money transfer in cyberspace

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Money Transfer in Cyberspace

MTRA 16th Annual ConferenceNovember 13 – 15, 2006

Presented by Joseph Cachey IIISVP, Global AML ComplianceThe Western Union Company

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What is Cyberspace?

a) A term coined by William Gibson in Neuromancer (1984)

b) A metaphor for the Internet

c) The opposite of Meatspace

d) A virtual reality which represents the Noosphere / Popperian Cosmology both “inside” computers and “on” computer networks

e) All of the Above

Source: Wikipedia (from cyberspace) 2006

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In terms of Money Transfer, “Cyberspace” is:

Use of the internet for purposes of facilitating movement of funds or conducting a money transfer. These include:• Consumer to Consumer transfers (C2C)

• Consumer to Business transfers (C2B)

• Business to Consumer transfers (B2C)

• Business to Business transfers (B2B)

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Typical Transaction Flow

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Typical Cyberspace Money Transfer Methods

Money Transmitter (MSB) Websites

– Credit / Debit / Prepaid Card to MSB Payout

– Bank ACH to MSB Payout / MSB Funding to Bank ACH

– Bill Payments

– Staged Transactions

– Prepaid Card top-ups and Virtual Account Funding

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Source of Funds for Internet Money Transfer

Common

• Banking Accounts

• Credit Cards

• Debit Cards

• Prepaid Cards

Emerging

• Virtual Accounts / Virtual Prepaid

• Staged Online then funded by Cash

• Digital Currencies / Electronic Cash

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Benefits of Cyberspace Money Transfer

Consumer Benefits – Convenience– Speed– Costs– Privacy– Ease– Security

Money Transmitter Benefits – Low Costs of entry– Low Overhead– Speed– Widespread Access– Consistency– Revenue

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Risks with Cyberspace Money Transfers

– Receiver Fraud– Rogue Websites– Account Takeovers

(Identity Theft)– Undisclosed Fees– Limited Consumer

Protection (Emerging Sources)

– Possible Limited Recourse

– Security & Phishing

– Customer Identification and Verification

– Transaction Authorization and Merchant Liability

– Sender and or Receiver Fraud– Account Takeovers (Identity Theft)– Money Launderers– Terrorist Organizations– Website Compromises– Disasters

Consumer Risks Money Transmitter Risks

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Steps to controlling your program’s risk

• Sever links between your products and unapproved transfer methods

• Police the internet and protect your brand

• Impose limits and velocity checks on amounts that can be transferred

• Enhance your customer authentication – remember international!

• Enhance your transaction authorization process

• Develop a robust monitoring and early warning program

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Risks from Regulator’s Perspective

– Rapid Proliferation with low barriers to entry

– Lack of Regulation (Emerging Sources)

– Unregistered Companies

– Money Laundering and Terrorist Financing

– Borderless

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Risks from Regulator’s Perspective (cont.)

– Offshore Website Hosting

– Stopping illegitimate websites

– Stopping links between legitimate and illegitimate transfer methods

– Consumer Protection

– Who Regulates?

– What / who do you regulate?

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Current Regulatory Environment

– PCI Compliance Rules (Dual Factor Authentication)

– Regulation E (Transaction receipts and account statements)

– MSB Registration Required?

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New Product Examples

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Prepaid Cards – A card or device withstored value that is used for payment in the form of electronic cash. Often referred to as Stored Value Cards.

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Virtual Accounts / Virtual Prepaid: A prepaid card or account number with stored value that exists in cyberspace only. Mainly used for online transactions or card to card money transfers.

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Staged Online then funded by Cash: Prearranging a purchase online or possibly a money transfer then funding via a cash remittance at a money transmitter.

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Electronic Cash – is a digital form of money. Can be stored electronically or held virtually. Can be denominated in an official currency or a derived artificial currency.

New section in the 2006 FFIEC BSA/AML Examination Manual.Pages 202 – 204

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Current Regulatory Environment (cont.)

– State Laws – are virtual accounts monetary instruments?

– International Regulations

– Reporting Requirements

– AML Programs for Offshore sites?

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A world of Electronic Cash awaits you…

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How digital currency works

Source: FATF / GAFI Report on New Payment Methods, 13 October 2006

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Popular Examples

e-gold

e-bullion

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Typical Cyberspace Money Transfer Methods

Bank Websites– Bill Payments

– ACH Payments

– Account to Account

– Account to MSB Payouts

– Prepaid Card Purchases

– Other

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Sample Bank Money Transfer Website

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Sample MSB Money Transfer Website

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Non-Typical Cyberspace Money Transfer Methods

– Anonymous Accounts and ProductsAccounts or products which do not require customer ID or provideanonymous ways to transfer money.

– Digital Currency transfer services Allows movement of funds between alternative forms of electronic cash

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Sample of a Fully Anonymous Prepaid Card

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Cards Tied to Numbered Accounts with No ID Required

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What loading methods are appropriate?

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Phishing – “the bait”

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Phishing – ”the hook”

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The End

Cyberspace Contact: [email protected]

Meatspace Contact: 720-332-4642

money transfer in cyberspace

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