Money Laundering, Terrorism and Financial Institutions - USA Patriot Act Monitor

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7/29/2008 Use of Internet Payment Systems by Launderers Is Focus of FATF, DOJ Reports

FinCEN, the Department of Justice, and the Financial Action Task Force have all expressed concern with the ways that the internet can be used by money launderers and terrorist financiers. In a study of internet payment systems released at its summer meeting, the FATF discussed the features of the internet that make it increasingly vulnerable to criminal activities. These include anonymity, the speed and volume of transactions, limited human intervention, and international availability, sometimes without clear situs in any jurisdiction. One scheme growing in popularity involves a false sale of goods, A “buyer” wishes to transfer funds to a “seller.” The two are in league and neither expects to buy or sell anything. The seller posts goods for sale on a website. The buyer orders the goods. The website does not arrange or monitor shipment, leaving this to the seller but is an intermediary for the funds transfer. The buyer pays for the goods, which are never sent or received, but the seller and buyer both have a record of the funds transfer and a plausible reason for it. If the process is repeated, the buyer may change his name and address. The website, though not involved in the mailing of the goods, allows buyers to rate sellers on a star system. The criminal buyers all give the criminal seller a good rating, increasing the appearance of legitimacy. Another variation of this is to inflate the price of goods sold over the internet, combining use of the internet with a trade-based scheme. Internet payment systems using digital currency have caused considerable alarm, both domestically and internationally, and in June the Department of Justice issued a report about money laundering with digital currencies. Among developments discussed in the DOJ report is the indictment of e-gold, Ltd. for, among other counts, operating an unlicensed money transmitting business. These developments will be discussed in forthcoming issues of the Monitor.

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