Ghost Laundering (Part 2): Transaction Laundering’s Online Twin Grows in Popularity

Topics: Corporate Legal, Financial Crime, Fraud, Fraud & Anti-Money Laundering (AML) Blogs, Government, Government Regulation, Risk Management

ghost laundering

As we described in Part 1 of this blog series, ghost laundering is a growing concern among online consumer companies; however, ghost laundering transactions are not limited just to gaming and online retailers.

Service providers like Uber and Airbnb have been investigating reports of their platforms being leveraged to laundering money through ghost laundering for rides or venue stays which never took place. Uber reported an average of $13.36 per ride in 2015 and Airbnb an average of $160.47 per stay, but these numbers are entirely subjective.

Much like the value of beef, butter, electronics, or an in-app purchase, the true value of a rental property is highly complex and subject to factors which cannot be objectively indexed in the same way as other commodities. Thus, ghost laundering grants a criminal the ability to leverage a fictitious “weekend getaway” and some “rides” to and from said accommodations, multiple times per day and in multiple locations throughout the world, simultaneously.

There are websites that allow for tradespersons to sell services like graphic design, digital marketing, or editorial work, at a value of anywhere from $10 to $6,000 per engagement. There is no way to validate whether the payment for those services rendered were actually for any supplied service or actual product. Even if challenged, a service provider could send over stock designs and there would be no way to validate that the service exchange was not legitimate.

Names of the Ghost-Laundering Games: Necessity, Diversity & Concurrency

But why would a launderer focus on only a few hundred or a few thousand dollars at a time through online vendors and services when there are literally billions in drug money floating around? Necessity, diversity, and concurrency.

As financial institutions and other covered entities enhance scrutiny on clients and how those clients use their accounts, criminals must find new paths through which to launder funds while diversifying the way they earn money concurrent to crimes like drug trafficking and fraud.

These avenues allow for the placement and layering of funds, as easily as they allow for formal and informal value transfer. Unfortunately, these criminals are forced to get creative and, not being limited by laws or ethics, ultimately will find any crack in the pavement.

If, for example, $10,000 was owed for the purchase of drugs, then $1,000 could repaid and laundered as “editing fees” and “illustration” on a gig-based website. Another $500 could be laundered as “self-publishing” fees. Then, $7,000 could be repaid from the fictitious book’s sales and another $1,500 repaid from the sale of counterfeit goods using a different merchant. If this scheme was duplicated 10 times per day on 10 different online platforms the result would be $1 million laundered without ever stepping foot into a bank. The money could then be parsed out via virtual currency and used at merchants which accept those currencies for payment, or just as easily transferred, or moved onto stored value cards or other value transfer systems.

Detection

Common practice suggests that the majority of transaction monitoring alerts, industry wide, are false positives. Thus, rather than rely on monitoring across client- and transaction-typologies, it might be more worthwhile to examine how to leverage data analytics to detect this type of scheme. Points for comparison could potentially include:

  • Examining the volume of online sales or services within high-intensity crime- or drug-trafficking jurisdictions, while focusing on specific merchant types listed in geographic targeting orders (GTOs);
  • Analyzing comparative sales volume of online sales or services within markets for unusual variations in income or expenditures;
  • Reviewing personal accounts for a preponderance of merchant transactions crediting the account for apparent sales with no apparent business purpose;
  • Examining for apparent pay-through account activity where the transaction includes online merchants and transfers of funds in the same amount;
  • Multiple concurrent transactions across or within the same jurisdiction within a narrow time frame;
  • Keeping in mind that many online vendors are in fact shell companies, examining for missing registration documentation or multiple-shared identifiers (address, phone, email, etc.) across retail or small business accounts, as well as unexplained transfers between those entities; and
  • Multiple businesses with similar, iterative variations of identifiers such as sequential tax identification numbers, or iterations of the business owner name.

The Conversation Continues

Money laundering is an ever-evolving crime. Keeping in mind that the above are recommendations as a starting point, it would be necessary for any investigative entity to tailor those parameters to both the size and complexity of their institution and their products or services.


To read more from expert Michael Schidlow, see his five-part series, Counterfeit Goods: Money-Laundering in Plain Sight and Public-Private Partnerships & Information Sharing in Fighting Financial Crime.