Criminals have come up with creative ways to launder their illicit funds. Unfortunately, their creativity comes at a cost to your business if you are unable to detect and prevent money from entering your system. These costs include fines, imprisonment and reputation damage.
While you might be aware of some of the more common money laundering techniques such as large “smurfing,” invoicing through shell companies, and transfers to offshore accounts, there are many other schemes that you might not be aware of. Here are some unconventional methods to watch out for:
Today’s sharing economy has enabled a whole new economic sphere, allowing 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. A Brooking Institution study projects the sharing economy will grow from $14 billion in 2014 to $335 billion by 2025.
As a result, there has been a rise in micro-merchants, individuals who offer their products or services through an online marketplace. It all adds up to a huge economy with massive transaction volume and thus a tempting target for money launderers. 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.
While it might be tempting to do business with some of these players — a sale is a sale, after all — you could be left holding the bill after the scam is revealed and your merchant account status threatened. While it might be difficult to separate the good from the bad accounts, proper risk management techniques and effective due diligence procedures will help protect your business. The more business, both in terms of transaction and amount, that comes from a source, the more due diligence is recommended.
Another aspect of P2P is direct communication and the growth of instant messaging apps is nothing short of remarkable. These apps have quickly gone from simply sending text and images to offering a full buffet of services, including payment functions.
Consider WeChat, China’s most popular app, which has over 900 million users. Through the one app, they can perform multiple tasks, from hailing a car to getting a date. 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.
Of course, there are many other instant messaging payment apps used by people around the world. For example, Facebook’s Messenger Chat service has integrations with PayPal, MasterCard, American Express, TransferWise, and Western Union.
All these accounts and transactions make for another sweet target for money launderers. While the volume and number of accounts are enormous, all the transactions are digital, making tracking and monitoring for illegal activity that much easier. Thus, larger organizations thus can enable sophisticated pattern recognition systems that highlight questionable activities and accounts.
This, of course, is unfortunately not possible for small organizations, due to cost and complexity. For those companies, proper safeguards starts with awareness; understand the pitfalls of instant messaging payments and take your precautions.
Gift cards are big business. According to Consumer Reports, it’s $130 billion per year and although fraud losses are in the single digits, that’s still a lot of money.
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).
For retailers, if you have gift cards keep them under secure control, ensuring criminals can’t access them without buying them. Or better yet, sell them online where they have no access to them at all.
Prepaid cards are another way for criminals to create untraceable money. Using stolen debit or credit cards, they quickly purchase prepaid cards in bulk. They can then sell for cards for cold, hard cash. If they aren’t caught in the act of using the stolen cards, it’s very difficult to trace these culprits as the prepaid cards are traded face to face to avoid any record.
Some retailers have responded by limiting the daily amount of prepaid cards any one purchaser can make.
While online games have “virtual” currencies, these virtual currencies can be traded for real-world cash. For criminals, dealing in these forms of value don’t face the same scrutiny by law enforcement and the rules around them are not formalized.
Typically, this model involves setting up numerous accounts in multiple jurisdictions, purchasing in-game credits and transferring those credits around to wash the money. They can extend the crime by exploiting hacks of the game to create more virtual loot, create spoofing accounts to steal other player credits, or even using forced labor to generate credits.
As these virtual worlds continue to grow and their virtual economies deal with larger sums of money, money launderers will no doubt come up with other models to hide their funds.
Speaking of virtual currencies, cryptocurrency, a digital currency designed to work as a medium of exchange, offers another avenue for money launderers to clean their money. According to a report from the US Drug Enforcement Administration, China-based manufacturers were trying to avoid capital controls by accepting bitcoin for their trading operations. The Department of Justice stated, "The increasing use of OTC bitcoin brokers, who are capable of transferring millions of dollars in bitcoin across international borders, as part of a capital flight scheme is expected to continue to intertwine criminal money laundering networks with capital flight.”
It always seems a cat and mouse game between the regulators and companies trying to prevent money laundering and the money launderers trying to hide their gains. However, as loopholes get discovered and closed, and technology enables better monitoring and analysis, perhaps soon the rodent will have few paths to escape. Technology, which many times has given power to the money launderer, might in the end be the tool the turns the table on the crimes and fundamentally makes a difference to limit money laundering.