Cyber Laundering: A Nuclear way of Money Laundering

Modern IT society is focused on the everyday use of digital technology, wireless networks, mobile phones, and other technological facilities. In contemporary society, information technology is commonly used not only in the workplace but has reached virtually every field of human life. This technology reveals new strategies in the modern world for the laundering of crime proceeds. Today cybercrime is taking on an unprecedented scale. Every day more and more people are seeking to legalise their incomes through crime in various ways.

Introduction

Nowadays, criminals are trying to find new ways of money laundering to cover illicit sources of income and thus have a strong influence on the state's economic growth. The income legalisation process is of great importance, as it enables criminals to use the money illegally obtained without disclosing their source. There are several sources of benefit from crime: illicit arms sales, smuggling, and organised crime activities like, drug trafficking and prostitution.

The proliferation of modern information technologies offers a comprehensive application of computer technology and communications, automation and process optimization in all sectors of life, placed together by intertwining economies and infrastructure state boundaries. A single global information space has been developed in which everyone can access information, manage their properties, and enter into agreements without any personal interaction anywhere in the world. On the other side, the room for knowledge becomes a location and an instrument of a crime.

The key tools of a thief are a computer and access to information and communication networks, where he uses illicit electronic means and computer viruses to get complete access to bank accounts, databases and automatic control systems.

Cybercrime is becoming a global concern. Moreover, emerging technologies make it possible for offenders to be invisible, and rapid proliferation leads people to become involved in this illicit activity. According to the statistics, the Internet is used by around 40 percent of the world’s population (around 2.5 billion people), and the number of Internet users is increasing regularly. There will be around 1.5 billion people accessing the Internet over the next four years. The Internet's popularity is obvious because the consumer who works in the knowledge world has several possibilities – access to information 24 hours a day; easy contact with other users, performing trade, banking and exchange.

Moreover, though investigative acts, essential information for using it as evidence is difficult to identify, erase, and record. Compared to other forms of crime, there are distinctive characteristics and substantial profitability of crimes in the field of legalisation and alcohol smuggling, which is a major "advantage" of this type of offence.

What Is Cyber laundering?

Money laundering is the main practice that the cybercriminals pursue to cover their black money with which they get courtesy in financial frauds in which they are involved. In today's world money is typically not in hand cash, but rather the electronic media that we use to hold or move money. Laundering in this context is thus considered to be cyber laundering. It assists in the illegal acquisition or transfer of assets. Cyber laundering is ultimately conducted in three steps: Placement of funds, i.e. when illegal money is placed through a financial institution, stolen funds electronically via digital transactions; layering, i.e. transferring funds inside the financial system and through unregulated financial e-cash systems; Integration; i.e. eliminating funds from the financial system altogether.

When a large sum of money is introduced into a financial system, they have to be transferred from one location to another in order to escape any doubt. This approach is essentially implemented in a variety of ways, such as offshore accounts, i.e. financial institutions, trusts, companies etc. in foreign countries or territories where the rules on bank secrecy are very strict. These entities do not disclose where the funds came from; the Anonymous Shell Accounts, i.e. the corporation, bank, or organization that does not run a real business. Basically, these accounts are used to conceal and transfer funds and evade taxes. These accounts hide the identity of the recipients, and it is very difficult for law enforcement authorities to access the company records; Money Mules, i.e., these are the individuals who collect and pass funds illegally obtained for others, and they get commissions for such work. They help cybercriminals cash out compromised accounts; unregulated financial services, i.e. companies for which there is no proper control, such as stored-value cards that allow electronic money to be put directly on card and used, casinos do not always comply with regulatory requirements and help to transfer illegal funds, and there is an underground network of money dealers.

Cyber laundering: An Analysis of Typology and Techniques

There are also different types of term cyber payments entail. This may include:

❖ Online Payment Systems

Companies provide the so-called electronic cash or e-cash services to their customers. It is kind of a replacement for physical cash. Usually they are fitted with software that stores value on computers (marketers and consumers) of their clients. This stored value can be exchanged between personal computers via the Internet, in order to buy and sell products or services.

