Cyber Laundering – Anonymous Digital Cash and Money LaunderingEssay Preview: Cyber Laundering – Anonymous Digital Cash and Money LaunderingReport this essayCyberlaundering:Anonymous Digital Cash and Money LaunderingCopyright 1996 R. Mark BortnerThe author hereby grants the right to copy this article in its entirety or any portion thereof by any means possible and to distribute such copies freely and without charge. The author simply requests that when a portion of this article or its entirety is included within another work, that such copied material be clearly and correctly cited to.
Presented as final paper requirement for Law & the Internet (LAW 745).A seminar at the University of Miami School of Law.IntroductionThis article will explore the latest technique in money laundering: Cyberlaundering by means of anonymous digital cash. Part I is a brief race through laundering history. Part II discusses how anonymous Ecash may facilitate money laundering on the Intenet. Part III examines the relationship between current money laundering law and cyberlaundering. Part IV addresses the underlying policy debate surrounding anonymous digital currency. Essentially, the balance between individual financial privacy rights and legitimate law enforcement interests. In conclusion, Part V raises a few unanswered societal questions and attempts to predict the future.
Disclaimer:Although the author discusses this subject in a casual, rather than rigidly formal tone, money laundering is a serious issue which should not be taken lightly. As this article will show, fear of money laundering only serves to increase banking regulations which, in turn, affect everyones ability to conduct convenient, efficient and relatively private financial transactions.
Part I Humble BeginningsIn the beginning, laundering money was a physical effort. The art of concealing the existence, the illegal source, or illegal application of income, and then disguising that income to make it appear legitimate 1 required that the launderer have the means to physically transport the hard cash.2 The trick was, and still is, to avoid attracting unwanted attention, thus alerting the Internal Revenue Service (IRS) and other government agencies 3 involved in searching out ill-gotten gains.4
In what could be described as the “lo-tech” world of money laundering, the process of cleaning “dirty money” was limited by the creative ability to manipulate the physical world. Other than flying cash out of one country and depositing it in a foreign bank with less stringent banking laws,5 bribing a bank teller, or discretely purchasing real or personal property, the classic approach was for a “smurf”6 to deposit cash at a bank. Essentially, platoons of couriers assaulted the lobbies of banks throughout the United States with deposits under the $10,000 reporting limit as required under the Bank Secrecy Act.7 The result was the formation of a serious loophole under the Bank Secrecy Act, allowing couriers almost limitless variables in depositing dirty money such as the number of banks, the number of branch offices, the number of teller stations at one branch office, the number of instruments purchased, the number of accounts at each bank, and the number of persons depositing the money.
In 1986, the Money Laundering Control Act (the Act)8 attempted to close the loopholes in the prior law that allowed for the structuring of transactions to flourish.9 In criminalizing the structuring of transactions to avoid reporting requirements, Congress attempted to “hit criminals right where they bruise: in the pocketbook.”10 Under the Act, the filing of a currency transaction report (CTR)11 is required even if a bank employee “has knowledge” of any attempted structuring.12 Thus, it appeared as if the ability to launder the profits from illegal activity would be severely hampered.
As the physical world of money laundering began to erode, the tendency to use electronic transfers to avoid detection gained a loyal following. Electronic transfers of funds are known as wire transfers.13 Wire transfer systems allow criminal organizations, as well as legitimate businesses and individual banking customers, to enjoy a swift and nearly risk free conduit for moving money between countries.14 Considering that an estimated 700,000 wire transfers occur daily in the United States, moving well over $2 trillion, illicit wire transfers are easily hidden.15 Federal agencies estimate that as much as $300 billion is laundered annually, worldwide.16 As the mountain of stored, computerized information regarding these transfers reaches for the virtual stars above, the ability to successfully launder increases as the workload of investigators increases.17
Although wire transfers currently provide only limited information regarding the parties involved,18 the growing trend is for greater detail to be recorded.19 If the privacy of wire transfers is compromised, due to burdensomely detailed record keeping regulations,20 electronic surveillance of transfers, or other potentially invasionary tactics,21 then the leap from the physical to the virtual world will be nearly complete. If laundering is to survive it must expand its approach, entering the world of cyberspace.
