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==Part I ''Humble Beginnings''==
==Part I ''Humble Beginnings''==
In the beginning, laundering money was a physical effort. The art of concealing the existence, the illegal source, or illegal application of income, and then disguising that income to make it appear legitimate<ref>For a good background on money laundering see Sarah N. Welling, Comment, ''Smurfs, Money Laundering and the Federal Criminal Law'', 41 Fla. L. Rev. 287, 290 (1989).</ref> required that the launderer have the means to physically transport the hard cash.<ref>In this article, "hard cash or currency" refers to any non-Internet-based money. As an illustration of hard cash, a suitcase filled with $1million worth of $20 bills weighs more than 100 lbs. ''See'' Business Week, ''Money Laundering'', March 18, 1985.</ref> The trick was, and still is, to avoid attracting unwanted attention, thus alerting the Internal Revenue Service (IRS) and other government agencies<ref>The United States Department of the Treasury has created a technology-based law enforcement unit called Financial Crimes Enforcement Network (FinCen). FinCen has been delegated the job of oveerseeing and implementing policies to prevent and detect money laundering. ''See'' FinCen at URL: http://www.ustreas.gov/treasury/bureaus/fincen.facts.html.</ref> involved in searching out ill-gotten gains.<ref>While the profits from sales of illegal narcotics is the most common and widely publicized example of "dirty money," the gains from illegal gambling, prostitution, extortion, and essentially any illegal activity are a suspect classification. ''See'' H.R. Rep. No. 975, 91st Cong., 2d Sess. 11, reprinted in 1970 Code Cong. & Admin. News 4394, 4396.</ref>
In the beginning, laundering money was a physical effort. The art of concealing the existence, the illegal source, or illegal application of income, and then disguising that income to make it appear legitimate<ref>For a good background on money laundering see Sarah N. Welling, Comment, ''Smurfs, Money Laundering and the Federal Criminal Law'', 41 Fla. L. Rev. 287, 290 (1989).</ref> required that the launderer have the means to physically transport the hard cash.<ref>In this article, "hard cash or currency" refers to any non-Internet-based money. As an illustration of hard cash, a suitcase filled with $1million worth of $20 bills weighs more than 100 lbs. ''See'' Business Week, ''Money Laundering'', March 18, 1985.</ref> The trick was, and still is, to avoid attracting unwanted attention, thus alerting the Internal Revenue Service (IRS) and other government agencies<ref>The United States Department of the Treasury has created a technology-based law enforcement unit called Financial Crimes Enforcement Network (FinCen). FinCen has been delegated the job of oveerseeing{{sic}} and implementing policies to prevent and detect money laundering. ''See'' FinCen at URL: http://www.ustreas.gov/treasury/bureaus/fincen.facts.html.</ref> involved in searching out ill-gotten gains.<ref>While the profits from sales of illegal narcotics is the most common and widely publicized example of "dirty money," the gains from illegal gambling, prostitution, extortion, and essentially any illegal activity are a suspect classification. ''See'' H.R. Rep. No. 975, 91st Cong., 2d Sess. 11, reprinted in 1970 Code Cong. & Admin. News 4394, 4396.</ref>


