Nowadays, technology is developing more and more. This development of technology enables people to reach almost all opportunities through the Internet. One of the sectors developing with technology is undoubtedly the financial sector. For example, open banking systems offer consumers the opportunity to interact with financial institutions, along with 24/7 mobile wallets and cryptocurrencies.
This development of the financial sector brought with it new money laundering threats, especially with regard to the widespread use of mobile devices, and the rate and the effect of money laundering crimes increases. Also, It is a fact that as financial crimes such as money laundering and terrorist financing increase, global or local regulations change. This blog will examine the methods of money laundering that have changed in the digital age.
Traditional Methods of Money Laundering and How They Work
Money laundering has been around for centuries, and criminals have developed numerous methods for disguising their illicit profits. These methods often involve moving money through multiple accounts and jurisdictions, making it difficult for law enforcement to track the funds.
- Structuring: Structuring, also known as smurfing, involves breaking up large sums of money into smaller amounts and depositing them into multiple accounts. This is done to avoid triggering bank reporting requirements, which typically apply to transactions over a certain amount.
- Cash smuggling: Cash smuggling involves physically transporting large amounts of cash across borders. Criminals may use couriers or conceal cash in vehicles, luggage, or other objects. Once the cash is in a new jurisdiction, it can be deposited into bank accounts or used to purchase assets.
- Trade-based laundering: Trade-based laundering involves using legitimate international trade transactions to disguise the movement of illicit funds. For example, a criminal might over-invoice or under-invoice the price of goods in order to transfer funds across borders without raising suspicion.
- Shell companies: Shell companies are entities that exist only on paper and have no real business operations. Criminals can use shell companies to move money through multiple accounts and jurisdictions without attracting attention. They may also use shell companies to purchase assets or invest in legitimate businesses.
- Real estate: Real estate is a popular asset for money laundering because it can be easily purchased with cash and is often difficult to trace. Criminals may use shell companies or third-party buyers to conceal their ownership of properties.
These traditional methods of money laundering are still in use today, but the rise of digital currencies and blockchain technology has created new challenges and opportunities for criminals.
Digital Banking and E-Cash
In digital banking, when the customer connects to the bank's web server with his personal ID code and then enters his personal password, the system will automatically verify the person. With this system, financial offenders can make transactions without going to banks and physically filling out many forms, making their job much easier. Due to this access, they cannot verify the individual identity that actually accesses the financial institution's account. In addition, because financial criminals can take this action anywhere in the world, and because they have not physically gone to banks, they are less likely to be watched. Therefore, financial offenders will have online access and control over their bank accounts, regardless of location. Furthermore, It is more difficult to determine the activities carried out with e-cash or electronic cash than real-money laundering activities. That is why financial criminals now prefer to carry out e-money activities rather than physical money.
Technological advances in e-commerce made it easy to easily build online businesses and hide them behind legitimate store websites. As such, money launders began to use e-commerce websites to take advantage of this vulnerability and continue their activities. In general, financial crimes that use these pathways are called transaction laundering, which can be described as money laundering in the digital age. Transaction launders can connect to the extended networks of undeclared, confidential, and illegal e-commerce websites, as well as to the payment networks of service providers. Merchant Service Providers (MSPs) are required to ensure that e-commerce websites are legitimate because unexplained online organizations can easily infiltrate payment systems through payment laundering. To avoid risk and responsibility associated with facilitating transaction laundering, payment processors need to adopt advanced cyber intelligence technology that reveals hidden e-commerce networks, vendors, and related activities.
Although the use of digital currency or cryptocurrency for money laundering is more complicated than traditional methods, criminals now use this industry. The most important reason for using this method is that money laundering is more difficult in this sector. Furthermore, criminals prefer this sector because of the missing AML regulations in this sector. Crypto money laundering has three main stages.
- Placement: Crypto coins can be purchased with fiat or other types of crypto. These coins are then exchanged on exchanges that do not comply with AML laws. In these exchanges, money is easily laundered due to anonymity.
- Hiding: It can generally track crypto-based transactions via blockchain. However, in a launder cryptocurrency, criminals use an anonymization service to hide the source of money, which makes it impossible for money laundering.
- Integration: Integration, which is the last stage of money laundering, has also reached the point where the dirty currency cannot be easily followed. At this point, criminals can create an online company that accepts bitcoin payments to turn dirty crypto into legal crypto.
Online Gambling and Online Video Games
There are registered online gambling as well as online gambling sites that are not legally registered. Since these gambling sites are not registered, they cannot be controlled by regulators, and their activities cannot be monitored. There are many ways to money laundering through online gambling sites. One of them is Chip Dumping, which is an application where one or more players intentionally lose to another or transfer all their chips to a single player. So when a player gets all the chips, that player can earn money, and the money played by all players becomes clean money.
The development of the video game industry also brought with it increased risks of money laundering. Due to the lack of regulations in this sector, this sector has become a potential target for money laundering. Money launders buy in-game inventory with illegal credit cards and then sell this inventory at a lower price than the black market. Thus, they wash the black money they have and turn it into clean money.
Nowadays, people are spending more and more time on social media. Therefore, financial crimes using social media channels are also increasing. Money launderers can make fake money-making programs or identities through social media and try to involve people in these programs. Then money launders use the people they withdraw to their networks to withdraw money from their accounts. This means that financial criminals use these people as money mules, and criminals generally target young people.
Criminals choose an account that does not have a criminal record to reduce the likelihood of getting caught while choosing money mules. The money to be laundered is transferred from the mule account to the third-party bank account via bank transfer, and the money received is converted into cash. After that, this money is converted into a virtual currency like Bitcoin. Due to complex transactions, this money laundering process is difficult to detect.
What Is The Solution?
This development of technology leads to the development of money laundering activities, and the measures taken for these crimes are improving. Now, digital solutions are offered for money laundering crimes. Organizations can prevent money laundering activities and avoid regulatory penalties with AML solutions designed by artificial intelligence.
Sanction Scanner provides technology-compatible Money Laundering solutions to strengthen companies' AML compliance processes. With the powerful API support of Sanction Scanner, organizations can automatically perform AML control processes in seconds. Sanction Scanner has important lists such as global sanctions and PEP lists. The database of the Sanction Scanner is updated instantly, and organizations can check their customers 24/7 in this database. With our AML Screening and Monitoring, AML Transaction Monitoring, Transaction Screening, and Adverse Media Screening & Monitoring software, organizations can easily comply with the AML Compliance Program.