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  1. 1. Blanchiment d’argent : les schémas d’aujourd’hui Mercredi 21 février 2007, Genève, Hôtel de la Paix Money Laundering via The Internet: The Used Methods dr Wojciech Filipkowski School of Law University of Bialystok Poland
  2. 2. „The online revolution will undoubtedly be of major import on money laundering.” „Many transfers are now instantaneous form account to account, and the trick is to do it without leaving a trace or conceal the transfer under legitimate trading labels, all of which is easy to do.” Victor T Le Vine, a professor of political science at Washington University in St Louis, Missouri (2000) 2
  3. 3. „Development in electronic payment as an everyday means of settlement will usher in a whole new epoch of global liquidity for ill-gotten gains.” (2000) „There is an enormous degree of hype being generated on this issue of cyberlaundering. It makes great copy, but it really has not yet achieved the level of sophistication that some commentators would have us believe” Rowan Bosworth-Davies former British Fraud Squad officer (2001) 3
  4. 4. „The study found there is a legitimate market demand served by each of the payment methods analysed, yet potential money laundering and terrorist financing vulnerabilities do exist. Specifically, offshore providers of new payment methods may pose additional money laundering and terrorist financing risks compared with service providers operating within a jurisdiction.” Financial Action Task Force, Report on New Payment Methods, 13 December 2006, Paris, 4 p. 18. (2006)
  5. 5. Agenda: I. Characteristic of Internet – What attracts launderers? II. Financial services available on-line through Internet III. How Internet can be abused? IV. Preventative measures – acting in accordance with FATF Recommendations 5
  6. 6. What attracts launderers? • Anonymity: fake identities, spoofing IP address, modem connection, Wi-Fi technology, pre-paid phones, encryption • No Face-To-Face transactions • Speed – instant transactions • Globalization process: free movement of goods, services & people and new payment technologies • Cross border activity: involves several jurisdiction, mutual legal assistance 6 treaties issues
  7. 7. On-line financial services • Internet payment services (incl. mobile payments, micro-payments or digital precious metals) • Stored value cards (smart cards, e- purse) • On-line banking 7
  8. 8. Cyberlaundering: The process of legalization of ill-gotten gains using services available on the Internet (in the cyberspace) as a : • reason (a legal title) to do transaction (transfer of funds) or • tool to do transaction (transfer of funds) 8
  9. 9. The Idea #1: BANK 2 Service Bank Account B Legal Title for Transaction Internet Internet BANK 1 Bank Account A 9
  10. 10. The Idea #2.a: BANK 2 Internet Bank Account B Internet BANK 1 Bank Account A 10
  11. 11. The Idea #2.b: Internet Bank Account B BANK Bank Account A Internet 11
  12. 12. How Internet can be abused? Stages of ML: • Placement – using ATM or ill-gotten gains derived from cybercrimes • Layering – wide range of services available on the Internet • Integration – i.a. transfer-pricing, on- line gambling („winning ticket”), front companies, loan-back 12
  13. 13. The used methods? Including: • e-banking and other on-line services • use of credit cards in the Internet • pre-paid cards • on-line gambling and betting – sport wagering • on-line auctions • mobile payments • stock exchange • digital precious metal • virtual money laundering 13
  14. 14. On-Line Services: BANK A Transfer of Funds Deposits Title Internet Opening an Account Access&Payment BANK B Internet Service Off-shore Financial 14 Center
  15. 15. Credit cards: BANK A Transfer of Funds Opening an Account&Deposits Title Issuing e-Card/Charge Card Financial Intermediary Access&Payment BANK B Internet Service Off-shore Financial 15 Center
  16. 16. Pre-paid cards: Transfer of Funds BANK A Internet Opening an Account&Deposits Company issuing pre-paid cards BANK B Issuing Another A pre-paid card country 16
  17. 17. On-line Gambling: Transfer of Funds BANK A Opening an Account&Deposits Issuing e-Card/Charge Card Financial Intermediary Access&Buying Chips BANK B BANK C Internet Gambling Off-shore Financial 17 Center
  18. 18. On-line Auction Sale #1: BANK 2 Bank Account B Internet Selling On-Line Auctions Company Title Buying BANK 1 Internet Bank Account A 18
  19. 19. On-line Auction Sale #2: BANK 2 Bank Account B Internet Selling BANK 3 On-Line Auctions& Financial Intermediary Company Bank Account C Buying Title BANK 1 Internet Bank Account A 19
  20. 20. On-line Auction Sale #3: BANK 2 Bank Account B Internet Financial Selling Intermediary BANK 3 On-Line Auctions Company Bank Account C Buying Title BANK 1 Internet Bank Account A 20
  21. 21. Mobile-payments: Phone Bill Charging Pre-Paid Phone BANK 4 Mobile Phone Operator BANK 1 Premium SMS, WAP Mobile or Internet BANK 3 Network Service B Internet BANK 2 Service A 21
  22. 22. Stock exchange: BANK A Opening an Account Brokerage Transfer of Funds &Deposits Company Settlements BANK B Internet Access&Trading Stocks BANK C Stock Exchange 22
