With greater scrutiny of traditional financial transactions and more effective systems to identify fraud and malpractice across most sectors, criminals are increasingly searching for new ways to hide and move money online. Across the world, bad actors are looking for gaps in Anti-Money Laundering (AML) defences and loopholes to escape the notice of law enforcement agencies and regulators. They are doing so mainly through digital channels, where the landscape is vast and constantly evolving.
New money laundering threats are emerging, and regulators, payment service providers and businesses themselves need to identify these new risks before fraudsters take advantage. This means more stringent processes and enhanced use of technology to identify potential money laundering and expose the individuals or organisations behind it.
One of the most intriguing things about money laundering is that many of the most successful perpetrators of the crime have hidden their money in plain sight. Hollywood may like to portray money laundering as an intricate and sophisticated dark art, but in reality most money laundering schemes are relatively mundane and simple.
For many years, money launderers have found that the most basic types of transactions can allow them to move money without being identified. And while the dramatic shift towards a digital-driven economy over the past decade may have changed the playing field, it has not changed the fact that criminals are looking to hide and move money through many common financial transactions, such as cryptocurrencies, regulated financial systems, and offshore accounts.
At the forefront of the new digital economy
Unsurprisingly, it is those economies that have been at the forefront of the new digital economy that are now struggling to get to grips with new money laundering techniques that are emerging. Take China, where consumers have embraced mobile payments and mobile commerce more than just about any other country.
The Chinese New Year holiday tradition of giving red envelopes (hóngbāo) full of cash to symbolise good luck and ward off evil spirits has been practiced for centuries. As many as 40 billion red envelopes change hands each year, not just in China but among Chinese people all over the world. In recent years, this tradition has shifted dramatically to digital and, in doing so, it has become an easy target for money launderers.
Criminals are now able to use the digital red envelopes to move huge amounts of money quickly and easily around the world, but with little chance of detection amid such a vast volume of transactions.
Regulators in China and beyond now face a massive challenge in formulating a strategy to counter this new money laundering threat. They must balance an obvious need to restrict the ability of organised criminal organisations to move their money across borders with a desire to ensure that billions of Chinese consumers are still able to reap the benefits of mobile and digital payments and maintain a long-standing and important cultural tradition.
Of course, this new threat is not unique to China. It is just one example among thousands where regulators are having to readjust their thinking in terms of where and how money laundering can happen online and how best to prevent it and root it out.
Huge volumes of micro-transactions
Another ‘hot’ new area for money launderers is gaming, where platforms process huge volumes of micro-transactions every single day, and bad actors can often enjoy far more anonymity than within traditional channels.
Fortnite, one of the world’s most popular games, experienced this issue earlier this year when it was discovered that money was being laundered through the game, using stolen credit cards to purchase and sell in-game currency. The process is remarkably simple: stolen credit card information is used to create a Fortnite account and buy the game’s V-Bucks. Once the in-game account has been filled up, this currency is then made available for purchase to other players through popular C2C eCommerce sites like eBay or through the dark web, at a lower price than within the game.
The global reach of applications, messaging systems and gaming has moved much faster than businesses, governments and societies in general could ever have imagined. The result is simply not being able to keep up with new digital fraud and money laundering networks.
The big shift over recent years is that money launderers are now happy to clean their money in far smaller amounts, on a more frequent basis, due to the ease of digital transactions and the reduced chances of detection. Rather than ploughing ill-gotten funds into one or a small number of projects, criminals can spread their risk across thousands of small, everyday transactions. So for those responsible for policing, it becomes like trying to spot a single boat in the ocean.
The diversification of payment channels and digital platforms is transforming the way we interact with money and the opportunities available to businesses and consumers. For the vast majority, this is an unquestionably positive development; the challenge is trying to weed out the small minority that want to take advantage of these changes, seeking out holes in Anti-Money Laundering (AML) defences and ways to avoid law enforcement and regulators.
Building a clear picture of the audience
This is where technology has a big part to play, in identifying patterns of criminal activity across billions of transactions in ways that manual processes simply cannot match. Businesses need to focus on building a clear picture of the people who are using their platforms and applications, and that means having reliable identity verification processes from the outset, when first onboarding customers. Identity verification can have a major impact on reducing money laundering. Take the Fortnite example — if criminals are unable to verify their identity against the stolen credit card details that they are entering, then they are unable to purchase in-game currency. They are thwarted at the first hurdle.
The other essential ingredient in countering these new forms of micro money laundering is education and information sharing, with businesses, regulators and enforcement agencies working together to identify new threats and tackle them on a collective, global basis.
One of the biggest issues we face is that fraud and money laundering are still too often an afterthought within businesses. Online marketplaces, payment service providers and the like are racing to get new, innovative products and services out to the market to drive growth, and this means that sometimes they just aren’t giving adequate consideration to security and potential weaknesses that criminals can exploit.
Without doubt there needs to be greater collaboration across industries and borders to develop a joined-up approach to prevent money laundering. Most importantly, businesses need to assess new technologies in detail and take a risk-based approach to protect against opportunists looking for gaps or loopholes to exploit.