Crowdfunding: A Criminal’s Hiding Place? (By Richieson Gyeni-Boateng, CAMS)

Every now and then, you get or see people creating a page and/or account (mobile money wallet or bank account) to solicit for funds to support a cause especially medical or social intervention causes. These people appeal to the emotions of the citizenry by showing pictures of what they want to do. As to whether the monies collected will be used for the intended purpose, is a question most of us don’t know. This practice, if not checked, can create an avenue for exploitation by criminals to advance their criminal activities. Terrorist Groups can or is adopting this technique to finance their terrorist activities. In Canada, over the past five years, cyber criminals have used crowdfunding websites to launder nearly $30 million.

This article tries to throw lights on how crowdfunding can facilitate the activities terrorist group and also suggests measures that can be put in place to thwart the criminal’s efforts.

Crowdfunding is a method used in raising capital through the collective effort of friends, family, customers, and individual investors. This approach taps into the collective efforts of a large pool of individuals, primarily online via social media and other fundraising platforms, and leverages their networks for greater reach and exposure. This is an alternate approach to the mainstream approach to business finance. Traditionally, if you need to raise funds for a project, product or to meet a financial need, you would have to write a business or social impact proposal and then shop your idea around to a limited pool of wealthy individuals or institutions such as banks, angel investors, and venture capital firms.

Crowdfunding comes in three types namely the donation-based, rewards-based and equity crowdfunding. The selection of which one to go in for will be determined by the type of product or service you offer and/ or your goals for growth. For the benefits of this article, the focus will be on the donation-based crowdfunding. The Donation-based crowdfunding is the kind of campaign in which there is no financial return to the investors or contributors and initiatives under this type include fundraising for disaster relief, charities, nonprofits, and medical bills. The contributors simply give in support of cause. The Rewards-based crowdfunding involves individuals contributing to your business in exchange for a “reward,” typically a form of the product or service to be offered by company asking for the funding. The Equity-based crowdfunding allows contributors to become part-owners of the business by trading capital for equity shares. As equity owners, the contributors receive a financial return on their investment and ultimately receive a share of the profits in the form of a dividend.

In as much as donation-based crowdfunding helps in raising funds to support a just cause, criminals especially terrorist groups, are using or can use it to advance their criminal activities. This is done by registering on any crowdfunding site and asking people to help with a particular cause. Others also use the various social media platforms to spread the news about a cause such as health/ medical issue and direct their contributors to help through mobile money (momo) transfers. These contributors are moved with compassion to support. Even though most of these activities are genuine and for a worthy cause, terrorist groups are also employing these same tactics to raise funds to finance their operations.

The emergence of innovation and technological advancement, have added to the capacity of terrorist group. Terrorist groups use social media platforms to communicate, transfer knowledge and skills, propagate, radicalize, recruit and even raise and transfer funds.

At times these criminals hide behind individuals to raise these funds to support their activities. These individuals are paid well enough (a percentage of the amount they are able to raise) for the risk they are taking. Most times these crowdfunding actors do not weigh the legal risks, including those of criminal liability, when they set up a crowdfunding business, or otherwise decide to participate in it.

Criminals setting up crowdfunding accounts and allowing associates to donate using stolen credit and/ or debits cards towards a cause of action is another way used to launder money. These criminals legitimize their dirty money through the crowdfunding. The funds are then withdrawn and used for legitimate business. Crowdfunding could be like an ATM for stolen credit and/ or debit cards

Also because crowdfunding (especially the Donation-based type) is not regulated in most parts of the world, it makes it vulnerable for the use of these criminals. The funders (the sites/ platforms that host the crowdfunding) do not apply any anti-money laundering and combating terrorist financing principles or activities when on-boarding or allowing fundraisers to register on their platforms or sites. Kickstarter, a funder, which helps tech and creative entrepreneurs fund their projects before getting a loan or raising money for venture capital rarely talks about any anti-money laundering principles on its site. Also GoFundMe, which is considered as the “#1 most trusted leader” in the crowdfunding space for free fundraising for the people and causes you care about, does not mention anti-money laundering principles on it site or platform.

One way to ward off criminals from using crowdfunding to advance their terrorist activities is to have regulations and laws around the activities of crowdfunding and KCY principles to adopt. Also ensuring full compliance by all players in this industry will help. The regulations should at least try to address the following:

Who are the people behind the crowdfunding?
What is the stated purpose of the crowdfunding?
Monitoring the activities and intended purpose of the fund
Report rendition.

The policy on crowdfunding issued by the Bank of Ghana, though does not address the above points, is a step in the right direction to make the crowdfunding unattractive to the criminals.

Performing a background check on the individual(s) behind the fundraising and what the fundraising is all about will minimize the fraud people intend to commit through crowdfunding. Make sure you are convinced about the credibility of the fundraiser(s) before supporting the cause with your money. Remember if it is too good to be true, then watch out.

Awareness creating and training is one of the ways to make crowdfunding less attractive to criminals. The more the general public is made aware of what the criminals can do or are doing with crowdfunding, the more careful people would be when dealing with suspicious crowdfunding activities. The awareness created by Hon. Dr. John Ampontuah Kumah, MP for Ejisu on crowdfunding on the floor of parliament is something that should be encouraged to make the industry less vulnerable to the attacks of criminals.

Also setting a maximum limit for the amount of money that can be collected onto merchant MoMo wallet in Ghana will go a long way in the fight against criminals in the crowdfunding industry. Per the BoG policy on crowdfunding, merchant wallets created for crowdfunding shall be subjected to regular monitoring and reporting to ensure compliance of use with the intended purpose. The policy has prescribed the maximum transaction limits for various categories of merchant wallets.

The benefits we can derive from crowdfunding are numerous but care should be taken to avoid criminals from using it to fuel their illegal activities.

Would you mind doing me a favor? Share this article with someone so that the awareness of money laundering and terrorist financing could be spread to avoid being use as a conduit by criminals.

If you require further information on this article, please contact Richieson @richieson.gyeniboateng@gmail.com