NEW YORK, May 23 (UPI) -- Emerging digital technologies to move money instantaneously and anonymously open up new possibilities for criminals and terrorists, while regulatory and law-enforcement agencies are limping far behind.
On May 3, at the release of the 2007 Money Laundering Strategy, the U.S. Treasury spokesperson was pleased to note: "Focusing on well-established money laundering methods and emerging trends identified in the Assessment, we have created a robust strategy for combating money laundering, deterring criminals, and addressing areas vulnerable to exploitation."
Yet the latest digital advances open to criminals and terrorists -- mobile phones or other mobile devices to secretly transfer money globally, or M-payments; gambling; and transfer of virtual money through online role-playing games, or RPGs -- are missing from this long-awaited government strategy.
The fast-growing pace and value of the virtual economy led the Congressional Joint Economic Committee to study the possibility of taxing virtual assets generated by online role-playing games, thus raising a myriad of issues: What method of valuation will apply? How will fair market value be determined? Where does the tax instance arise in cyberspace? What part of the goods and services are subject to state tax? How does one levy and enforce the tax in cyberspace? What tax provisions will apply for international transactions?
While the United States banned online gambling in October 2006, it has no regulations whatsoever to control specifically the use of mobile phones for gambling online. And no country, including the United States, regulates online role-playing games, which in 2006 had more than 14 million subscribers, generating more than $1 billion in revenues ($576 million in North America and $299 million in Europe).
This virtual world of role-playing games presents a number of challenges to U.S. law enforcement. First and foremost, no specific laws apply to it. Second, by virtue of its anonymous and virtual nature, it is nearly impossible to track real money deposited into and cashed out of the game. Third, the challenge of identification is compounded by the fact that neither players nor recipients are subject to any rigorous due diligence beyond the disclosure of an e-mail address, and even that can be spoofed. Fourth, there are no limits on the amount of money -- real or virtual -- that may be used in the game. Furthermore, since there are no clear jurisdictions, violations of laws are hard to prosecute.
Moving funds from one criminal/terrorist to another can work like this: A criminal/terrorist using fake IDs opens a virtual account in an online game. He then deposits real money via an ATM into his virtual account. With his virtual currency he buys virtual real estate from his co-conspirator and transfers virtual payment for the property to the seller's virtual account. The seller then converts the virtual currency into real money and withdraws it from an ATM.
Already in 2001, the Financial Action Task Force noted that "Internet-based gambling operations can also act as a haven for illegal cash-washing operations." Indeed, a few criminal cases have been prosecuted by the Justice Department for laundering hundreds of million of dollars worth of Internet gambling wagers. But the new mobile technology now allows criminals and terrorists operating through remote gambling accounts to store funds until they can be safely transferred into legitimate accounts of businesses or charities.
Asked about the lack of appropriate measures to counter this problem, U.S. Financial Crimes Enforcement Network spokeswoman Anne Marie Kelly told Brett Wolf, an anti-money laundering consultant with Complinet Inc., on May 7, "The bureau is aware of the laundering and terror finance risks posed by emerging payment technologies ... (and have) an ongoing dialogue with the industries involved ... to study and work with (them) in order to provide the law enforcement community with guidance on how these systems operate and the money laundering challenges they may present." However, she did not say how long this "study" will take, or what FinCEN will do in the meantime to control this problem.
Director of National Intelligence Michael McConnell's call to include future technological advances within the scope of the updated 1978 Foreign Intelligence Surveillance Act is crucial for our national security. Congress and/or Treasury should also initiate a law requiring the communications industry to design adequate real-time tracking and blocking mechanisms in each and every cellular phone or mobile device to prevent criminals and terrorists from transferring funds freely and anonymously.
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John Wood, the president of The Playfair Group, and a Senior Fellow at the ACD co-authored this article.
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