In what could be described as the "lo-tech" world of money laundering, the process of cleaning "dirty money" was limited by the creative ability to manipulate the physical world. Other than flying cash out of one country and depositing it in a foreign bank with less stringent banking laws,<ref>Traditional non-U.S. hotspots for laundering include, but are not limited to, Switzerland, Panama, Bahamian Islands and Luxembourg. However, recently, even the Swiss have been turning away deposits from suspected illegal gains. ''See Swiss bankers changing rules'', St. Pete. Times, Oct. 10, 1995, at 17A & 24A.</ref> bribing a bank teller, or discretely purchasing real or personal property, the classic approach was for a "smurf"<ref>Courriers{{sic}} who scurry from bank to bank to conduct multiple cash transactions under the $10,000 reporting limit. The name "smurf" is from the hyperactive blue cartoon characters that seemed to be everywhere at once.</ref> to deposit cash at a bank. Essentially, platoons of couriers assaulted the lobbies of banks throughout the United States with deposits under the $10,000 reporting limit as required under the Bank Secrecy Act.<ref>31 C.F.R. sect. 103.22(a)(1) (requirement that a currency transaction report (CTR) be filed for "transactions" of more than $10,000). The Bank Secrecy Act itself is contained at 18 U.S.C. sects. 1956-1957 (1970). It incorporates related statutes such as 31 C.F.R. sect. 103.22.</ref> The result was the formation of a serious loophole under the Bank Secrecy Act, allowing couriers almost limitless variables in depositing dirty money such as the number of banks, the number of branch offices, the number of teller stations at one branch office, the number of instruments purchased, the number of accounts at each bank, and the number of persons depositing the money.
In what could be described as the "lo-tech" world of money laundering, the process of cleaning "dirty money" was limited by the creative ability to manipulate the physical world. Other than flying cash out of one country and depositing it in a foreign bank with less stringent banking laws,<ref>Traditional non-U.S. hotspots for laundering include, but are not limited to, Switzerland, Panama, Bahamian Islands and Luxembourg. However, recently, even the Swiss have been turning away deposits from suspected illegal gains. ''See Swiss bankers changing rules'', St. Pete. Times, Oct. 10, 1995, at 17A & 24A.</ref> bribing a bank teller, or discretely purchasing real or personal property, the classic approach was for a "smurf"<ref>Courriers{{sic}} who scurry from bank to bank to conduct multiple cash transactions under the $10,000 reporting limit. The name "smurf" is from the hyperactive blue cartoon characters that seemed to be everywhere at once.</ref> to deposit cash at a bank. Essentially, platoons of couriers assaulted the lobbies of banks throughout the United States with deposits under the $10,000 reporting limit as required under the Bank Secrecy Act.<ref>31 C.F.R. sect. 103.22(a)(1) (requirement that a currency transaction report (CTR) be filed for "transactions" of more than $10,000). The Bank Secrecy Act itself is contained at 18 U.S.C. sects. 1956-1957 (1970). It incorporates related statutes such as 31 C.F.R. sect. 103.22.</ref> The result was the formation of a serious loophole under the Bank Secrecy Act, allowing couriers almost limitless variables in depositing dirty money such as the number of banks, the number of branch offices, the number of teller stations at one branch office, the number of instruments purchased, the number of accounts at each bank, and the number of persons depositing the money.
Line 11: Line 11:
In 1986, the Money Laundering Control Act (the Act)<ref>Money Laundering Control Act of 1986, Pub. L. No. 99-570, Title I, Subtitle H, sects. 1351-67, 100 Stat. 3207-18 & 3207-39 (1986) (codified as amended at 18 U.S.C. sects. 1956-1957 (1988 & Supp. V 1993)).</ref> attempted to close the loopholes in the prior law that allowed for the structuring of transactions to flourish.<ref>18 U.S.C. sect. 1956(a)(1) criminalizes structuring and attempted structuring of financial transactions so as to avoid reporting requirements. The reporting requirements are set forth in 31 C.F.R. sect. 103.22.</ref> In criminalizing the structuring of transactions to avoid reporting requirements, Congress attempted to "hit criminals right where they bruise: in the pocketbook."<ref>H.R. Rep. No. 855, 99th Cong., 2d Sess. 13 (1986).</ref> Under the Act, the filing of a currency transaction report (CTR)<ref>A CTR is a transactional report which ''may'' include the date and time of the transaction, the amount involved and certain information regarding the identity of the originator and the beneficiary of the transaction. ''See'' 31 U.S.C. sect. 5313 (1988); 31 C.F.R. sect. 103.22 (1988).</ref> is required even if a bank employee "has knowledge" of any attempted structuring.<ref>18 U.S.C. sect. 1956(a) (based upon the text, actual subjective knowledge that the money used in the transaction was derived from an unlawful source, rather than what should have been known is the standard to be applied). ''See'' 31 C.F.R. sect. 103.22(a)(1) (1988) ("Has knowledge" is defined as pertaining to that of a partner, director, officer or employee of a financial institution or on the part of any existing system at the institution that permits it to aggregate transactions).</ref> Thus, it appeared as if the ability to launder the profits from illegal activity would be severely hampered.
In 1986, the Money Laundering Control Act (the Act)<ref>Money Laundering Control Act of 1986, Pub. L. No. 99-570, Title I, Subtitle H, sects. 1351-67, 100 Stat. 3207-18 & 3207-39 (1986) (codified as amended at 18 U.S.C. sects. 1956-1957 (1988 & Supp. V 1993)).</ref> attempted to close the loopholes in the prior law that allowed for the structuring of transactions to flourish.<ref>18 U.S.C. sect. 1956(a)(1) criminalizes structuring and attempted structuring of financial transactions so as to avoid reporting requirements. The reporting requirements are set forth in 31 C.F.R. sect. 103.22.</ref> In criminalizing the structuring of transactions to avoid reporting requirements, Congress attempted to "hit criminals right where they bruise: in the pocketbook."<ref>H.R. Rep. No. 855, 99th Cong., 2d Sess. 13 (1986).</ref> Under the Act, the filing of a currency transaction report (CTR)<ref>A CTR is a transactional report which ''may'' include the date and time of the transaction, the amount involved and certain information regarding the identity of the originator and the beneficiary of the transaction. ''See'' 31 U.S.C. sect. 5313 (1988); 31 C.F.R. sect. 103.22 (1988).</ref> is required even if a bank employee "has knowledge" of any attempted structuring.<ref>18 U.S.C. sect. 1956(a) (based upon the text, actual subjective knowledge that the money used in the transaction was derived from an unlawful source, rather than what should have been known is the standard to be applied). ''See'' 31 C.F.R. sect. 103.22(a)(1) (1988) ("Has knowledge" is defined as pertaining to that of a partner, director, officer or employee of a financial institution or on the part of any existing system at the institution that permits it to aggregate transactions).</ref> Thus, it appeared as if the ability to launder the profits from illegal activity would be severely hampered.


