We are in a world where by the click of a button, money is transferred from one jurisdiction to the other with ease. The emergence of digital payment platforms and money remittance services (Fintech) has changed the way we interact with money on daily basis.
Technology has contributed to this effective and efficient way of doing business and sorting out family and friends financially, as it has created lots of opportunities for all. But as with any area where there are opportunities, criminals also identifies vulnerabilities to take advantage of. As patronage of the digital payments platforms by consumers and companies increases, micro laundering has also been on the rise. This is because criminals are transacting below the statutory reporting transaction thresholds by moving small amount of money on the various payment platforms, but through a large number of transactions. The online marketplace is continuously evolving, and companies are scrambling to get new products to augment business growth. But all in this hustle, they forget the security of their businesses. Equally enthusiastic technology-savvy criminals jeopardize it.
This article is to throw light on the emergence of micro laundering and how criminals are exploiting it to their advantage.
Micro laundering is the process of cleaning dirty small amounts using digital channels. The small amounts are transferred to prevent detection, and transactions are made to appear regular. This is similar to structuring but the only difference is, this happens on the digital payment/ remittance platforms. The challenge of identifying fraudulent transactions has further heightened with this form of money laundering as small amounts of transactions are carried out several times. The illicit money is not transferred via big or small projects, but they are spread in smaller digital transactions done every day. This makes it difficult for law enforcement agencies and governments to trace every small transaction and detect the risk of money laundering.
One way that the micro laundering is used to wash dirty money is the purchase and sale of in-game currencies. This is when the criminal uses stolen debit/ credit cards to buy and sell in-game currency. The criminal uses these cards to purchase V-bucks and sell same at lower prices to players. This was evidenced in the investigation on the operations of Fortnite, a highly popular game. According to the Independent, children playing Fortnite are helping fuel organized crime1. Due to the anonymity this platform offers, criminals are attracted to this.
Job advertising sites such as Fiverr, also help criminals in their laundering activities. Criminals can use freelance job sites to conceal their dirty funds via money mule systems. They can post a job request via one account, and then sign up for the job via a different account and/or associate account. This way when the payment is made, they’ve ‘cleaned’ the funds that were sent via that transaction and it will look like the funds have come from a legitimate source.
Another means via which micro laundering takes place is via the online payment systems. With the online payment platforms, criminals are able make small transactions with ease and conveniently benefiting themselves and/ or associates.
Mention can be made of cryptocurrency sites as one of the channels via which micro laundering takes place. Cryptocurrency platforms also allow users to convert their money to digital currencies such as bitcoin with easy as the platform offers a high degree of anonymity. Because of this anonymity it offers user, it is an appealing route for micro laundering. Criminals always take advantage of the anonymous nature of the internet and commit fraud. They carry out massive volumes of micro-transactions every day. Each small transaction goes unnoticed, but the overall amount is a cause of worry as criminals become successful in gradually laundering vast amounts of money in multiple transactions.
Unfortunately, it is incredibly difficult detect micro laundering because the various digital payment systems have made it easier than ever to make fast, seamless transactions for everyone on a daily basis, they’ve also become a tool for the cybercrime economy. However, there are some signs that can alert businesses of micro laundering activities, even though these signs alone aren’t enough to catch all instances of micro laundering. Examples are as follows:
- Rapid movements of small transactions via money transmitters or payment platforms
- Large numbers of small purchases to isolated groups of online merchants
- Transactions via money transmitters or payment platforms being the only activity in an individual account for an extended period of time.
In order to fight this new menace of laundering money, training and awareness creation should be encouraged among the citizenry, law enforcement agencies and regulators. AML training should include creating awareness about micro laundering and preventative measures. Businesses and enforcement agencies should work together to identify such emerging threats and combat them successfully. Most of the online marketplaces have put Anti-Money Laundering (AML) compliance on the back burner and only concentrating on their core activities without inculcating AML principles and procedures among their staff and operations.
Transaction monitoring is another way to mitigate the menace of micro laundering. Technology with an emphasis on Artificial Intelligence (AI) will help authorities, regulators and business organizations (especially financial institutions) in monitoring customers’ transactions and identifying suspicious and/or unusual transactions accordingly. AML monitoring software can automatically identify unusual transactions, irregular patterns, or unusual consumer behaviour, letting the business know that it needs attention and investigation as it is impossible to track the billions of micro transactions that occur manually.
Mention can also be made of implementing effective and efficient Know Your Customer (KYC), Customer Due Diligence (CDD) and/or Enhanced Due Diligence (EDD) procedures as a way of mitigating the risk associated with micro laundering. The introduction of technology in this process such as AI and other verification tools will identify suspicious and/or sanctioned characters. Integrating sanctions screening procedures with the customer identification and verification process will help manage the risk associated with micro laundering.
The various regulators should take a second look at their AML/CFT & P guidelines if the fight against micro laundering can be successful. The revised guidelines should have measures aimed at identifying the risk and reducing same. Micro laundering is more likely to go undetected by traditional methods of AML/ CFT and due diligence checks and procedures, so there should be specialized guidelines with stricter processes and greater use of technology to tackle the menace. This should be done not discouraging financial inclusion.
The fight against micro laundering can only be won with a collaborative approach. Joint efforts by the government, regulators, compliance experts, financial institutions, and other regulated entities can help create awareness about the menace, identify criminals and prevent them from washing their dirty money.
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