cyberlaundering

BlanchimentBlanchiment dd’’argentargent : : lesles schschéémasmas dd’’aujourdaujourd’’huihuiMercrediMercredi 21 21 fféévriervrier 2007, Gen2007, Genèèveve, , HôtelHôtel de la de la PaixPaix

Money Money LaunderingLaundering via via TheThe Internet: Internet: TheThe UsedUsed MethodsMethods

dr Wojciech Filipkowskidr Wojciech Filipkowski

SchoolSchool ofof LawLawUniversityUniversity ofof BialystokBialystokPolandPoland

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„„TheThe onlineonline revolutionrevolution will will undoubtedlyundoubtedly be be ofofmajor import on major import on moneymoney launderinglaundering..””

„„Many Many transferstransfers areare nownow instantaneousinstantaneous form form accountaccount to to accountaccount, , andand thethe trick trick isis to to do do itit withoutwithout leavingleaving a a tracetrace oror concealconcealthethe transfer transfer underunder legitimatelegitimate tradingtradinglabelslabels, , allall ofof whichwhich isis easyeasy to doto do..””

Victor T Victor T LeLe VineVine ,, a a professorprofessor ofof politicalpoliticalscience science atat Washington Washington UniversityUniversity inin StSt Louis, Louis, Missouri Missouri (2000)(2000)

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„„DevelopmentDevelopment inin electronicelectronic paymentpayment as as ananeverydayeveryday meansmeans ofof settlementsettlement will will usherusher inin a a wholewhole newnew epochepoch ofof globalgloballiquidityliquidity for for illill--gottengotten gainsgains..”” (2000)(2000)

„„ThereThere isis anan enormousenormous degreedegree ofof hypehype beingbeinggeneratedgenerated on on thisthis issueissue ofofcyberlaunderingcyberlaundering. . ItIt makesmakes greatgreat copycopy, , but but itit reallyreally hashas not not yetyet achievedachieved thethelevellevel ofof sophisticationsophistication thatthat somesomecommentatorscommentators wouldwould havehave usus believebelieve””

RowanRowan BosworthBosworth --DaviesDavies formerformer BritishBritish FraudFraudSquadSquad officerofficer (2001)(2001)

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„„The study found there is a legitimate market The study found there is a legitimate market demand served by each of the payment demand served by each of the payment methods methods analysedanalysed, , yetyet potential money potential money laundering and terrorist financing laundering and terrorist financing vulnerabilities do existvulnerabilities do exist.. Specifically, Specifically, offshore providers of newoffshore providers of new payment payment methods may pose additional money methods may pose additional money laundering and terrorist financing risks laundering and terrorist financing risks compared with servicecompared with service providers providers operating within a jurisdiction.operating within a jurisdiction.””

Financial Action Task ForceFinancial Action Task Force, Report on New , Report on New Payment Methods, 13 December 2006, Paris, Payment Methods, 13 December 2006, Paris, p. 18.p. 18. (2006)(2006)

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Agenda:Agenda:I.I. Characteristic of Internet Characteristic of Internet –– What attracts What attracts

launderers?launderers?

II. II. Financial services available onFinancial services available on--line line through Internetthrough Internet

III. III. How Internet can be abused?How Internet can be abused?

IV. IV. Preventative measures Preventative measures –– acting in acting in accordance with FATF accordance with FATF RecommendationsRecommendations

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What attracts launderers?What attracts launderers?•• AnonymityAnonymity : fake identities, spoofing IP : fake identities, spoofing IP

address, modem connection, Wiaddress, modem connection, Wi--Fi Fi technology, pretechnology, pre--paid phonespaid phones,, encryptionencryption

•• No No FaceFace--ToTo--FaceFace transactionstransactions

•• Speed Speed –– instant transactionsinstant transactions

•• Globalization processGlobalization process : free movement : free movement of goods, services & people and of goods, services & people and new new payment technologiespayment technologies

•• Cross border activityCross border activity : involves several : involves several jurisdiction, mutual legal assistance jurisdiction, mutual legal assistance treaties issuestreaties issues

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OOnn--line financial servicesline financial services

•• Internet payment servicesInternet payment services ((inclincl.. mobile mobile payments, micropayments, micro--payments or digital payments or digital precious metals)precious metals)

•• Stored value cardsStored value cards (smart cards, e(smart cards, e--purse)purse)

•• OnOn--line bankingline banking

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CyberlaunderingCyberlaundering ::

The process of legalization of illThe process of legalization of ill--gotten gains gotten gains using services available on the Internet using services available on the Internet (in the cyberspace)(in the cyberspace) as a :as a :