As the physical world of money laundering began to erode, the tendency to use electronic transfers to avoid detection gained a loyal following. Electronic transfers of funds are known as wire transfers.13 Wire transfer systems allow criminal organizations, as well as legitimate businesses and individual banking customers, to enjoy a swift and nearly risk free conduit for moving money between countries.14 Considering that an estimated 700,000 wire transfers occur daily in the United States, moving well over $2 trillion, illicit wire transfers are easily hidden.15 Federal agencies estimate that as much as $300 billion is laundered annually, worldwide.16 As the mountain of stored, computerized information regarding these transfers reaches for the virtual stars above, the ability to successfully launder increases as the workload of investigators increases.17
As the physical world of money laundering began to erode, the tendency to use electronic transfers to avoid detection gained a loyal following. Electronic transfers of funds are known as wire transfers.<ref>A wire transfer is simply the transfer of funds by electronic messages between banks. U.C.C. Article 4A Prefatory Note (1991) defines a wire transfer as "a series of transactions, beginning with the originator's payment order, made for the purpose of making payment to the beneficiary of the order."</ref> Wire transfer systems allow criminal organizations, as well as legitimate businesses and individual banking customers, to enjoy a swift and nearly risk free conduit for moving money between countries.<ref>There are three major electronic funds transfer systems: (1) SWIFT: the Society for Worldwide Interbank Financial Telecommunication, is a Belgian-based association of banks that provides the communications network for a large number of international funds transfers, as well as intracountry transfers within the United States; (2) CHIPS: the Clearing House Interbank Payments System, is a funds settlement system operated by the New York Clearing House; and (3) Fedwire: the funds transfer system operated exclusively by the Federal Reserve System.</ref> Considering that an estimated 700,000 wire transfers occur daily in the United States, moving well over $2 trillion, illicit wire transfers are easily hidden.<ref>''See'' Office of Technology Assessment, Congress of the United States, Information Technology for the Control of Money Laundering, iii (1995) (OTA-ITC-630).</ref> Federal agencies estimate that as much as $300 billion is laundered annually, worldwide.<ref>Id. at 2.</ref> As the mountain of stored, computerized information regarding these transfers reaches for the virtual stars above, the ability to successfully launder increases as the workload of investigators increases.<ref>In 1994, the number of CTRs was approximately 10,765,000. The IRS, who is in charge of checking on suspicious transactions, does not have enough investigators to consistently check these reports. However, FinCen, in its desire to keep the IRS up to speed, is currently attempting to process every CTR by means of its artificialintelligence{{sic}} system. ''See'' Id. at 6-7.</ref>


Although wire transfers currently provide only limited information regarding the parties involved,18 the growing trend is for greater detail to be recorded.19 If the privacy of wire transfers is compromised, due to burdensomely detailed record keeping regulations,20 electronic surveillance of transfers, or other potentially invasionary tactics,21 then the leap from the physical to the virtual world will be nearly complete. If laundering is to survive it must expand its approach, entering the world of cyberspace.
Although wire transfers currently provide only limited information regarding the parties involved,<ref>''See supra'' note 11 for a brief explanation of the limited contents of a CTR.</ref> the growing trend is for greater detail to be recorded.<ref>As a result of the Money laundering Suppression Act of 1994, an additional form will be required for suspect transfers. If it currently cost a bank between $3 to $15 to file a CTR, the cost will only increase as additional forms are required. ''See'' Office of Technology Assessment, ''supra'' note 15 at 7.</ref> If the privacy of wire transfers is compromised, due to burdensomely detailed record keeping regulations,<ref>In addition to the information contained on a CTR, a financial institution may be required to retain either the original or a copy of both sides of the monetary instrument for a period of five years. 31 C.F.R. sect. 103.38.</ref> electronic surveillance of transfers, or other potentially invasionary{{sic}} tactics,<ref>"Using evidence from the first court-ordered wiretap on a computer network, federal agents have charged an Argentine student with hacking his way into the U.S. military and NASA computers." ''WiretapSnares Hacker Who Raided Defense Net'', Chicago Trib., March 29, 1996, at 1. (This could just as easily be performed on wire transfer system).</ref> then the leap from the physical to the virtual world will be nearly complete. If laundering is to survive it must expand its approach, entering the world of cyberspace.