❖ Stored Value Cards

Often known as the "smart cards" or e-purse; these cards are plastic items, usually the size of a credit card. They include a microchip (a memory chip) that can be encoded to a value. Using a system that can pass the value directly, these cards can be loaded (or added value) via automatic teller machine, properly equipped telephones, personal computers, and other stored value cards. But the device does depend on the number of possibilities. They are potentially programmable to store billions of dollars. Many existing stored value card systems, however, set a cap on the value that can be loaded onto any individual card. Smart cards can facilitate the transfer of illicit funds to the launderer without detection by law enforcement and financial institutions. Since the cash value is deposited on the invoice, the seller doesn't need to call up a bank or credit card company to seek approval for the transaction.

❖ E-Commerce

Via a legal payment processor, the perpetrators will use e-commerce as a 'washing machine' for their dirty money. There was a suggestion, for instance, last year that an ISIS member in the US transferred their dirty money to sell computers on eBay. The suspect collects payment of foreign transactions through a PayPal account.

E-commerce is also used by credit card scammers as a 'washing machine.' The perpetrators leveraged Airbnb services with the aid of account holders and homeowners (host) to launder the dirty money they get from credit cards. The perpetrators booked a host room and paid it out with a credit card. Later the host will give them back the money from the payment.

❖ Digital currency

Washing illicit money with digital currency or blockchain is more difficult than the traditional way, but the criminals may get better anonymity to hide the source of the money so that the authorities do not track it down.

There are two ways in which the perpetrators put dirty money into the cryptocurrency system that exchange fiat money with cryptocurrency through a bank account in a digital exchange (CoinBase, Bitstamp, Kraken or others accepting fiat currency) or exchange it with a debit or credit card via a Bitcoin ATM. Generally speaking, trade-in digital exchange is preferred, because Bitcoin ATMs typically enforce Anti-Money Laundering (AML). In practice, when opening an account in digital trading, the perpetrators usually pay intermediaries who have a clear track record for verification.

The primary currency (Bitcoin, Ethereum or Litecoin) is the purchased crypto-currency via digital exchange. The primary currency sadly implements a blockchain framework that stores audit trails of transactions. In order to hide the audit trail and achieve anonymity in the transaction, the perpetrators conduct a variety of "layers" that include swapping major currencies with altcoins (alternative coins that do not maintain audit trails) and using "coin mixers." The currency deposited in cryptocurrency would eventually be redeemed in fiat form wherever and whenever.

❖ Online games

Online games could be used as a practice mode for money laundering. A few years ago, Sony Online Entertainment noticed one of its users transferred significant sums of money from an account in the US to the one in Russia via online games with the style of purchasing several virtual objects that are uncommon and difficult for users to acquire.

❖ Crowdfunding

Crowdfunding sites are readily available, user-friendly and have not yet widely introduced anti-fraud and AML programmes, making it a perfect place for the perpetrators to launder their dirty money. A criminal, for example, will make a fake campaign and "donate" the money to the campaign and cash it out later. The bank would most likely report the money as a legitimate transaction, since it comes from the payment for crowdfunding.

❖ Digital solution

Digital technology opens up doors for financial crime offenders to facilitate their acts, but technology also provides ways to resolve them. In the digital age, artificial intelligence is the front liner in fighting financial crime, including money laundering. The artificial intelligence-based AML (Anti-Money Laundering) solution lets analysts automate the process of scanning, mapping and linking the activities of companies or individuals that have been identified as fraudulent.

❖ Online Auctions

Another company which can be useful to launderers is the selling of the auction. It is a thriving Internet industry. It enables its registered users to position products on a sale or to purchase certain products. Also there are auction platforms providing some basic financial services. They do it for purposes of protection for people buying and selling items. The buyer shall send money to the bank account of the company and the seller shall give the item to the buyer. If all is "all right" and the item is exactly as the seller promised, then the company will give him / her money. It also gives the appearance of licit business practises to the entire operation as it includes a respectable auction firm and its bank account. Since this is the auction price, there are no restrictions and the Smurf will bid up and up. The higher the price actually is, the more legitimate presence the dirty money gets.

Measures Government of India took to curb money laundering

❏ Criminal Law Amendment Ordinance (XXXVIII of 1944): it protects only the proceeds of such offences such as corruption, breach of confidence and cheating and not all the offences under the Indian Penal Code.

