As consumer buying habits move from the physical world to cyberspace, concerns are being raised in some quarters that criminals will seize emerging Internet payment media as a means of laundering the proceeds of their nefarious deeds.
Digital cash, warn some experts, poses a threat to every government agency in the world involved in the war on drugs and anti-money laundering activities. If not today, as electronic cash systems are popularized, criminals could be lured easily by the instantaneous and potentially anonymous means by which illicit funds could be moved, domestically or internationally. "Should electronic cash ever amount to much, it would be trivial to do all sorts of criminal-type activities as far as money laundering goes," says Charles Watt, chief scientist of Atlanta-based Security First Technologies. Criminals armed with an e-cash account and a computer, he says, could initiate thousands of small-dollar purchases within minutes, which could then be discounted for "clean" cash.
But not everyone agrees. "I just don't see it yet," says Richard Insley, vp of Richmond, VA-based Signet Banking Corp. The Internet certainly provides a means through which criminals can coordinate plans, even money laundering schemes. But to expect that drug smugglers and other criminals would convert greenbacks to digital cash and then shop around the Web for small-dollar items that could be reconverted back to cash, at a discount, is unrealistic, he says. It would be far more efficient to pack up cash in suitcases and smuggle it out of the country, argue nay-sayers, or to break the money up into a few dozen international wire transfers.
Nevertheless, money laundering is big business. No one can say precisely how much dirty money is laundered through the international payments system each year, but most experts agree the amounts tally to hundreds of billions of dollars. Internet commerce, on the other hand, remains relatively meager by comparison. New York-based research firm Jupiter Communications predicts that on-line commerce will be a $7.3 billion market by 2000; about half of that business will be transacted using smart cards, e-cash and e-checks. Jupiter estimates that, by the turn of the century, 80 percent of all on-line transactions will fall below the $10 price range and that half of those transactions will be covered using e-cash. "Right now, there is so little money in these types of systems," says Anne Friedman, a Chase Manhattan Bank vp who serves as vice chair of the National Automated Clearing House Association's Internet Council. "Until you actually have proliferate use of this kind of currency, you won't have any money laundering problems." Even then, it could be a stretch to expect crooks to shift their focus to e-cash. "Criminals like inefficiency," she says. "And these (e-cash systems) are very efficient systems."
The federal government isn't yet sounding any alarms over prospects that e-cash systems will become conduits for money laundering. "To our knowledge there isn't any money laundering going on" through these new payment media, says Carolyn Savage, a spokeswoman for the Financial Crimes Enforcement Network (FinCEN), a U.S. Treasury Department agency.
But FinCEN is keeping tabs on developments in electronic cash, with an eye toward money laundering possibilities. Earlier this year, the agency and its counterparts in two dozen other countries, known collectively as the Financial Action Task Force, began meeting with e-money experts to get a handle on how these emerging technologies will effect the war on money laundering.
In the U.S., money laundering rules focus primarily on cash transactions. Federal law requires banks to file special reports with the Treasury detailing cash transactions by a lone customer totaling $10,000 or more a day. Banks also are required to keep records on international wire transfer customers, and customers buying large numbers of official checks with cash.
Many of the e-money systems now under development can likewise provide audit trails of transaction activity, while simultaneously assuring users a modicum of anonymity, says Richard Crone, vp and general manager, CyberCash Inc. "To mitigate the risk of money laundering, you have to have the active controls and compensating controls of a financial institution," he says. With the CyberCash and Mondex products, for example, active controls are established by limits on how much cash can be loaded onto the instruments, typically about $100. Compensating controls kick-in later, allowing providers to review all of a user's transactions over the course of a day to see if, for example, those transactions total $10,000. "Just as banks serve as guardians at the teller station," he says, "they can be guardians on the Net, if the electronic cash process involves the bank."