  23. 23. Digital Precious Metal: Transfering ownership of DPM Openning an Account DPM Company Title Openning an Account BANK B BANK C Selling DPM Buying derivatives Buying DPM Gold BANK A Market 23
  24. 24. Virtual Money Laundering: VR Trading Openning an Account Virtual Currency Title BANK B BANK C Openning an Account Buying&Exchanging Virtual Currency BANK A 24
  25. 25. FATF’s cases: Type of on-line service Number of cases 1. Pre-paid cards (open system) 3 2. Pre-paid cards (closed system) 2 3. Electronic purse 0 4. Mobile payments 0 5. Internet payment systems 0 6. Digital precious metals 3 25
  26. 26. Polish experiences: • Opening accounts with Internet access or getting one for existing accounts (so called „sleeping account”). • Smurfing – many people open accounts (for commission) and then hand it over to launderer or they receive money (usually from abroad), withdraw them and hand it over to launderer – rather small amounts of money (up to few thousands PLN). • Collecting accounts by launderers. • Banks usually inform the correspondent bank about the suspicious transactions. • Computer crimes or illegal on-line gambling abroad – as predicate offences – e.g. phishing attacks, identity theft. • Asymmetric regulations concerning some of the offences – pornography or on-line gambling – how prosecute them? 26
  27. 27. Preventative measures: Handbook on Inter Banking (1999): • Unusual requests, timing of transactions or e-mail formats. • Anomalies in the types, volumes or values of transactions. • A customer who submits an incomplete on-line account application and then refuses to respond to a request for more information. • An on-line account application with conflicting information such as a physical address that does not match the location of the given e-mail address. • On-line applications for multiple accounts with no apparent reason to do so. • A customer who uses the bank’s on-line transaction services to send repeated inter-bank wire transfers between several accounts with no apparent reason to do so. 27
  28. 28. Preventative measures: Monitoring Cybercrimes According to FATF: • Require ISPs to maintain reliable subscriber registers with appropriate identification information. • Require ISPs to establish log files with traffic data relating Internet-protocol (IP) number to subscriber and to telephone number used in the connection. • Require that this information be maintained for a reasonable period (possibly 6 to 12 months) – data retention. • Ensure that this information may be made available internationally in a timely manner when conducting criminal investigations. 28
  29. 29. Preventative measures: FATF 40 Recommendations: 5# Recommendation: Financial institutions should not keep anonymous accounts or accounts in obviously fictitious names. 8# Recommendation: Financial institutions should pay special attention to any ML threats that may arise from developing technologies that may favour anonymity, and take measures, if needed, to prevent their use in ML schemes. 29
  30. 30. Preventative measures: FATF 40 Recommendations: 21# Recommendation: To close off business relationships and transactions with persons, including companies and financial institutions, from NCCT. 23# Recommendation: At a minimum, businesses providing a service of money or value transfer, or money or currency changing should be licensed or registered, and subject to effective systems for monitoring and ensuring compliance with national requirements to combat ML and TF. 30
  31. 31. Preventative measures: FATF 9 Special Recommendations: Special Recommendation VI: Each country should take measures to ensure that persons or legal entities, including agents, that provide a service for the transmission of money or value, including transmission through an informal money or value transfer system or network, should be licensed or registered and subject to all the FATF Recommendations that apply to banks and non-bank financial institutions. 31
  32. 32. Preventative measures: FATF 9 Special Recommendations: Special Recommendation VII: Countries should take measures to require financial institutions, including money remitters, to include accurate and meaningful originator information (name, address and account number) on funds transfers and related messages that are sent, and the information should remain with the transfer or related message through the payment chain. 32
  33. 33. Preventative measures: EU 3rd Directive: It gives the possibility to EU countries to allow e- money issuers not to apply customer due diligence (CDD) in respect of e-money. Simplified CDD applies to other products or transactions carrying a low risk of money laundering or terrorist financing. Simplified CDD shall not apply in the case where there is information available that suggests a product is subject to a high risk of being misused for money laundering or terrorist financing purposes. 33
  34. 34. Thank You for Your attention … Dr Wojciech Filipkowski School of Law University of Bialystok, Poland 34
  35. 35. No parts of this paper have the aim to abet or help somebody to commit a crime. The presented methods serves only as an examples to make a criminological analysis of different modus operandi. 35