❏ The Smugglers and Foreign Exchange Manipulators (Forfeiture of Land) Act, 1976: It includes the punishment of smugglers' and foreign exchange manipulators' unlawfully obtained land and for matters connected with it and incidental to it.

❏ Narcotic Drugs and Psychotropic Disorders Act, 1985: It provides for the prosecution of property obtained from or used in the illicit narcotic drug trade.

❏ Prevention of Money-Laundering Act, 2002 (PMLA):It forms the foundation of India's legal structure for combating Money Laundering.All financial institutions, banks (including RBI), mutual funds , insurance companies and their financial intermediaries are subject to the provisions of this Act.

❏ PMLA (Amendment) Act, 2012:Adds the 'reporting agency' definition which would include a banking business, financial institution, intermediary etc.PMLA, 2002 levied a fine up to Rs 5 lakh but this upper limit was abolished by the amendment act.It has made provision for the temporary attachment and confiscation of any person engaged in such activities.

❏ Financial Intelligence Unit-IND: It is an independent body which reports directly to the Economic Intelligence Council (EIC) headed by the Minister of Finance.

❏ Enforcement Directorate (ED):It is a law enforcement agency and economic intelligence agency in charge of enforcing economic laws in India and combating economic crime.One of ED's key duties is to prosecute money laundering crimes under the 2002 Prevention of Money Laundering Act (PMLA) provisions. It can take steps such as property confiscation if the same is found to be the proceeds of a Scheduled Offence under PMLA and prosecute the persons involved in the money laundering offence.

Global efforts to combat Money Laundering:

❏ The Vienna Convention: It establishes a duty for signatory states to criminalise the laundering of money from drug trafficking.

❏ The 1990 Council of Europe Convention: It defines a collective criminal policy on Money Laundering.

❏ The International Organization of Securities Commissions (IOSCO): It urges its members to take appropriate action in the stock and futures markets to prevent money laundering.

❏ The Financial Action Task Force:It was founded by the G-7 governments at their Economic Summit in 1989, and has members from 24 OECD countries

❏ The European Commission: It monitors progress of members in implementing counter-money laundering measures.

Steps Taken by the Government

In order to deter such crimes and to speed up investigations, the central government has taken measures to raise awareness of cybercrimes, the problem of alerts/advisories, capacity building/training of law enforcement personnel/prosecutors / judicial officers, enhancing cyber forensics facilities etc. In order to enable complaints, the government has launched the online cybercrime reporting portal, www.cybercrime.gov.in. A scheme for the establishment of the Indian Cyber Crime Coordination Centre has been initiated by the Central Government to deal with cybercrime problems in the country in a systematic and organised way. According to the Constitution of India, 'police' and 'public order' are state subjects. States / UTs are largely responsible, through their law enforcement machinery, for the prevention , identification, investigation and prosecution of crimes. Law enforcement authorities take disciplinary action against cyber criminals in compliance with the rules of the law. In addition, several measures to avoid and minimize cyber security incidents have been taken by the government. They include:

1. Establishment of a National Security Centre for Critical Information Infrastructure (NCIIPC) to secure the country's critical information infrastructure.

2. All digital services companies have been required to disclose cybersecurity incidents expeditiously to CERT-In.

3. The Botnet Cleaning and Malware Analysis Centre (Cyber Swachhta Kendra) has been launched to provide malicious software identification and free tools for removing such programmes.

4. Issuance by CERT-In of notices and advisories on cyber threats and countermeasures.

5. Issue guidance on the main roles and responsibilities of Chief Information Security Officers (CISOs) in protecting software/networks and enforcement.

Conclusion

If you match the "traditional" money laundering and cyber laundering, the latter focuses on using different kinds of money services and providers. They offer cash withdrawals, bank transfers, and e-money. As a rule, the chain ends with transactions where "money mules" used cash, where the conventional payment system could be used. If online transfers are included in the billing process, the funds may be anonymously transferred to the email and sent to another State. It is considered quite a challenge for law enforcement agencies to detect and track suspicious cash flows.

In this regard, it is possible to effectively combat the legalisation of illicit income and to reduce the level of crime in this area to the prompt detection of financial activities that can be correlated with money laundering obtained in the field of cybercrime. So the government needs to take proper steps to prevent this crime.