Is money laundering easier in a digital world?

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The rise of social media, peer-to-peer platforms and online banks has had a huge impact on the convenience and ease of transactions between individuals. But these platforms have simultaneously opened new doors for fraudsters to trick people out of their money and particularly criminals looking for ever more innovative ways of laundering the proceeds of their crimes. In an increasingly digital world, is money laundering becoming easier to pull off?

New forms of money laundering

With ecommerce so commonplace and only on the rise, legitimate websites are being used as payment processors in order to launder vast amounts of money. Drugs can be ordered online and the transaction will appear as something innocuous on your statement, such as a floristry purchase. From the bank’s side, their customer appears to be an online florist, helping mask funds as cash is not used. Transactions are funnelled through other legitimate payment ecosystems for illegitimate purposes, including the financing of terror through criminal enterprises. Last year it was alleged that an ISIS operative in the US had used eBay to ‘sell’ computer printers and received payments for these transactions from overseas via PayPal.

Peer-to-peer marketplaces

The sharing economy is on the rise and some of the most recognisable peer-to-peer brands are being exploited through their online payment systems. The nature of a peer-to-peer marketplace enables direct transactions from criminals on one side and complicit players on the other side, thus laundering money through a legitimate platform. The ease of use of these apps and websites is fuelling such activity, and their popularity and global adoption allows criminals to hide amongst huge volumes of transactions between lay people.

Last year, it was discovered that Airbnb had been exploited by money launderers, with criminals booking fake stays in rooms with complicit Airbnb hosts. Such a scheme works by criminals using stolen credit cards to book rooms through the peer-to-peer marketplace and paying for their fake stay online – with complicit hosts closing the loop. The transaction turns criminal proceeds into ostensibly legitimate earnings. News sources claimed that online Russian forums were being used to connect criminals to complicit hosts. In many instances these funds were laundered across borders, allowing the money to be hidden even more effectively.

A similar scheme was recently reported in which Uber was being used to launder criminal proceeds through fake transactions. In this system, middle men use stolen credit cards to book fake rides which never actually happen, with complicit drivers. A cut is taken by the drivers and the middle men, leaving the rest of the now seemingly legitimate funds to the client.

Both these recent examples show the ease with which sharing economy marketplaces can be exploited. The current systems to police thousands of peer-to-peer transactions across the globe, monitoring transactions and flagging any suspicious activity, simply aren’t strong enough to spot scams that look very similar to the sea of legitimate interactions.

Social media

Social media has an increasingly dominant role to play in recruiting people to facilitate money laundering – whether they do so knowingly or unknowingly. Several recent reports have highlighted young people being recruited as money mules though social media. Last week, fraud prevention body, Cifas published their annual report, revealing that in 2017 there were 32,000 cases of 14 to 24 year olds allowing their bank accounts to be used to move the proceeds of crime – an increase of 27 per cent. Social media is fuelling the spread of images of young people with cash and luxury items, luring young people into schemes which promise to get them rich quick. Unwitting mules are also being recruited through social media offers of fake jobs or initiatives to make extra money. Messaging app WhatsApp is being used as a communication method with these young mules or victims.

Scale of the issue

Online platforms are an attractive option for money launderers due to their global reach, speed, low cost and simplicity. There is no need to create a fake ‘shop front’ or false identities and no goods need to be moved.

Online money laundering is only set to grow. Global retail e-commerce sales are estimated to top $2.2 trillion annually, providing greater opportunities for criminals to hide their laundering activities among high volumes of legitimate transactions. Likewise, the popularity of cryptocurrencies and alternative payment platforms are garnering growing criticism and concerns over the transparency of transactions and the potential for easier than ever money laundering.

A digital solution

The digital world we live in is opening new doors for criminals to launder their money in different and creative ways. Only a digital-first approach will help tackle the issue.

New and ground-breaking innovations in technology that monitor transactions are helping to identify suspicious behaviour and patterns amongst huge numbers of legitimate payments and interactions. In particular, monitoring software is being used to put transactions in their proper context: making links and connections between parties and their transactions, using internal as well as external data sources. This contextual monitoring approach helps companies to see a 360° view of their customers – making it easier to identify unusual and illegitimate transactions consistently and accurately amongst thousands of genuine interactions. Using a combination of this digitally compiled insight and human intelligence will challenge online money laundering with a digital-first approach.

Peer-to-peer platforms, online payments and banking, and social media have been adopted across the globe thanks to their convenience, speed and ease of use. However, it is exactly these qualities that criminals are increasingly exploiting to support illegitimate activity.

While technology is fuelling this new approach to money laundering, technology is also the solution. Just as the criminal spheres of fraud and money laundering are converging, many organisations see the solution as a fusion of human intelligence with Artificial Intelligence. The key is cutting through the noise. 

Alexon Bell, Global Head of AML and Compliance, Quantexa
Image source: Shutterstock/MaximP