New Technology: Ally or Enemy?
By Dialogo January 01, 2012
Two men entered a money transfer store in St. Thomas, U.S. Virgin Islands,
carrying $20,000 in cash. Behind a glass window, certified anti-money laundering
specialist Juan Llanos observed them discretely. “I need to send money; these
amounts to these people,” Llanos recalled a man telling the manager of the store. “I
did not talk. I looked at my materials because the guy could have had a gun,” Llanos
said, pointing out that it was important to allow the transaction to be completed
before it could be reported to federal authorities.
Once the men left, he asked the manager why he had not verified their
identity. The casual response was that he knew the men and that it was not the first
time. “I could not believe I was seeing that,” Llanos told Diálogo as he recounted
the 2004 incident. “Seeing” today’s money launderers is much more challenging. They
do not walk into stores with suitcases of cash; instead, they are spread across the
globe, operating in cyberspace with false identities and using emerging financial
Llanos thinks use of money transfer houses for laundering is less common
nowadays due to stricter controls and successful training programs. Online games,
prepaid cards, mobile phones, and digital currencies are becoming widely used around
the globe to move cash for illegal purposes. This technology, which originated with
the development of new payment methods such as prepaid cards, over-the-phone
payments and Internet payment services, are creating new opportunities to misuse
technology for money laundering, according to the Financial Action Task Force, an
organization that develops and promotes national and international policies to
combat money laundering and terrorist financing. Llanos said many launderers are
exploiting these technologies for illicit ends with increasing speed.
“Virtual world” games, such as Second Life and World of Warcraft, are one
tool being used by drug lords and other criminals for money laundering. The players
can use virtual money or credits in exchange for real currency. Thousands of
participants from different countries meet online and pay virtual money from distant
places; the virtual money is then converted into local currencies for investment in
real estate, art and other assets, according to www.PoliceOne.com, a news site
frequented by the law enforcement community in the United States.
Internet gambling operations are also vulnerable to criminal activities
ranging from terrorist financing to tax evasion, according to the U.S. Department of
State. Land-based casinos are required to file reports with federal authorities and
adopt money laundering compliance programs. Costa Rica provides a prime example of a
country with a sizable Internet gaming industry that in practice is almost
The Internet sports booking industry transacts approximately $12 billion
annually and employs 10,000 people in the country. An intentional loss that
effectively moves funds across the globe can easily go unnoticed.
There are two types of prepaid cards that launderers utilize for illicit
purposes. Open-ended cards, such as prepaid Visa and MasterCard varieties, can be
used at various retailers. Closed-ended gift cards can only be spent at the store or
business that issued them. When dealing with gift cards, cashiers do not ask for
identification or where the money comes from, said Karen O’Brien, a certified
anti-money laundering specialist in the Cayman Islands. “Criminals and terrorists
are looking for ways where they are not asked too many questions, where they do not
have to provide identification and it is just an easier door,” O’Brien told Diálogo.
“When one door closes, they will just go and find another door.”
O’Brien gave an example of how a criminal can buy a $500 gift card at a store
and go to 10 others, and suddenly have $10,000 in plastic. Products can be purchased
with gift cards, sold online or in the newspaper classifieds, where criminals can
easily obtain cash. Gift cards are also easy to transport and transfer. Since gift
cards do not meet the definition of currencies, amounts of $10,000 or more do not
have to be declared to customs authorities.
Mobile phones allow payment transfers without the use of traditional
financial service providers, which have anti-money laundering controls in place.
Mobile payments are used by migrant workers to transfer money to their families, but
can also provide drug traffickers or terrorists a safe way to send money. Money can
be accessed and transferred through a cellphone or tablet without a bank card or
customer identification. Prepaid cellphones bought anonymously and paid for in cash
have been linked to criminal activity and terrorism, according to
Gonzalo Vila, director of Latin American Operations for the Association of
Certified Anti-Money Laundering Specialists (ACAMS), a Miami-based organization of
anti-money laundering professionals, said that the use of mobile phones for money
laundering is emerging in Latin America. “It is still early in Latin America, and it
will take time before it becomes a real threat,” he said, noting that in his home of
Argentina some companies are using mobile phones for the payment or purchase of
goods and services in a legal way.
Digital currencies — also known as electronic wallets, e-wallets or neteller
— require depositing a certain amount of money at a designated bank for use in an
individual’s e-wallet. Digital currencies can be accessed online and sent to
anybody, anywhere in the world. The money received can be loaded on a prepaid card,
or a check can be requested to be sent or wired.
O’Brien said criminals and terrorists are looking into these new methods
because most of the legislation in the Caribbean and in other jurisdictions has been
written for traditional financial providers, not for the latest online financial
vehicles. Prepaid card regulations as a means to combat money laundering are
increasing as a result.
Vila considers that regulations like this are important, noting that Mexico
and other countries continue to regulate financial transfers to prevent money
laundering. In addition, there is an exchange of information among countries in
Latin America to alert of terrorism financing activities. He added that ACAMS trains
professionals around the globe to identify the emerging threats associated with
money laundering. Of emerging technologies O’Brien said, “All these systems have a
genuine purpose; they were not created to be bad, but unfortunately the criminals
are seeing it as an avenue to exploit.”
Sources: www.lavadodinero.com, The Financial Action Task Force, U.S.
Department of State, www.PoliceOne.com