The explosive growth of alternative payment systems (APS) globally has posed great opportunities for businesses and consumers alike but equally has posed significant challenges for international law enforcement and regulators. Not only are we seeing innovation and disruptive technology from non-banking payment service providers growing out of Silicon Valley but we are also seeing traditional banking entities look to adopt some of the same advances to improve or create new service offerings. The amount of investment in financial technology (FinTech) has reached record highs. In 2015, the amount of venture capital investments in FinTech reached $22 billion, which was a 75% increase from the previous year.
As these new technologies in banking, retail and even gaming are being adopted for legitimate use, cybercriminals, drug cartels and terrorist groups are abusing digital currencies and other APS(s) to fuel underground criminal economies, finance terrorism but also to launder money across international borders. Transnational criminals as members of illicit websites and forums abuse APS(s) to buy / sell stolen data, contraband, and cybercriminal services and tools. According some reporting, global money laundering schemes are estimated at 2 to 5% of global GDP, or roughly $1-2 trillion annually and estimated in the United State at $300 billion in illicit proceeds.
According to U.S. Secret Service testimony on the risks of virtual currencies, cybercriminals are always looking for alternative payment systems that offer anonymity for both users and transactions; ability to move illicit proceeds quickly internationally; low volatility, which results in lower exchange risk; widespread adoption in the criminal undergrounds; and ultimately trustworthy and reliable systems.
Although enforcement has been challenging, U.S. and international law enforcement along with regulators have had some wins in recent years to combat money laundering evolving in alternative payment systems.
Challenges going forward with alternative payment systems are still many. As money service businesses (MSBs), they are subject to the Bank Secrecy Act’s (BSA) and are required to: register with the Treasury Department; develop an effective anti-money laundering (AML) program; file Currency Transaction Reports for transactions that exceed $10,000; and file Suspicious Activity Reports (“SARs”). Additionally, MSBs under the USA PATRIOT Act are required to have “know your customer” (KYC) programs in place. Not complying with these requirements, MSBs run the risk of being abused and face steep civil and criminal consequences. However, the greatest risk is that they face is becoming unwitting participants in criminal underground economies which are behind and responsible for the daily data breaches occurring around the world.
Disrupting or degrading the financial infrastructure of transnational cybercriminals has been the strategic goal of federal and international law enforcement. However, in the future a more concerted effort is required to build stronger public-private partnerships between MSBs, security companies, and law enforcement to dry up these growing international money pipelines and bringing to justice those responsible.