In present days, the use of information technology has become a life blood for every organization. In this regard, the internet has greatly effect on the world of business transactions, and the fast price declines of telecommunications bandwidth and computing power are having a dramatic impact on the financial world. All banks and financial institutions have connected their network by using IT and hence made it possible that user can withdraw and send payment from one place to another in no time. It becomes very easy to make an online debit or credit card payment. Electronic commerce has been rapidly increasing not only in B2B business to business transactions but also in B2C business to consumer transactions.
Simultaneously, the fast expansion of electronic-commerce has brought about important changes in the territory of settlement, which is inevitably incidental to transactions. Paper-based payment by check, which is a normally conventional method of settlement, has been used in fewer cases due to a altering connection between sales transactions and settlement with the development of IT and the expansion of Internet-based financial transactions. However, some new ideas have emerged in terms of legal constitutions, legal theories, legal concepts, and concerning conventional settlement. Use of IT unable the development of procedures financial markets, and instruments that economist in the past could only theorize about. Financial transactions can be settled in real time although the contracting parties may be hundreds of miles apart.
As technology has progressed, Electronic-money is being introduced as the newest method of exchanging value. Obviously, the electronic exchange of money is by no means a new invention. Financial institutions and Banks have been using computers to deal with one another for quite some time. Alone in the United States, in terms of the volume of dollars exchanged, the computer-based Fed-wire and Clearing House Inter-bank Payments System (or CHIPS) together account for 90 percent of all transactions. Besides, 90 percent of individual transactions are still made by check and cash. With the huge advancement in information technology several payments and collections methods have been developed and used successfully.
The rise of the Internet and the speed of financial transactions facilitated by computers have expanded money laundering opportunities and activities in the latter half of the 1990s. There are increasing numbers of Webs sites that solicit money for transfer offshore, the rise of internet gambling and of virtual banking have made it possible to launder money without any infrastructure to run or regulate international banking operations. Instead, the rise of information technology and the growth of uncrackable encryption have provided the possibility of laundering money with greater facility and with almost perfect anonymity. All that is needed is a computer. (Shelley, n.p.)
The rise of the new IT has helped an incredible communications revolution, also it has led to the growth of money laundering in some of the most remote areas in the world. Some important locations include Nauru, Vanuatu and the Marshall Islands through whose banks millions have been laundered in the last couple of decades. Facilitating the rise of virtual banking in offshore locations has been the willingness of major banks to receive funds that have been routed through these locales. While well-written software could screen these transactions and prevent the absorption of these funds into mainstream banking centers, this has not occurred. (Shelley, n.p.)
What is Money Laundering?
Electronic Money Laundering covers the ABCs of money laundering and its connection to drug trafficking, terrorism and the global underground economy. It traces the relevant statutory history from the Bank Secrecy Act of 1970 onward. (Farber, n.p.)
How Money is Laundered
Typically, by moving it from one state to another electronically or physically and obscuring its origin through complicated financial transactions. Financial Action Task Force (FATF), calculates of the amount of money laundered yearly worldwide from the illicit drug trade alone range between $US 300 billion and $US 500 billion.
Usually money laundering has three stages: placement, where illicit cash is converted into monetary instruments or deposited into financial system accounts; layering, where the funds are moved to other financial Institutions; and integration, where these funds are used to acquire assets or fund further activities. The credit card industry includes:
(1) Credit card associations (associations), such as VISA and MasterCard, which license their member banks to issue bankcards, or authorize merchants to accept those cards, or both;
(2) Issuing banks, which solicit potential customers and issue the credit cards; acquiring banks, which process transactions for merchants that accept credit cards; and
(3) third-party processors, which contract with issuing or acquiring banks to provide transaction processing and other credit cardrelated services for the banks.( Money Laundering Extent of Money Laundering through Credit Cards is Unknown, pg, 1, 2)
According to Assistant Director James E. Finch, of the FBIs Cyber Division The advent of new electronic currency systems increases the risk that criminals, and possibly terrorists, will exploit these systems to launder money and transfer funds globally to avoid law enforcement scrutiny and circumvent banking regulations and reporting. (Digital Currency Business E-Gold)
Representatives of regulatory bodies, law enforcement agencies and gaming and credit card industries expressed mixed views concerning the vulnerability of Internet gambling to money laundering. According to law enforcement officials gambling on internet could be used as a primary motive for laundering criminal proceeds at the comparatively obscure layering stage of money laundering.
