Financial Transparency Coalition

Technological advancements in currency are already challenging our efforts toward transparency. As I’ve discussed before, digital currency, most notably Bitcoin, grant added flexibility and opacity to the international financial system for criminals, money launderers, and tax evaders. If trends continue on their current trajectory, these technological developments, namely digital currency, will represent a significant obstacle to stemming the continued tide of illicit financial flows from developing countries.

Yet there are other technological—and digital—pathways for criminals to launder money. These are still not well-understood, but are nonetheless vitally important. The earlier—and better—we can understand them, the better our chance of tackling them early.

Jean-Loup Richet, an Information Systems Service Manager at Orange and Research Associate at ESSEC Business School, recently published a report on this topic for the United Nations Office of Drugs and Crime. Richet’s report outlines a variety of digital tools money launderers now use to clean their dirty funds. They extend far beyond currencies like Liberty Reserve and Bitcoin, which we’ve discussed here, and venture into online-realms that few would expect to include the nefarious activities of money laundering criminals.

Yet it is precisely because it is unexpected that would should pay attention to Richet’s list. Here is a brief summary of some of these trends:

• Illegal online marketplaces. These include Silk Road, an online black market, where online users can anonymously and securely browse for and purchase illicit goods. Criminals operating hawala exchanges and laundering operations such as the Black Market Peso Exchange increasingly use these marketplaces to enhance and expedite their laundering efforts.
• Online role playing games. These include so-called massive multi-player online role playing games, such as Second Life and World of Warcraft. Criminals launder money through these games by opening multiple accounts, buying credits, and then exchanging the gaming money for real money with other legitimate players. Using this property of the games, criminals in one country can send payment to associates in another without leaving a trace of the transaction.
• Micro-Payment Systems. These include online and mobile payment methods, such as PayPal and even job advertising sites. Using thousands of small payments and transfers that don’t trigger a review under banking regulations, criminals can ultimately launder large sums of money.
• Money mule scams. These include fishing emails from “princes” and “wealthy businessmen” in foreign countries. They claim to need a recipient’s help to transfer large sums of money. In cases relevant to money laundering, the criminal will actually transfer money into a victim’s account and have him remit the majority of the money to the criminal’s (anonymous) account.

As Richet points out, criminals also use these schemes in combination with each other and with traditional laundering techniques. For example, some criminals use money mule schemes in combination with micro-payment systems. In this case, a victim might receive an email asking to join a “partnership” with the criminal, who transfers money into the victim’s PayPal account, gets her to transfer the money into an alias account, and gives her a percentage on each transaction.

At the moment, these methods of laundering money are all small potatoes. Even Silk Road, which was a major player in the world of online money laundering before U.S. officials shut it down, was only responsible for a monthly $1.2 million in sales of contraband. Compared to the billions of dollars of illicit money that flows across borders every year, Silk Road was barely a drop in the bucket.

Yet is also important to remember that digital currency and other technological advancements that criminals use to launder money are quite young compared to traditional banking systems. They are also growing fast and their upward potential may be virtually limitless. It is important that we recognize them and address them now, before criminals are able to realize that upward potential.