Money laundering through virtual accounts and virtual currency

¶ … money laundering from the perpetrator's perspective. In specific, it will address the questions of whether virtual money can be counterfeited, whether the money can be trailed, and who can access the devices used for financing the system.

The simplest form of money laundering entails making it appear as though the money derived from one source (say, Source A) actually comes from another (Source B, for instance). That is, criminals perpetrating this crime attempt to cover the origin of their illegally-procured money, making it appear as though their source was lawful. If they do not do so, they will not be able to utilize that money, as a link could be established between it and some criminal activity, causing law enforcement personnel to seize the money (Money Launderering Basics - How Money Laundering Works - Howstuffworks). The practice of money laundering constitutes a key step in successful white-collar crimes, terror activities, and drug trafficking. This paper will look into money laundering as an activity from a criminal's perspective.

A money launderer opens several, unconnected virtual accounts under fictitious names. These accounts are financed with money from an organized criminal operation involving sports betting. The launderer is able to make purchases online from, as well as to, himself by making use of these accounts as though he were buying assets from fellow residents He can then guide all proceeds to another account, from which funds may be withdrawn via an ATM card or directly into a bank account. Tracing this money's source would be virtually impossible. The above scenario gives rise to the questions listed below:

1. Is it possible to counterfeit virtual money?

1. Is any trail left behind, using which the money can be tracked?

1. Who can access the computers that finance the system? (i.e., potential participants of a money laundering plan)

Counterfeiting Virtual Money

The ever-growing virtual worlds which have become part and parcel of a large share of the world's population bring to the forefront the issue of virtual ID security. Betting of real cash and the trade of game currency on markets within games has given birth to an unplanned, but swiftly developing, online stock market. Gamblers disgruntled with the emaciated real-world stock market will undoubtedly turn their attention to these viable virtual worlds. In the absence of any Securities and Exchange Commission in the virtual world for looking into virtual stocks' legitimacy, well-meaning virtual players will become easy prey for money laundering groups (Burns, 2009). Further, owing to the lack of any prime regulation with regard to virtual funds (such as that seen in case of paper money), virtual money is potentially left free for counterfeiting. With growth in virtual worlds' size and number of everyday financial transactions, a proportionate growth in cybercriminals is also seen. The absence of standardization between the worlds leaves no way to know whether a source has been cashing out and making Warcraft Gold, Linden Dollars, or some other game currency. Hence, it becomes very hard to track money laundering accusations. Thus, a criminal can freely commit frauds and need not worry about the crime tracing back to him.

Access to Computer Systems

Hedge funds have becoming increasingly popular on account of their comparative profitability in today's investment environment, especially for private banking customers, insurance firms, enterprises, pension funds and other "nontraditional" investors (Hedge Funds and Anti-Money Laundering). A money launderer typically hides his activities using "shell" companies; nontraditional investors' proliferation helps them remain inconspicuous.

The following case explains the use of hedge funds in large money laundering schemes. A drug dealer has four million dollars in hard cash which he has to launder. There are a hundred separate checking accounts he has maintained at multiple banks under multiple fictitious names. The drug dealer and his minions deposit this money (i.e., four million dollars) into those bank accounts within a two-week period. As each deposit amounts to roughly 5,000 dollars, spread out across several branches over time, no Currency Transaction Reports will be filed. Thus, the activity raises no suspicion (Hedge Funds and Anti-Money Laundering). Illicit money successfully enters the global financial system. This money is subsequently collected into 5 main accounts from the aforementioned 100 accounts through checks, wire transfers, and journals. The cash from those five accounts is once again consolidated, this time into a foreign account in, say, Cayman Islands. Further wires take place, to accounts in Jersey, followed by the Philippines. Lastly, the entire money (four million dollars) is consumed in a hedge fund (in the form of opening deposit). The illicitly-earned money is left here, and after a couple of years, it grows in value to seven million dollars. At this juncture, the launderer retires by withdrawing, say, one million dollars and lives a lavish life. If anybody raises questions regarding the source of his money, he possesses the paperwork that shows he is enjoying the enormous returns of a previously-invested hedge fund. Layering and the passage of time suffice to veil the source of his original investment. Thus, the stage of integration is complete and the drug dealer enjoys his illicit earnings, with a credible explanation for the money's origin. There are additional characteristics that make it rather tough to detect money laundering through hedge funds (Hedge Funds and Anti-Money Laundering). Normally, hedge funds aren't employed in the stage of placement, as money laundering can be most easily detected at this juncture. The reason for this is that hedge funds require colossal capital and the use of monetary instruments and cash sticks out and becomes awkward for such large amounts. Additionally, a hedge fund has long lockup durations and will only allow withdrawals once in one or three months. Consequently, hedge funds will more likely be utilized during the layering or integration stages, when the cash has been given as legitimate an appearance as possible. In case of the scenario under study, the sports bettors and the launderer can access the computer system or accounts.

Conclusion

Other money laundering options are emerging because of the ever-expanding array of financial instruments. The securities and derivatives markets appear to be especially vulnerable to recycling income from organized crime as audit trails are very easily blurred. Brokers can conveniently launder money via a perfectly licit transaction, and need not make any fake entry. All they need to do is assign real losses in trading to whichever account they desire to deposit their illicitly-procured money into. Another option is insurance -- particularly long-term capitalization bonds, life, and property insurance (Moulette). Money launderers typically pay hard cash for insurance schemes and seek premature policy redemption, or make claims against property insurance, making the insurance firm pay them bank money. Electronic money transfers are, however, the preferred means to layering dirty money upon entry into the legal financial system. A risk is presented by certain e-cash and smart card systems as well, which do not set any upper limit on transactions. Although direct transactions between cards aren't allowed by a majority of smart card systems, others can bypass financial intermediaries. Without proper monitoring and observance of reliable standards by supervisory authorities, 21st-century payment technologies can well be susceptible to the crime of money laundering and criminals can freely continue their illicit operations.