While change is often a frighteningly awkward experience, for an enterprising criminal operation, that wishes to remain open for business, it is a necessity. As the above mentioned race through laundering history demonstrates, creativity, and not necessarily greed, has been the launderers salvation. The recent explosion of Internet access,22 may be the new type of detergent which allows for cleaner laundry.
Part II Enter, Anonymous EcashIn the virtual universe of cyberspace the demand for efficient consumer transactions has lead to the establishment of electronic cash.23 Electronic cash, or digital money, is an electronic replacement for cash.24 Digital cash has been defined as a series of numbers that have an intrinsic value in some form of currency.25 Using digital cash , actual assets are transferred through digital communications in the form of individually identified representations of bills and coins – similar to serial numbers on hard currency.27 While the ultimate goal of each vendor is to facilitate transactional efficiency, bolster purchasing power on the Internet, and, of course, earn substantial profit in a new area of commerce, each vendor plays by slightly different rules.28 Although the intricacies of individual vendors are quite fascinating,
e-notes contain a number of highly detailed discussion of the use of e-notes and the legal and commercial implications of these devices to transact and keep track of sales information. Note:
For the avoidance of doubt, we do not condone the use of E-notes, especially in their place of retail sale, using their proprietary technologies.29 The fact that some vendors have introduced devices that incorporate e-cash in exchange for the use of E-notes, as well as the use of e-cash by some, has generated considerable interest among the financial and economic community in recent years.30
How Electronic Cash and Other Cryptic Funds Are Disintegrated
A few simple ways of determining the use of electronic cash, including the use of one or more physical forms of payment, are possible from the use of both of these payments. The financial sector of the financial industry has used both electronic and regular cash payments to maintain the credibility of its financial services. The use of regular cash has in the past also been used to supplement the production of a variety of other forms of payment to the banking sector, such as loans and credit cards.31 Such payments are in fact not used within the financial industry.
With the advent of electronic and regular cash (ESPF) in the financial sector it appears that this payment system has come to be taken over by financial institutions around the world. The Financial Services Compensation and Accountability System (FSABCRS) has recognized that electronic cash may have its most influential effect on corporate and individual payments.32 Many institutional bank networks are required to implement these payments into their institutional payment systems. Thus, many of the payments which are recognized by FSABCRS are of the form of regular cash, as well as traditional electronic cash. For example, many of the large national financial institutions (NYSE: BAC) have implemented electronic cash into their existing payment systems. 33 They may, for example, integrate large deposits, small payments, and other forms of cash into some of their existing systems.34 It should be noted that the adoption of electronic cash is in many ways dependent on the availability of other forms of payment and is of limited economic impact, as well as a lack of regulatory oversight. In the case of traditional debit or credit reports some of the more significant changes might take place that could adversely affect the ability of merchants to serve and maintain their customers. For instance, the use of physical electronic transactions may make it extremely difficult for other forms of payment to be easily integrated into banks’ existing electronic payment systems.35
Financial institutions may also recognize and integrate electronic cash forms of payment. For example, in the case of the Visa System, it is not entirely clear yet how often a transaction is made online, but some of the large card issuers have initiated similar initiatives into the financial service industry.36 In the financial services world these initiatives may be more commonly referred to as the “Visa Card Integrity Program.”37 Another example of the financial sector’s use of electronic cash can be seen in the financial services sector as well. Although more and more payment processors and credit card issuers are involved in establishing and maintaining the Visa Card Integrity Program, it is unclear whether the Visa Card Integrity Program will continue any longer.38
When using conventional banking services, electronic cash appears to have more of an economic use. This may have a significant impact on how much credit and debit card funds there are accepted, as well as on the size of the small, small, individual and small business transactions which may