The Dangers of New Technology — Laundering on the Internet
| DOI | https://doi.org/10.1108/eb027295 |
| Published date | 01 March 2001 |
| Pages | 87-95 |
| Date | 01 March 2001 |
| Author | Steven Philippsohn |
| Subject Matter | Accounting & finance |
Journal of Money Laundering Control — Vol. 5 No. 1
The Dangers of New Technology — Laundering on
the Internet
Steven Philippsohn
THE RISKS TO ONLINE BANKING AND
E-COMMERCE COMPANIES
Out of all the recent surveys, perhaps two statistics
are of greater significance than others:
(1) 85 per cent of retail payments in Finland are
made by way of online transactions.
(2) Even at this early stage of e-commerce, cyber-
laundering is running at an estimated $50 billion
per year.
The features of the Internet that make it ideal for
commerce also make it ideal for money laundering:
— Speed
— Access
— Anonymity
— Capacity to extend beyond national borders
As a result cyber-launderers benefit for the following
reasons:
— Inability to identify and authenticate parties.
— Lack or inadequacy of audit trails, record keep-
ing or suspicious transaction reporting by the
technology provider.
— Use of higher level encryption to block out law
enforcement.
— Transactions that fall outside the existing
regulatory definitions.
How can technology assist the stages of
laundering?
As is well known, money laundering involves three
stages to turn dirty money into clean money:
Placement
Electronic money (or e-money) is money that is
represented digitally and can be exchanged by
means of smart card from one party to another with-
out the need for an intermediary. It is anticipated that
e-money will work just like paper money. One of its
potential key features is anonymity.
The proceeds of crime that are in the form of
e-money could therefore be used, for example, to
buy foreign currency and high value goods to be
resold. E-money may therefore be used to place
dirty money without having to smuggle cash or
conduct face to face transactions.
Layering
Once the dirty money has been placed, the money
launderer works it through a complex series of
transactions to separate it from its illegal origins.
This process is known as layering. It may involve
the transfer of money through a series of offshore
companies or the purchase goods for resale. The laun-
derer may try to legitimise the money by laundering
it through a solicitor's client account or by paying tax
on it as purported income from a business!
It is the layering stage where the use of the Internet
is most likely to facilitate money laundering. If the
procedures for opening an Internet bank account
are permitted to take place without face-to-face con-
tact or without a link to a pre-existing traditional
bank account, where the customer has to produce
documentary evidence of identity, a money laun-
derer may find it easier to set up accounts in false
names that cannot be traced back to him.
The money launderer can control transactions
from his PC. He can transfer money virtually instan-
taneously and thereby build up an extensive audit
trail in a short space of time. The transfers can be
made through many jurisdictions making it harder
for prosecutors from one jurisdiction to follow the
audit trail.
With the Internet there is the added jurisdictional
issue of where the transaction takes place. Does it
take place where the launderer is located, where the
server is located or where the accounts are held? A
joint report last year by the Bank of France and the
French Banking Commission suggested that the last
of these three locations is where the transaction
takes place.
Layering may also become easier if the money
can be transferred between banks that deal with
e-money. Then the anonymity features of some
Journal of Money Laundering Control
Vol.
5,
No.
1,
2001,
pp.
87-95
© Henry Stewart Publications
ISSN 1368-5201
Page 87
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