Moreover, officials admitted the lack of adjudicated cases involving money laundering via internet gambling sites but referred what they believe to be leading factors, including the deficiency of any industry regulations or oversight. Regulatory gaming and banking officials did not consider internet gambling as being especially susceptible to money laundering.
Particularly, when credit cards, which make a transaction record and are subject to comparatively low transaction limits, are employed for payment. Similarly, officials of gaming industry and credit card did not believe Internet gambling posed any peculiar risks in terms of money laundering. According to gaming industry officials Internet gambling was any more or less vulnerable to money laundering than other types of E-commerce, in their view, the financial industry, which is primary responsible for the payments system, is suited to monitoring for doubtful activity in the area than the gaming industry itself.
Money Laundering Methods
Electronic Funds Transfer
Also known as wire transfer or telegraphic transfer, this method of money laundering consists of sending funds electronically from one nation to another in order to avoid the need to physically transport the currency.
Postal Money Orders
The purchase of money orders for cash provides opportunities to money launderers to send these financial instruments out of the state for deposit into overseas or offshore account.
Overpaying credit cards and keeping a high balance in credit cards gives money launderers right of entry to these funds to purchase high value items or to change the credit balance into checks.
In this method cash may be taken to a casino to buy chips which can then be redeemed for a casino check.
In this method the money launderer exchange small denomination bills for larger ones and can be carried out by a person who change the bills at a number of different banks in order not to raise suspicion.
Smurfing is perhaps the most used money laundering method. In this method many peoples who deposit cash into bank accounts or purchase bank drafts in amounts under $10,000 value to avoid the reporting threshold.
Currency Exchanges and Money Services
Currency exchanges and Money services render a service that enables peoples to exchange overseas currency that can then be transported out of the city or country. Money can also be wired to accounts in other states. Other services provided by these businesses include the travelers checks, sale of money orders, and cashiers cheques.
Asset Purchases with Bulk Cash
In method of money laundering a money launderer may but high value items like cars, boats or other luxury items like electronics and jewelry. Money launderers will use these items but will distance themselves by having them registered or bought in a companys name.
Individuals or criminal groups may invest or take over in businesses that usually handle a high cash transaction volume in order to mix the illicit moves with those of the legitimate business. Criminals may also buy businesses that receive cash payments, including bars; currency exchange shops restaurants, night clubs, and vending machine corporations. Money launderer will then insert criminal funds as false income mixed with revenue that would not otherwise be adequate to maintain a legitimate business.
Money launderers may look for property owners who agree to sell their property, on paper, at a price below its actual value and then accept the difference of the purchase price under the table. In this way, the launderer can, for example, purchase a $2 million dollar property for $1 million, while secretly passing the balance to the seller. After holding the property for a period of time, the launderer then sells it for its true value of $2 million. (Money Laundering A Preventive Guide)
In this money laundering method a criminal furnishes an associate with a sum of illegitimate money and the associate makes the paperwork for mortgage or a loan back to the criminal for the same amount, including all of the essential documentation. This makes a false impression that the criminals funds are legitimate about our national security. (Electronic Money Laundering An Environmental Scan)
Effects of Money Laundering
Money laundering has far-reaching consequences:
The key to control of international crime may depend on cutting off the flow of illegal profits to criminal organizations. It is estimated that $300 billion of dirty money may be laundered each year, its origin and ownership obscured as it passes through financial institutions and across national boundaries in an effort to hide and protect it from law enforcement authorities. Criminal organizations, like legitimate businesses, enjoy a swift and nearly risk free conduit for moving money between countries wire transfer systems. Illicit wire transfers are easily hidden among the 700,000 mostly legitimate wire transfers that occur daily in the United States, moving well over $2 trillion. (Information Technologies for the Control of Money Laundering)
The OTA was asked by the Permanent Subcommittee on Investigations of the Senate Committee on Governmental Affairs to evaluate the proposed use of techniques derived from AI research to monitor wire transfer traffic and realize doubtful transfers. Furthermore, fully automated computer screening of wire transfers was found to be almost impossible for some technical reasons.