•• reasonreason (a legal title) to do transaction (a legal title) to do transaction (transfer (transfer ofof fundsfunds) ) oror

•• tooltool to do transaction to do transaction (transfer (transfer ofof fundsfunds) )

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TheThe Idea #1:Idea #1:

BANK 1BANK 1

Bank Bank AccountAccount AA

InternetInternet

ServiceService

LegalLegal TitleTitlefor for TransactionTransaction

BANK 2BANK 2

Bank Bank AccountAccount BB

InternetInternet

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TheThe Idea #2.a:Idea #2.a:

BANK 1BANK 1


BANK 2BANK 2

InternetInternet

InternetInternet Bank Bank AccountAccount BB

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TheThe Idea #2.b:Idea #2.b:

BANKBANK



InternetInternet

InternetInternet

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How Internet can be abused?How Internet can be abused?

Stages of ML:Stages of ML:•• PlacementPlacement –– using ATM using ATM oror illill--gotten gotten

gains derived from cybercrimesgains derived from cybercrimes•• LayeringLayering –– wide range of services wide range of services

available on the Internetavailable on the Internet•• IntegrationIntegration –– i.ai.a. transfer. transfer--pricing, onpricing, on--

line gambling (line gambling („„winning ticketwinning ticket””)), front , front companiescompanies, , loanloan--backback

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TheThe usedused methodsmethods ??IncludingIncluding::•• ee--bankingbanking andand otherother onon--lineline servicesservices•• useuse ofof credit credit cardscards inin thethe InternetInternet•• prepre--paidpaid cardscards•• onon--lineline gamblinggambling andand bettingbetting –– sport sport

wageringwagering•• onon--lineline auctionsauctions•• mobile mobile paymentspayments•• stockstock exchangeexchange•• digitaldigital preciousprecious metalmetal•• virtualvirtual moneymoney launderinglaundering

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OnOn--LineLine ServicesServices ::

BANK ABANK A

BANK BBANK B

InternetInternet

ServiceService

Access&PaymentAccess&Payment

DepositsDepositsTransfer Transfer ofof FundsFunds

OffOff --shoreshoreFinancialFinancial

CenterCenter

InternetInternet

OpeningOpening anan AccountAccount

TitleTitle

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Credit Credit cardscards ::

BANK ABANK A

BANK BBANK B

InternetInternet

ServiceService

Access&PaymentAccess&Payment

FinancialFinancialIntermediaryIntermediary

OpeningOpening anan Account&DepositsAccount&DepositsTransfer Transfer ofof FundsFunds


CenterCenter

IssuingIssuingee--CardCard /Charge /Charge CardCard

TitleTitle

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PrePre--paidpaid cardscards ::

BANK ABANK A

BANK BBANK B

OpeningOpening anan Account&DepositsAccount&Deposits

Transfer Transfer ofof FundsFunds

IssuingIssuingA A prepre --paidpaid cardcard

CompanyCompanyissuingissuing prepre --paidpaid cardscards

InternetInternet

AnotherAnothercountrycountry

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OnOn--lineline GamblingGambling ::

BANK ABANK A

BANK BBANK B

InternetInternet

GamblingGambling

Access&BuyingAccess&Buying ChipsChips


OpeningOpening anan Account&DepositsAccount&Deposits

Transfer Transfer ofof FundsFunds

IssuingIssuingee--CardCard /Charge /Charge CardCard


CenterCenter

BANK CBANK C

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OnOn--lineline AuctionAuction Sale #1:Sale #1:

BANK 1BANK 1


BANK 2BANK 2

InternetInternet


OnOn--LineLineAuctionsAuctionsCompanyCompany

SellingSelling

BuyingBuying

InternetInternet

TitleTitle

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BANK 1BANK 1


BANK 2BANK 2

InternetInternet


OnOn--LineLine AuctionsAuctions &&FinancialFinancial IntermediaryIntermediary

CompanyCompany

SellingSelling

BuyingBuying

InternetInternet

Bank Bank AccountAccount CC

BANK 3BANK 3

TitleTitle

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BANK 1BANK 1


BANK 2BANK 2

InternetInternet


OnOn--LineLineAuctionsAuctionsCompanyCompany

SellingSelling

BuyingBuying

InternetInternet

TitleTitleBank Bank AccountAccount CC

BANK 3BANK 3


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MobileMobile --paymentspayments ::

