Archive for November, 2006

Nigerian scams. How much do they cost UK?

Sunday, November 26th, 2006

On November 15, 2006, a report from the Chatham House was published to reveal that Internet scams, credit card fraud, immigration and identity paper fraud, corruption of both Nigerian officials and British companies as well as money laundering operations of Nigerian origin cost Britons millions of GBP a year. The report by Michael Peel is called Nigeria-Related Financial Crime and its Links with Britain. 

The report finds that Nigeria-related financial crime has become a big and serious problem for the British authorities. In accordance with Michael Peel, the problem has become so crucial that Nigerians in Britain can be seen as corrupt.  

The British often associate Nigeria with the country distributing scams when people are offered the opportunity to earn millions of USD by e-mail. The recipients are promised to earn a commission if they help the sender to transfer funds. Victims have to send bank details or cash, and then their bank accounts are stripped. However, not all the frauds are the same – often they are very inventive. Victims have even been offered the possibility to benefit from a share of Saddam Hussein’s family savings and money stolen from the World Trade Center after the 9/11.

An analysis by Dutch-based consultancy Ultrascan came to the conclusion that the total losses from fraud scams to British companies and private persons in 2005 were USD 520 million. As to the USA, it lost USD 720 million in 2005 (not only because of scams from Nigeria).  Nigeria is also becoming a center for “phishing” attacks, i.e. kind of identity theft when people get e-mails, purportedly from their banks, that ask victims to send their account details and PINs. 

The report concludes that Britain and Nigeria must work closer and co-operate if to overcome such a huge problem.

Does Money Laundering Affect me, too?

Wednesday, November 22nd, 2006

Does Money Laundering Affect me, too? Yes, it does. Some people are used to consider pickpocketing, hijacking, theft etc. to be a real crime as it is physical and affects a victim directly. As to money laundering it is often much more abstract than pickpocketing or hijacking, and it could sometimes seem victimless.

However, this is just an illusion. Financial crime affects everyone. Its effect is not as directs and obvious, but it is essential.

Tax evaders do not pay taxes. Does it affect me? Yes, it does. It leads to increased tax rates for those who are honest tax-payers. So, you are the victim.

Insurance fraudsters dishonestly get insurance money. Does it affect me? Yes, it does. It leads to increased insurance policy premiums for those who do not cheat insurance companies. So, you are the victim again. Health and property insurance premiums get more and more expensive. For example, the average American household every year pays 1030 USD a year as a result of insurance fraud – so covering sb’s crime with your money.

These are just some effects. Money laundering results higher costs to businesses, higher prices to consumers, higher cost of living in all the spheres of activity, flows of money going to corrupt politicians, sponsoring drug and human trafficking and terrorism financing. So, the results of money laundering can be enormous and disastrous and victims of it are uncountable. Money laundering does matter, because it complicates everybody’s life.

Money Laundering vs. Terrorist Financing

Saturday, November 18th, 2006

As you might have noticed, money laundering and terrorist financing often go hand-in-hand and are often taken together. Many organizations and institutions deal both with money laundering and terrorist financing as if they were synonymic and required for similar approaches.

In a way, this is so as both are about moving funds and both are criminal activities having criminal goals. As to amounts, they are quite large, but still, money laundering is considered to have enormously large amounts. Also, investigating money laundering and terrorist financing is often about picking up bit and pieces to get a full picture.

However, they differ in many ways.

So how are money laundering and terrorist financing different?

Let us start from the very beginning – this is where they originate. Money laundering is a process that legalizes illegal source. Terrorist financing, in its turn, is a process that often has a legitimate origin.

Also, the strategies and approaches to anti-money laundering and counter-terrorist financing cannot be exactly the same because when money is laundered, financial institutions know more than government, but when terrorism is financed, government knows more than financial institutions.

So, although money laundering and terrorist financing have much in common they should not be treated as one tendency.

Policing financial cybercrime

Tuesday, November 14th, 2006

The Financial Action Task Force (FATF)described previously is developing its recommendations for international regulations aimed at combating financial cybercrime or online money laundering.

Cybercriminals laundering money via the Internet have a wide variety of tools at their disposal. If governments do not take action in policing efforts, they will just perfect their skills. In general, this is the essence of the warning issued in a new report by the FATF.

The FATF study highlights the risks of criminal exploitation of new payment methods. What are they? Among other methods, cybercriminals use cards that let users store funds via memory chips, so-called e-purses or e-wallets, and Internet payment services operating outside traditional banks or credit card companies. The biggest online payment brokers are eBay’s (EBAY) PayPal and Neteller (NTLRF). it goes without saying that online payment services are in many ways useful and convenient to customers. But e-purses and Internet payments are of particular concern to the The Financial Action Task Force as far as they often let users anonymously open accounts online. All that is usually needed is a credit card, bank account number, money wire service, or a long-distance calling card.

