality, these “ghost rides” never actually took place; once the sum of dirty money has been cleaned, the complicit driver transfers a portion of it back to the fraudster. To stay under the radar, the fraudsters spread the money across a network of complicit drivers – effectively, these small amounts of money become less likely to arouse suspicion from the taxi aggregator.

A similar approach was allegedly taken by money launderers on one of the largest vacation rental platforms in the world; the complicit host’s accommodation is booked by a fraudster, but, the ‘guest’ never actually stays there. The complicit host is paid – and the platform, unwittingly, takes its cut of the illicit sum of money as it would do with any other transaction; subsequently, the host transfers a portion of the money received, to the fraudster.

Freelancer platforms and micro-laundering

Jean-Loup Richet, a cybercrime researcher and expert at Harvard University, has conducted an immersive ethnographic study on the evolving forms of money laundering in the digital age; his research paper takes an in-depth look at micro-laundering: Transferring a large sum of money by scattering it over thousands of electronic transactions.

According to Richet, freelancer platforms (or online job marketplaces), are a primary target. The launderer’s strategy essentially remains the same: find a complicit individual who pretends to be a freelancer, set up a job on the platform (let’s say it’s a graphic art project) and choose the complicit individual from a host of other legitimate applicants that are applying for the job. Once the individual is chosen, he then receives the money over the platform – the platform, oblivious to the crime that is about to transpire before its own eyes, takes its cut. Once the money is successfully paid to the freelancer for completing the ‘graphic art project’, the freelancer takes his cut and sends the rest back to the fraudulent job poster.

What makes freelancer platforms particularly vulnerable to such forms of money laundering is that payments on these platforms are held in escrow and are disbursed to the freelancer upon successfully completing the task – the use of escrow, to an extent, helps cover up the launderer’s tracks.

The fraudsters manage to stay under the radar because they are micro-laundering – setting up job posts in very small amounts ranging from $5 to $30.

Such changing techniques and trends in money laundering call for an agile solution that is built on technology that can not just match but surpass the sophistication of bad actors. By placing electronic identity verification at the beginning of the customer onboarding process, online platforms can prevent fraud by keeping bad actors at bay.