Nevertheless, OTA analysts developed and assessed a number of alternative configurations of technology that, combined with obvious legal and institutional innovations, could greatly improve the capability of law enforcement agencies to discover and prosecute money launders seeking to exploit United States. In addition, wire transfer systems and financial institutions all of these suggested configurations entail some social costs and economic, including some possible diminution of financial privacy, strategies are proposed for minimizing these costs while improving the possible usefulness of IT in control of money laundering.
Future of Money Laundering
The term cyber payments is just one of many used to describe systems which facilitate the transfer of financial value (i.e., digital currency, e-money). In fact, these developments may alter the means by which all types of financial transactions are conducted and financial payment systems are operated. Such transactions may occur via the Internet or through the use of smart cards which unlike debit or credit cards actually contain a microchip, which stores value on the card. Some Cyber payments systems use both.
There are several systems of e-money. There are stored value cards such as MONDEX which is a rechargeable card (charged by putting it in a special slot in an ATM), and is both an access device and a self contained store of value. Further to this is Internet-based payment systems that use the Internets telecommunications capability to facilitate financial transactions with other users. The personal computer which serves as the users interface with the Internet payment system can also store value and is therefore, also an access device and self contained store of value.
Morris-Cotterill (How Not To Be a Money Launderer, 1996) describes the Internet as being one of the greatest opportunities for laundering because of the total lack of traceable transactions, the use of encryption software will further make transactions totally secure.
With the Internet, being connected to anywhere in the world is no problem and this will allow cross border movements of capital to take place. It remains to be seen whether money laundering managers take advantage of these new technologies to circumvent any legislation on other traditional laundering techniques (smurfing, wire transfers, bank drafts for example). It is however, a worry to the authorities. (International Money Laundering Information Bureau)
Money laundering may have shocking social consequences. Laundered funds furnish financial support for arms dealers, drug traffickers and other criminals to operate and expand their operations. Investigations disclose that criminals manipulate financial systems in Canada and other countries to support a broad range of illicit activities. For instance, drug trafficking alone generates millions of dollars in illicit funds for criminal organizations annually. Businesses backed by the proceeds from crime produce unfair competition and can insolvent legitimate competition in the market.
Digital Currency Business E-Gold Indicted for Money Laundering and Illegal Money
http://www.usdoj.gov/opa/pr/2007/April/07_crm_301.html Accessed, June 14, 2007
Electronic Money Laundering An Environmental Scan
Accessed, June 14, 2007
Farber Dave, (08 Dec 1995), IP: Information Technology for Control of Money Laundering
Information Technologies for the Control of Money Laundering
Accessed, June 14, 2007
International Money Laundering Information Bureau
http://www.imlib.org/page13_future.html Accessed, June 14, 2007
Money Laundering A Preventive Guide
http://www.rcmp-grc.gc.ca/poc/launder_e.htm Accessed, June 14, 2007
Money Laundering Extent of Money Laundering through Credit Cards is Unknown (July, 2002 ) Report to the Chairman, Permanent Subcommittee on Investigations, Committee on Governmental Affairs, U.S. Senate, (page 1,2)
Section 508 Definitions
http://www.grc.nasa.gov/WWW/Purchase/Section_508_def.htm Accessed, June 14, 2007
Shelley Louise (n.d.), Money Laundering, Organized Crime and Corruption