While change is often a frighteningly awkward experience, for an enterprising criminal operation, that wishes to remain open for business, it is a necessity. As the above mentioned race through laundering history demonstrates, creativity, and not necessarily greed, has been the launderer's salvation. The recent explosion of Internet access,22 may be the new type of detergent which allows for cleaner laundry.
While change is often a frighteningly awkward experience, for an enterprising criminal operation, that wishes to remain open for business, it is a necessity. As the above mentioned race through laundering history demonstrates, creativity, and not necessarily greed, has been the launderer's salvation. The recent explosion of Internet access<ref>Twenty-five million Americans had Internet access in early 1995. ''See'' Legal Issues in the World of Digital Cash, ''available online at'' URL: http://www.info-nation.com/cashlaw.html/.</ref> may be the new type of detergent which allows for cleaner laundry.


==Endnotes==
==Endnotes==
These are essential to fully understand the article!
These are essential to fully understand the article!
<references/>
<references/>

Revision as of 19:34, 14 July 2015

Cyberlaundering: Anonymous Digital Cash and Money Laundering
Author(s)Bortner, Mark
Published1996

This article will explore the latest technique in money laundering: Cyberlaundering by means of anonymous digital cash. Part I is a brief race through laundering history. Part II discusses how anonymous Ecash may facilitate money laundering on the Intenet. Part III examines the relationship between current money laundering law and cyberlaundering. Part IV addresses the underlying policy debate surrounding anonymous digital currency. Essentially, the balance between individual financial privacy rights and legitimate law enforcement interests. In conclusion, Part V raises a few unanswered societal questions and attempts to predict the future.

Disclaimer:

Although the author discusses this subject in a casual, rather than rigidly formal tone, money laundering is a serious issue which should not be taken lightly. As this article will show, fear of money laundering only serves to increase banking regulations which, in turn, affect everyone's ability to conduct convenient, efficient and relatively private financial transactions.

Part I Humble Beginnings

In the beginning, laundering money was a physical effort. The art of concealing the existence, the illegal source, or illegal application of income, and then disguising that income to make it appear legitimate[1] required that the launderer have the means to physically transport the hard cash.[2] The trick was, and still is, to avoid attracting unwanted attention, thus alerting the Internal Revenue Service (IRS) and other government agencies[3] involved in searching out ill-gotten gains.[4]

In what could be described as the "lo-tech" world of money laundering, the process of cleaning "dirty money" was limited by the creative ability to manipulate the physical world. Other than flying cash out of one country and depositing it in a foreign bank with less stringent banking laws,[5] bribing a bank teller, or discretely purchasing real or personal property, the classic approach was for a "smurf"[6] to deposit cash at a bank. Essentially, platoons of couriers assaulted the lobbies of banks throughout the United States with deposits under the $10,000 reporting limit as required under the Bank Secrecy Act.[7] The result was the formation of a serious loophole under the Bank Secrecy Act, allowing couriers almost limitless variables in depositing dirty money such as the number of banks, the number of branch offices, the number of teller stations at one branch office, the number of instruments purchased, the number of accounts at each bank, and the number of persons depositing the money.

In 1986, the Money Laundering Control Act (the Act)[8] attempted to close the loopholes in the prior law that allowed for the structuring of transactions to flourish.[9] In criminalizing the structuring of transactions to avoid reporting requirements, Congress attempted to "hit criminals right where they bruise: in the pocketbook."[10] Under the Act, the filing of a currency transaction report (CTR)[11] is required even if a bank employee "has knowledge" of any attempted structuring.[12] Thus, it appeared as if the ability to launder the profits from illegal activity would be severely hampered.

