Fraud on the Revenue: Emerging Cyber Cash, Cyber Banks and Fraud
| Pages | 75-78 |
| Published date | 01 March 1999 |
| DOI | https://doi.org/10.1108/eb025924 |
| Date | 01 March 1999 |
| Author | William F. Bruton |
| Subject Matter | Accounting & finance |
Journal of Financial Crime — Vol. 7 No. 1 — Taxation
TAXATION
Fraud on the Revenue: Emerging Cyber Cash,
Cyber Banks and Fraud
William F. Bruton
As the telegraph, telephone and wireless radio change
the way people communicate, so the Internet has
revolutionised the communications systems. Crim-
inal activity has been around since the time of Cain
and Abel. The use of the Internet only provides the
criminal mind with a different tool. Crimes that
occur through the use of the Internet are the same
non-violent traditional crimes packaged under a
new form. Crimes on the Internet fall within
the full range of traditional 'white-collar crimes'.
These crimes include money laundering, bank
fraud, wire fraud, embezzlement, tax fraud and
customs fraud. Many of the emerging criminal
groups and the more traditional organised criminal
groups are using the Internet as a means of commu-
nication and fraud. In many instances, illegal activities
use the Internet to assist in the money-laundering
process.
The US Securities and Exchange Commission is
so concerned with Internet fraud that it has estab-
lished a website for reporting fraud. The Securities
and Exchange Commission has alleged that a Utah
firm scammed S24m from investors using the
Internet.
The most difficult step in a money-laundering pro-
cess is the placement. The process of placing wealth
into a banking system is the most vulnerable phase
of the money-laundering process and is the phase
which is most susceptible to discovery by law enfor-
cement. Once the money is in a banking system it is
commingled with the trillion-dollar-a-day commer-
cial trade enterprise. Because Internet banking is an
evolving industry, in some places it is 'under-regu-
lated' or not regulated at all. It is for this reason
that Internet banking is very attractive for tax eva-
sion, criminals and money launderers.
When accessing the Internet looking for Internet
banks,
230 US-based banks offering partial or full
Internet access listed on the Internet are there to be
found. There are also 67 international banks offering
this type of service. Some of these international banks
are located in bank secrecy countries. Some of the
literature from the international banks located in
offshore, non-regulated locations use words such as
discreet services, numbered accounts, confidential
services and confidential transactions. It is important
to differentiate between regulated and non-regulated
Internet banks. Generally speaking, if an Internet
bank is located within a country with strong over-
sight, regulation and a 'know-your-customer'
policy, it is less likely to be the target of criminal
groups. There are, however, some Internet banks
that are being set up in 'offshore' islands that do not
have a very strong oversight or do not require a
know-your-customer policy. Because of the electro-
nic form of bank transactions, entire bank accounts
can be transferred from a computer terminal within
seconds (or milliseconds).
In order to explain different fraud schemes using
the Internet, the understanding of two terms is essen-
tial:
Class A bank and Class B bank. These two terms
will be used to describe separate classes of banking
institution. A Class A bank is a full-service and regu-
lated bank which is open to the public and accepts
direct deposits to its institution. This type of bank
accepts deposits from its customers and its customers'
items drawn on another institution. This type of bank
is generally perceived by the public to be a 'regular'
bank. The term 'bank' could just as easily be a
credit union, savings and loan association or a trust
bank.
A Class B bank has, in the past, been referred to as a
'brass plate' bank. This term was given because a brass
plate was placed on the building or door of the mail-
ing address. In some places there could be as many as
20 such brass plates on the door. For a fee, anyone
could own a bank. This type of bank is generally
registered in a country known for its bank secrecy
laws.
Many times the country permits this type of
bank in order to generate revenue from licensing
Page 75
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