The FATF considers that Internet payments should become more transparent and easily traceable as e-wallets can facilitate anonymous transactions used for laundering money or financing terrorism. As to Internet payment services, their presence on the Internet has increased in the past several years. It is known that since 2001 the 12-billion-a-year Internet gambling industry has been relying on online payments.

One of the issues the FATF will explore in upcoming months is differences in regulatory policies on Internet payments. Once it develops recommendations, countries can choose whether to adopt them or not. However, those that do not adopt them can be ousted from the organization for failing to adopt stringent anti-money-laundering policies. Till now, e-purses and other new Internet payment services have not been the subject of money laundering investigations by the FATF.


Friday, November 10th, 2006

Smurfing and structuring are the terms often encountered in the context of money laundering. These are banking terms used to name the breaking of one big financial transaction into many smaller ones in order to avoid being reported to the government.

Smurfing is done to avoid the suspicions from regulators or law enforcement. Laws usually require filing reports of transactions above some particular limit. In the United States, for example, the Bank Secrecy Act requires reporting currency transactions of 10 000 USD or more. Therefore, criminals often use couriers to make transactions that are below the particular limit and, accordingly, will not be reported to the government. The couriers used to make these transactions are usually called smurfs.

However, if financial institutions are suspicious of structuring deposits of possibly “dirty” money, they are to file a report. If one knowingly and willfully transacts below the defined limit, he/she can and must be convicted of structuring. It means that one is punished if the government can prove that he/she knew that the financial institution is required to file transaction reports and that splitting transactions into many transactions below the limit will let him/ her avoid these reports. However, if there are many smurfs making transactions, it is quite difficult to prove the fact of smurfing.

One of the last cases of smurfing happened in the USA in May, 2006, when a naturalized US citizen from Bangladesh Mohammed Khurshan pleaded guilty to do a remitting business without a license and to fraud. He had sent more than 900 000 USD to a Singapore company in parts just below 10 000 USD – the limit at which banks are required to report the transactions to the US Treasury Department.

Adopting anti-money laundering law in China

Monday, November 6th, 2006

On October 31, 2006, China adopted an anti-money laundering law to broaden the definition of money-laundering crimes – not they include bribe-taking.

Before this, the anti-money laundering law defined drug trafficking, organized crime, terrorist crimes and smuggling as money laundering crimes, while corruprtion and bribe-taking, violating financial management regulations and financial fraud were not identified as money laundering.

Drafting the anti-money laundering law began in 2004.

The new law is to come into effect on January 1, 2007. In accordance with it, financial and some non-financial institutions will be required to maintain records on clients and transaction records and to report large and suspicious transactions. The People’s Bank of China, or central bank, is the centre of the anti-money laundering campaign; its branches are empowered to investigate suspicious fund transfers of financial institutions. The new law will provide a legal basis for checking the flow of cash of corrupt officials.

Also, the law is expected to help facilitate China’s application to the Financial Action Task Force discussed previously. China became FATF observer in 2005. The law also plans to exchange information with overseas anti-money laundering organizations in order to combat global money laundering.

Anti-money launderer’s top catch

Thursday, November 2nd, 2006

On October 27, 2006, Australian investigators announced the largest prosecution of money laundering in Australian criminal history, having smashed a crime syndicate and having crippled 5 other gangs. The whole investigation took 17 months.

In 3 days, a taskforce led by the Australian Crime Commission (ACC) has charged 57 people who purpotedly laundered USD 93 million and carried out for drug deals and other crime. detectives seized about USD 30 million worth of heroin, ice and cocaine, five guns, nine vehicles aa well as more than USD 2 million in cash.

ACC chief executive Alistair Milroy says the taskforce was established in March 2005 in order to investigate the money laundering activities of various crime syndicates. The taskforce includes Australian Federal Police (AFP), Australian Customs Service, Victoria and NSW Police, Australian Taxation Office, NSW Crime Commission and AUSTRAC.

The investigation was successful and uncovered a alleged principal money laundering syndicate by means of which criminals had sent their money overseas to legitimise it.

While monitoring this money laundering syndicate, detectives succeeded to identify at least 5 other criminal gangs involved in money laundering and drug trafficking.

It is worth repeating that this was the largest ever prosecution of money laundering in the history of Australia, which proved a successful approach to tracing down organised gangs.