moving money without a trace new payment methods

MOVING MONEY WITHOUT A TRACE

New Payment Methods

Cash Banks MSBs

Traditional Payment Systems

4

New Payment Methods

Prepaid Cards

Open Closed

European Pin and Chip

PSVC Universe

Digital CurrenciesUsed to fund PSVCs

BanksIssue CardsHold Funds

SellersSell and fund PSVCs

Stores/Internet

InternetCard Registration and

activation. Purchase of cards, funding of cards,

access to digital currencies

DistributorsOrganize, Market, and

Distribute PSVCs

Program ManagersOperate and Run PSVC

Programs

Processing CompaniesCard account set up and

activation, card production, maintain databases of card

balances and transfers

ATM NetworksProvide direct access to funds (Plus, Cirrus, Star,

Maestro, etc.)

Prepaid Stored Value Cards

Branded Card Payments Networks

(Visa, MasterCard, American Express, etc.)

Branded Card Payments Networks

(Visa, MasterCard, American Express, etc.)

Program ManagersOperate and Run PSVC

Programs

Processing CompaniesCard account set up and

activation, card production, maintain databases of card

balances and transfers

Digital CurrenciesUsed to fund PSVCs

SellersSell and fund PSVCs

Stores/Internet

• Final Rule Issued July 26, 2011– Change of Terms: Prepaid access– Providers of Prepaid access

• Determined by contractual agreement– Require Registration of Provider of Prepaid

Access– Require Customer Identification Programs

Evolving Safeguards

• Final Rule Issued July 26, 2011– Require SARS from Providers– Sellers covered if sell products greater than $10k

on any one day– Closed looped exempted – sold in amounts less

than $2K– Cross Border Reporting – Requires Regulatory

Fix • new definition to be added to “monetary

instruments” new NPRM

Evolving Safeguards

Sallie Wamsley-Saxon

• Sallie Wamsley-Saxon ran Charlotte, NC-based prostitution ring with her husband

• Charged up to $700/hour

• Sallie and her husband took 30%

• Each had 5 prepaid cards in their names with a $2500 load limit, so they could load $25,000 at a time without a CTR being filed

Identifying Stored Value Cards

• Problem:– Open System cards look and operate

just like bank ATM cards so they can be difficult to identify

– Open System cards do not have to be branded

Online Payment Systems

• Facilitate e-commerce by providing a non-face-to-face settlement mechanism.

PayPal

• PayPal is the largest online payment system, with $60 billion worth of transactions in 2008.

• PayPal is registered and licensed as a money transmitter.

• It has an AML program and reporting requirements.

Originator Beneficiary

Originator’sPayPal account

Beneficiary’sPayPal account

Introducing Financial Investigations

Digital Currency

• Internet-based service providers that use gold, silver, platinum, and palladium as the store of value

• Digital Exchange Services act as intermediaries, accepting payment and transacting with digital currency providers

• Used for speculation in commodities, person-to-person payments, commercial payments

Terrorism Financing

Cyber-Jihadis

Younes Tsouli, Tariq Al-Daour and Waseem Mughal

Convicted in UK of: Inciting Terrorist murder via internet, Conspiracy to defraud banks, credit companies

• 37,000 stolen credit card numbers• £1.8 million in fraudulent transactions• Set up Web sites & communication sites

• Considerably more complex value chain.• Advertised anonymity and instant settlement

important features of the system.

E-gold

Originator Beneficiary

Originator’se-gold account

Beneficiary’se-gold account

e-gold exchanger

e-gold exchanger

Bogus account info is the norm

E-gold

• E-gold was used to launder the proceeds of:–Child pornography.–Identity theft.–Bank fraud.–Ponzi schemes.–Illegal online drug sales.

RBS WorldPay

• RBS WorldPay – U.S. payment processing arm of The Royal Bank of Scotland – announced in Dec ’08 that its systems had been hacked.– 1.5 million prepaid cardholders’ info stolen.– Withdrawal limits reset on ~100 payroll cards.

• Gang of hackers – 5 Estonians, 1 Russian, 1 Moldovan

RBS WorldPay

• Network of cashers supplied with 44 counterfeit payroll prepaid cards

• 2100+ ATMs in 280 cities ~$9 million withdrawn in less than 12 hours

• Money moved from cards to WebMoney , a digital currency

Virtual Currencies

Bitcoin Market

The Armory

The Armory

Bitcoin Exchangers

New MSB Regulations

• Issued July 21st, 2011, effective September 19th

• New registration requirements – 6 months from July 21st

• Prior to this rulemaking, the regulatory definition of MSB covered ‘‘[e]ach agent, agency, branch or office within the United States of any person doing business, whether or not on a regular basis or as an organized business concern

• New Rule: “A person wherever located doing business, whether or not on a regular basis or as an organized or licensed business concern, wholly or in substantial part within the United States”

31 CRF 1010.100 (ff)

Mobile Payments

Payment Tag:

Can be Prepaid Card

Mobile Payments

Phone as a Credit Card Terminal -Square

Phone as payment mechanism – M PayPal

ING Bump Payments

Square

Cards in Case

Newest Threat – Virtual Reality

Virtual Gaming Currencies

• Massive Multiplayer Online Role-Playing Game (MMORPG)– Entropia PEDs– Q coins– Linden dollars (Second Life)

Game Coins

Entropia Universe

Entropia Universe to operate real-world bank

with virtual world presence

Second Life

• First Person to make $1 million USD in Second Life

• Purchased and developed real estate

• Sells own line of clothing

Virtual-bank scam leaves depositors with real loss

“The 33-year-old from Chicago, who played the game as a raven-haired Vixen called ZaniaTurner, deposited $140 in Ginko Financial and waited for the money to grow. Instead, it vanished five months ago when Ginko, perhaps the first Ponzi scheme in history perpetrated by three-dimensional online avatars, left Second Life.”

LA Times 1/28/2008

On the Internet…

…nobody knows you’re a dog.

Susan L. Smith

Asset Forfeiture and Money Laundering Section

202/514-1434 or 1263

Susan.Smith2@usdoj.gov