As Internet-based innovation becomes increasingly accessible to the wider public, those determined to conceal illegally obtained funds can now do so in broad daylight, rather than turning to the remote corners of the dark Web.
“We now live in the unbelievable reality where anyone who wants to launder money can very, very easily do it through e-commerce,” Ron Teicher, founder and CEO of the Israeli cyber intelligence firm EverCompliant, told The Jerusalem Post on Monday.
While all over the world countries have been investing significant efforts in setting up anti-money laundering entities, battling such criminal activity has become a growing challenge due to ever-evolving technological opportunities, he explained.
Setting up online shops that serve as a front for illegal financial activity is now so effortless that anyone can do it – even terrorist organizations, Teicher warned.
“Transaction laundering is the evolution of money laundering into e-commerce, with everything that it entails,” he said. “If you are a criminal organization or a terrorist organization, if you want to launder money today, you can very easily do it through e-commerce.
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That’s the reality of today.”
Just over a month ago, an investigation by Reuters revealed an international network of online “dummy stores” – pretending to offer household goods – that was being used as a front for Internet gambling payments. The seven sites, operated out of Europe, claimed to sell a variety of products, but were actually part of a multinational system to conceal payments for the $40 billion global online gambling industry, which is illegal in many countries.
Another investigation in November uncovered how the town of Consett, England, unwittingly became home to a hub of online porn and poker companies.
Among those involved was the company Bluemay Ltd., which owned a gaming website called 7red.com on behalf of an Israeli named Ido Raviv, the Reuters report said, citing the UK Insolvency Service.
While Bluemay reported profits of just hundreds of pounds in 2011 and 2012, investigators found bank account credits worth $39 million over that period, the report added.
Despite vast efforts by governments to fight this growing phenomenon, Teicher described the current situation on the Internet as nothing less than “a free highway for money laundering that the regulators don’t realize exists.”
He attributed this reality to two main issues – the first being the ease at which micro-merchants can now set up beautiful-looking websites. Those who need to vet such merchants are facing an enormous amount of overload, he explained.
Also problematic, Teicher noted, is the eruption of financial technology, or “fintech,” companies which aggregate payments for these small retailers, creating a complex system that has obscured the visibility of the underlying merchant to the larger banking entity.
“The bank now has far less understanding of who the merchant is,” he said, stressing that the resultant “smokescreen” enables criminals to go undetected. “As harsh as it may sound, money laundering today is very, very easy – period.”
By setting up one legitimate online shop, a criminal or terrorist could potentially bring in modest sums like $200,000, or $2m. with 10 shops, Teicher explained.
EverCompliant, Teicher’s company, works to help banks and payment service providers curb this phenomenon by managing merchant-based fraud and cyber risk.
“What we do is we help everybody in that payment chain to try to identify whether or not their legitimate-looking portfolio actually consists of merchants that may be involved in something like this,” he explained.
By employing the latest data technology from the fields of artificial intelligence, machine learning, deep learning and others, EverCompliant aims to uncover these types of fraudulent merchants.
All in all, the company is typically able to identify an additional 6-10% for banks of merchants beyond their known customers that process money through them without their knowledge or consent, Teicher said.
“Within that community, it can be literally anything from not so bad to horrible,” he continued. “We’ve seen everything.”
Some of the worst cases tie back to financing for terrorism. For example, Teicher said, following the terrorist attack at Charlie Hebdo in Paris, the French police report revealed that the terrorists obtained €25,000 from selling fake Nike shoes online.
Teicher also cited the case of Mexican drug lord El Chapo, in which drugs were shipped into the US and money collected on the street was loaded on prepaid cards.
The cards, in turn, were used to make purchases at fake online Mexican shops.
“The essence of transaction laundering is that currently it’s conducted by credit cards, which is by far the most popular payment method,” Teicher said. “If you want to get to a large audience, you want to try to allow them to use a convenient payment method.”
A merchant, for instance, might set up a fake online shop for gardening tools, Teicher said.
“You have this forum, people know what you’re talking about, what you’re actually selling,” he said. “You want to buy this drug – you need to buy the lawn machine.”
This phenomenon is by no means limited to the payments industry, and also impacts the traditional banking sector, in which “know your customer” processes have not evolved to face today’s new realities, according to Teicher. For example, in order to determine the country of a merchant’s operation, banking institutions tend to look only at where the company is registered, rather than also determining where the firm’s website resides, he said.
While the modes of transaction laundering may vary from place to place, the practice has become a worldwide phenomenon, Teicher stressed. The Far East tends to suffer more from counterfeiting, while a lot of illegal pharmaceuticals sales come from Eastern Europe, he said.
In Israel, high-risk trades like binary options have become particularly noteworthy, he explained. However, most of the banks in the country have adopted the most updated set of controls in order to monitor and mitigate risks as best as possible, Teicher added.
“There’s a whole layer of data that has to be taken into account in the [know your customer] processes of [anti-money laundering],” he added. “That’s basically the missing layer, and that’s something that everybody needs to start doing.”