Mobile Mobile PhonePhoneOperatorOperator

BANK 4BANK 4

PremiumPremiumSMS, WAPSMS, WAPoror InternetInternet

BANK 2BANK 2

ServiceService AA

BANK 3BANK 3

ServiceService BB

InternetInternet

BANK 1BANK 1

PhonePhone BillBillChargingCharging PrePre--PaidPaid PhonePhone

MobileMobileNetworkNetwork

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StockStock exchangeexchange ::

BANK ABANK A

BrokerageBrokerageCompanyCompany

InternetInternet

Access&TradingAccess&Trading StocksStocks

OpeningOpening anan AccountAccount&&DepositsDeposits

Transfer Transfer ofof FundsFundsSettlementsSettlements

BANK CBANK C

StockStockExchangeExchange

BANK BBANK B

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DigitalDigital PreciousPrecious Metal:Metal:

BANK ABANK A

BANK BBANK BBANK CBANK C

TransferingTransfering ownershipownershipofof DPMDPM

Buying derivativesBuying derivatives

OpenningOpenning anan AccountAccount


TitleTitle

DPMDPMCompanyCompany

GoldGoldMarketMarket

BuyingBuyingDPMDPM

SellingSellingDPMDPM

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VirtualVirtual Money Money LaunderingLaundering ::

BANK ABANK A

BANK BBANK BBANK CBANK C

TradingTradingVirtualVirtual CurrencyCurrency

Buying&ExchangingBuying&ExchangingVirtualVirtual CurrencyCurrency

VR



TitleTitle

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33Digital precious metalsDigital precious metals6.6.

00Internet payment systemsInternet payment systems5.5.

00Mobile paymentsMobile payments4.4.

00Electronic purseElectronic purse3.3.

22PrePre--paid cards (closed system)paid cards (closed system)2.2.

33PrePre--paid cards (open system)paid cards (open system)1.1.

Number of casesNumber of casesType of onType of on--line serviceline service

FATFFATF’’ss casescases ::

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PolishPolish experienceexperience s:s:•• Opening accountsOpening accounts with Internet access with Internet access oror getting getting oneone

forfor existing accounts (so called existing accounts (so called „„sleeping accountsleeping account””).).•• SmurfingSmurfing –– many people open accounts (for many people open accounts (for

commissioncommission) and then hand it over to launderer ) and then hand it over to launderer ororthey receive money (usually from abroad), withdraw they receive money (usually from abroad), withdraw them and hand it over to launderer them and hand it over to launderer –– rather small rather small amounts of money (up to few thousands PLN).amounts of money (up to few thousands PLN).

•• Collecting accountsCollecting accounts by launderers.by launderers.•• Banks usually Banks usually inform the correspondent bankinform the correspondent bank about about

the suspicious transactions. the suspicious transactions. •• Computer crimesComputer crimes oror illegal onillegal on--line gambling abroadline gambling abroad ––

as predicate offences as predicate offences –– e.g. phishing attacks, identity e.g. phishing attacks, identity theft.theft.

•• Asymmetric regulationsAsymmetric regulations concerning some of the concerning some of the offences offences –– pornography or onpornography or on--line gambling line gambling –– how how prosecute them?prosecute them?

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Preventative measuresPreventative measures ::HandbookHandbook on Inter Banking (1999)on Inter Banking (1999) ::

•• UnusualUnusual requests, requests, timingtiming of transactions or eof transactions or e--mail mail formats.formats.

•• AnomaliesAnomalies in the types, volumes or values of in the types, volumes or values of transactions.transactions.

•• A customer who submits an A customer who submits an incompleteincomplete onon--line line account application and then account application and then refusesrefuses to respond to a to respond to a request for more information.request for more information.

•• An onAn on--line account application with line account application with conflictingconflictinginformationinformation such as a physical address that does not such as a physical address that does not match the location of the given ematch the location of the given e--mail address.mail address.

•• OnOn--line applications for line applications for multiplemultiple accountsaccounts with no with no apparent reason to do so.apparent reason to do so.

•• A customer who uses the bankA customer who uses the bank’’s ons on--line transaction line transaction services to services to send repeated intersend repeated inter --bank wire transfersbank wire transfersbetween several accounts with no apparent reason to between several accounts with no apparent reason to do so.do so.

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Preventative measuresPreventative measures ::Monitoring Cybercrimes According to FATF:Monitoring Cybercrimes According to FATF:

•• Require ISPs to maintain reliable Require ISPs to maintain reliable subscribersubscriberregistersregisters with appropriate identification with appropriate identification information.information.

•• Require ISPs to establish Require ISPs to establish log fileslog files with with traffic traffic datadata relating Internetrelating Internet--protocol (IP) number to protocol (IP) number to subscriber and to telephone number used in subscriber and to telephone number used in the connection.the connection.

