Money Laundering: Digital Currency or Old Fashioned Methods?

November 27, 2015

Online is zeros and ones. I worked for a number of years for a fellow with lots of money who explained, “Money is information.” He was mostly correct. However, in the world of big time money laundering, online does not yet have the NFL lineman muscles to do the entire job of keeping financial transactions secret.

The challenge with digital currencies boils down to a search and retrieval problem. Actionable information is embedded in transaction data. Bad actors may not be Bitcoin fans for certain types of unregulated cash transfer tasks.

Navigate to “‘White Gloves,’ ‘VIP Boxes:’ How It’s Done at China’s Underground Banks,” which does a good job of explaining how more traditional money laundering is handled. Bitcoin is okay for moving assets if one has the time, the operational security, and expertise to make the system work.

For folks with JP Morgan-style funds, something more robust and reliable may be needed. Oh, the ability to keep the activity hard to find, hidden from regulators and tax authorities, and reliable is important.

The article states:

In one case Xinhua highlighted this week, state investigators accused a longtime general manager, surnamed Dai, in a state-owned engineering company, Beijing-based China Harbour Engineering, of helping to move $3 million of corruption-tainted gains via a Chinese underground bank onshore. The underground bank used a technique that regulators called an “audit hedge,” essentially depositing 18 million yuan in Mr. Dai’s onshore account in exchange for an equivalent amount of foreign exchange placed in the underground bank’s offshore account. No money crosses the border physically or electronically, making the transaction almost perfectly undetectable — hence “a hedge against audits.”

Another method is an old fave: Shell accounts. The article stated:

In Ningxia, a small northwestern region home to China’s Hui ethnic minority, criminal gangs in the provincial capital Yinchuan set up 12 trading shells that did nothing but generate false export data as a means to move money in or out of the country under the guise of legitimate corporate payments, according to Xinhua. Companies are allowed to move foreign exchange exceeding China’s $50,000 annual limit for legitimate purposes. Police found that the gangs marked the funds that moved through their shell accounts as “national export incentive awards” obtained from the Yinchuan City Bureau of Finance. Investigators alleged that the gangs used the scheme to defraud the Ningxia government since 2013 of export incentives worth 38.6 million yuan ($6 million). Export scams like these usually facilitate illegally moving funds onshore, rather than offshore. China controls foreign exchange coming onshore just as it does money trying to move offshore. The Ningxia case stemmed from 2013, when China was experiencing a high level of net capital inflows.

When will digital currencies facilitate money laundering on this supersized scale? Not surprisingly, verifiable data about the volume of money laundering via digital currencies is tough to obtain.

I would point out that old fashioned methods still have their use. Investigators, therefore, have to rely on useful software like Maltego and add ins and have the resources to dig out information the old fashioned way. This is not just feet on the street; it is humans pulling information threads.

Stephen E Arnold, November 27, 2015

Comments

Comments are closed.

  • Archives

  • Recent Posts

  • Meta