Intra-Site Transformation Technique
The internet has provide several new facets for money laundering, many of which are more lucrative than legacy techniques, as well as some of the former digital methods. It is important to realize one important factor, as you might have gathered from the other articles, correspondent accounts will again be a very important, and a deciding factor as to whether this method an be successful.
Internet gambling sites, clearly, are run off shore. These sites can run revenues up to several million dollars, and deposit these monies directly into foreign accounts. These sites are often times funded and run by US based companies, which in turn desire to have their funds redirected into the legit US financial structure.
Virtual gambling has opened the doors for new avenues of money laundering. In order to understand how to filter funds, we have to firstly get a brief topology of the flow of money.
Firstly, there are two high level ways in order to transfer money into a virtual gambling system. This of course is quite general. I have scripted sites for clients in multiple environments and platforms, ranging from PHP / mySQL back ends to higher complex .NET / MS SQL systems, however there are several things that are kept constant.
Firstly, credit card transfers are the most predominant, leveraging a payment gateway. Basically, it is cash advance into the casino’s backend system. Secondly, direct money transfers, which encapsulates check, money order, or wire transfer. The money is in turn turned into electronic tokens, basically the equivalent of chips within a physical casino. If you would like more information on this subject, please reference “The Report of the National Gambling Impact Study Commission.”
In order to find why internet gambling portals are lucrative sects for monies transformation, we have to also look at why they are successful, and contrary to popular belief, it isn’t just because someone can do an illegal activity in the comfort of their home. Rather, the transformation out of an end-user account directly into tokens is near instantaneous, it is with little surcharge, and with current encryption techniques is quite secure.
The end-user funds are transferred into the foreign accounts immediately, since the sites are hosted and run by offshore companies. These foreign banks have a lack of AML regulations, compliance is not really of a large concern, hence these are a clear stomping grounds for prominent AML activity.
One researcher estimates that in 1997, there were as many as 6.9 million potential Internet gamblers and Internet gambling revenues of $300 million. By 1998, these estimates had doubled, to an estimated 14.5 million potential Internet gamblers and Internet gambling revenues of $651 million. The River City Group, an industry consultant, forecasts that U.S. Internet betting will rise from $1.1 billion in 1999, to $3 billion in 2002.
In order to understand how AML activity can flow, we have to firstly take a brief look at some of the laws that are of concern to our argument. Firstly, we have to know that , gam bling regula tion is primarily a matter of state law, reinforced by federal law where the presence of interstate or foreign elements might otherwise frustrate the enforcement policies of state law.3 1 According to a recent Congressional Research Service report, Internet gambling implicates at least six federal criminal statutes, which make it a federal crime to: (1) conduct an illegal gambling business, 18 U.S.C. §1955 (illegal gambling business); (2) use the telephone or telecommunications to conduct an illegal gambling business, 18 U.S.C. §1084 (Interstate Wire Act); (3) use the facilities of interstate commerce to conduct an illegal gambling business, 18 U.S.C.§ 1952 (Travel Act); (4) conduct the activities of an illegal gambling business involving either the collection of an unlawful debt or a pattern of gambling offenses, 18 U.S.C. §1962 (RICO); (5) launder the proceeds from an illegal gambling business or to plow them back into the business, 18 U.S.C. §1956 (money laundering); or (6) spend more than $10,000 of the proceeds from an illegal gambling operation at any one time and place, 18 U.S.C. §1957 (money laundering).3 2.
Why are the laws so ineffective? It is mostly because the laws that are applicable to this certain situation were written after the fact. The laws are not effective because legislators are trying to apply legacy laws into new technology. Clearly, this is a fallacy. In order to correctly monitor these type of activity, innovative laws have to be inline with new technology. This not currently the case, which is great for launderers.
Technique wise, you have to leverage a payment gateway in order to translate the illicit funds, regardless of backend language. These funds are then placed into a foreign account, which has ties directly into correspondent US bank account. The foreign banks is either shelled, or of a legit nature with loose AML regulations, with easily purchase employees. Shells are a little more lucrative and easy to work with, as you can control the flow of money from origin to distribution. After passed through the foreign financial legislation, it is a matter of correspondent account transfer. There is clear evidence of banks being either fully aware of this activity, or completely innate. Either way, the process is fairly easy, and can be done through simple Telnet client.