•• Require that this information be maintained for Require that this information be maintained for a reasonable period (possibly a reasonable period (possibly 66 to to 1212 months)months)–– data data retentionretention ..

•• Ensure that this Ensure that this informationinformation may be made may be made availableavailable internationally in a timely manner internationally in a timely manner when conducting criminal investigations.when conducting criminal investigations.

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Preventative measuresPreventative measures ::FATF 40 Recommendations:FATF 40 Recommendations:

5# Recommendation:5# Recommendation:Financial institutions should not keep Financial institutions should not keep anonymous anonymous

accountsaccounts or accounts in obviously fictitious or accounts in obviously fictitious names.names.

8# Recommendation:8# Recommendation:Financial institutions should Financial institutions should pay special attentionpay special attention to to

any ML threats that may arise from any ML threats that may arise from developing technologies that may developing technologies that may favourfavouranonymity, and take measures, if needed, to anonymity, and take measures, if needed, to prevent their use in ML schemes.prevent their use in ML schemes.

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Preventative measuresPreventative measures ::FATF 40 Recommendations:FATF 40 Recommendations:

21# Recommendation:21# Recommendation:To To close offclose off business relationships and business relationships and

transactions with persons, including transactions with persons, including companies and financial institutions, from companies and financial institutions, from NCCTNCCT..

23# Recommendation:23# Recommendation:At a minimum, businesses providing a service of At a minimum, businesses providing a service of

money or value transfer, or money or currency money or value transfer, or money or currency changing should be changing should be licensedlicensed or or registeredregistered, , and subject to effective systems for and subject to effective systems for monitoringmonitoringand and ensuring complianceensuring compliance with national with national requirements to combat ML and TF.requirements to combat ML and TF.

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Preventative measuresPreventative measures ::FATFFATF 9 9 SpecialSpecial Recommendations:Recommendations:

SpecialSpecial RecommendationRecommendation VIVI::EachEach country country shouldshould taketake measuresmeasures to to ensureensure thatthat

personspersons oror legallegal entitiesentities, , includingincluding agentsagents, , thatthat provideprovide a a serviceservice for for thethe transmissiontransmission ofofmoneymoney oror valuevalue, , includingincluding transmissiontransmissionthroughthrough anan informalinformal moneymoney oror valuevalue transfer transfer system system oror networknetwork, , shouldshould be be licensedlicensed ororregisteredregistered andand subjectsubject to to allall thethe FATF FATF RecommendationsRecommendations thatthat applyapply to to banksbanks andandnonnon--bank bank financialfinancial institutionsinstitutions..

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Preventative measuresPreventative measures ::FATFFATF 9 9 SpecialSpecial Recommendations:Recommendations:

SpecialSpecial RecommendationRecommendation VIIVII::Countries should take measures to require financial Countries should take measures to require financial

institutions, including money remitters, to institutions, including money remitters, to include accurate and meaningful originator include accurate and meaningful originator information (name, address and account information (name, address and account number) on funds transfers and related number) on funds transfers and related messages that are sent, and the information messages that are sent, and the information should remain with the transfer or related should remain with the transfer or related message through the payment chain.message through the payment chain.

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Preventative measuresPreventative measures ::EU 3EU 3rdrd Directive:Directive:

It gives the possibility to EU countries to allow It gives the possibility to EU countries to allow ee--money issuersmoney issuers not to apply customer due not to apply customer due diligencediligence (CDD) in respect of e(CDD) in respect of e--money.money.

Simplified CDD applies to other products or Simplified CDD applies to other products or transactions carrying transactions carrying a low riska low risk of money of money laundering or terrorist financing.laundering or terrorist financing.

Simplified CDD shall Simplified CDD shall not applynot apply in the case where in the case where there is information available that suggests a there is information available that suggests a product is subject to product is subject to a high riska high risk of being of being misused for money laundering or terrorist misused for money laundering or terrorist financing purposes.financing purposes.

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ThankThank YouYou for for YourYour attentionattention ……

Dr Wojciech FilipkowskiDr Wojciech FilipkowskiSchool of LawUniversity of Bialystok, Poland

[email protected]

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No parts of this paperNo parts of this paperhave the aim to abet or helphave the aim to abet or help

somebody to commit a crime. somebody to commit a crime. The presented methods serves only as an examplesThe presented methods serves only as an examples

to make to make a a criminological analysiscriminological analysisof different modus operandi.of different modus operandi.

cyberlaundering

Education

internet bank account

bank account a10

bank aopening

online services

internet integration

characteristic of internet

mobile phone operator

instantaneous form account