Monday, July 22, 2013
By The Economist
The growing use of digital currency will result in rise in cyber laundering as hacking attacks and online scams take centre stage on Internet says a latest report. It said the Indian banks and authorities may wary as money laundering using online black-marketing route and other techniques will expand with the use of digital currency.
"This new techniques of money laundering (using digital currency) includes opening accounts with low cost and little known payment gateways, buying digital currencies, purchasing stolen data, setting up online shops with payment gateways, using the bank accounts of money mules to transfer so earned money to different countries," said the report by Pune-based 'Indiaforensic'. The firm, which conducts fraud examination and forensic accounting among others, has helped the country's investigating agencies like CBI in several high-profile cases including multi-crore Satyam scam.
Digital currency is the alternative to the traditional currency, which is used in online transactions. It is very similar to the operations of the loyalty points.
The report -- 'Laundering in Cyber World- The Digital Currency Way' -- cited a recent case in the US involving 'Liberty Reserve' -- a digital currency website which was used for laundering at least USD 6 billion by data thieves, drug dealers, child pornographers, identity thieves, hackers and other criminals.
"Traditional money laundering has often been a secondary process - preceded by an illegal activity, such as drug trafficking but the liberty reserve case shows that data thefts, hacking attacks and online scams are replacing the traditional crimes and the digital currency is now at the centre of the laundering operations," said Mayur Joshi, head of Indiaforensic.
According to the research conducted by Indiaforensic in 2011, the estimated size of money laundering in India was Rs 18.86 lakh crore for the 2000-2010.
"Now the money laundering is expected to grow even faster with the digital currencies," it said.
Currently, digital currencies are neither produced by government-endorsed central banks nor necessarily backed by the national currency. Digital currency is decentralised, controlled by its users rather than the governments.
"This means it is anonymous, and that, unlike credit cards and PayPal, which block payments from a number of countries, it enables instant payments to anyone, from anywhere in the world.
"That's why criminals along with some online retailers love it. It is money without any sort of safety net underneath. There's no legislation to protect your investment and you can't predict fraud," said the report. Ripple, Microcash, Litecoin, Bitcoin, BBQCoin, Novacoin, RuCoin, Terracoin are some of the popular forms of digital currencies used across the world wide web.
"Many Indians have just begin to hear the term digital currency but the growing international use of digital currency will pose a bigger challenge before the Indian law enforcement agencies and the regulators," the report said. Indian regulators and the law-enforcement agencies are unprepared to deal with the new reality of cyber-laundering and the sophisticated methods organised-crime groups use for money laundering.
"Extensive training and education at all levels are needed, including small-town and rural police departments," it added.
Michael Hearns an Anti Money Laundering specialist with over 24 years of AML experience can also be found at www.launderingmoney.com and on twitter at : http://twitter.com/#!/LaunderingMoney http://moneylaunderingworld.blogspot.com and http://launderingmoney.com