As the physical world of money laundering began to erode, the tendency to use electronic transfers to avoid detection gained a loyal following. Electronic transfers of funds are known as wire transfers.[13] Wire transfer systems allow criminal organizations, as well as legitimate businesses and individual banking customers, to enjoy a swift and nearly risk free conduit for moving money between countries.[14] Considering that an estimated 700,000 wire transfers occur daily in the United States, moving well over $2 trillion, illicit wire transfers are easily hidden.[15] Federal agencies estimate that as much as $300 billion is laundered annually, worldwide.[16] As the mountain of stored, computerized information regarding these transfers reaches for the virtual stars above, the ability to successfully launder increases as the workload of investigators increases.[17]

Although wire transfers currently provide only limited information regarding the parties involved,[18] the growing trend is for greater detail to be recorded.[19] If the privacy of wire transfers is compromised, due to burdensomely detailed record keeping regulations,[20] electronic surveillance of transfers, or other potentially invasionary[sic] tactics,[21] then the leap from the physical to the virtual world will be nearly complete. If laundering is to survive it must expand its approach, entering the world of cyberspace.

While change is often a frighteningly awkward experience, for an enterprising criminal operation, that wishes to remain open for business, it is a necessity. As the above mentioned race through laundering history demonstrates, creativity, and not necessarily greed, has been the launderer's salvation. The recent explosion of Internet access[22] may be the new type of detergent which allows for cleaner laundry.

Endnotes

These are essential to fully understand the article!

  1. ↑ For a good background on money laundering see Sarah N. Welling, Comment, Smurfs, Money Laundering and the Federal Criminal Law, 41 Fla. L. Rev. 287, 290 (1989).
  2. ↑ In this article, "hard cash or currency" refers to any non-Internet-based money. As an illustration of hard cash, a suitcase filled with $1million worth of $20 bills weighs more than 100 lbs. See Business Week, Money Laundering, March 18, 1985.
  3. ↑ The United States Department of the Treasury has created a technology-based law enforcement unit called Financial Crimes Enforcement Network (FinCen). FinCen has been delegated the job of oveerseeing[sic] and implementing policies to prevent and detect money laundering. See FinCen at URL: http://www.ustreas.gov/treasury/bureaus/fincen.facts.html.
  4. ↑ While the profits from sales of illegal narcotics is the most common and widely publicized example of "dirty money," the gains from illegal gambling, prostitution, extortion, and essentially any illegal activity are a suspect classification. See H.R. Rep. No. 975, 91st Cong., 2d Sess. 11, reprinted in 1970 Code Cong. & Admin. News 4394, 4396.
  5. ↑ Traditional non-U.S. hotspots for laundering include, but are not limited to, Switzerland, Panama, Bahamian Islands and Luxembourg. However, recently, even the Swiss have been turning away deposits from suspected illegal gains. See Swiss bankers changing rules, St. Pete. Times, Oct. 10, 1995, at 17A & 24A.
  6. ↑ Courriers[sic] who scurry from bank to bank to conduct multiple cash transactions under the $10,000 reporting limit. The name "smurf" is from the hyperactive blue cartoon characters that seemed to be everywhere at once.
  7. ↑ 31 C.F.R. sect. 103.22(a)(1) (requirement that a currency transaction report (CTR) be filed for "transactions" of more than $10,000). The Bank Secrecy Act itself is contained at 18 U.S.C. sects. 1956-1957 (1970). It incorporates related statutes such as 31 C.F.R. sect. 103.22.
  8. ↑ Money Laundering Control Act of 1986, Pub. L. No. 99-570, Title I, Subtitle H, sects. 1351-67, 100 Stat. 3207-18 & 3207-39 (1986) (codified as amended at 18 U.S.C. sects. 1956-1957 (1988 & Supp. V 1993)).
  9. ↑ 18 U.S.C. sect. 1956(a)(1) criminalizes structuring and attempted structuring of financial transactions so as to avoid reporting requirements. The reporting requirements are set forth in 31 C.F.R. sect. 103.22.
  10. ↑ H.R. Rep. No. 855, 99th Cong., 2d Sess. 13 (1986).
  11. ↑ A CTR is a transactional report which may include the date and time of the transaction, the amount involved and certain information regarding the identity of the originator and the beneficiary of the transaction. See 31 U.S.C. sect. 5313 (1988); 31 C.F.R. sect. 103.22 (1988).
  12. ↑ 18 U.S.C. sect. 1956(a) (based upon the text, actual subjective knowledge that the money used in the transaction was derived from an unlawful source, rather than what should have been known is the standard to be applied). See 31 C.F.R. sect. 103.22(a)(1) (1988) ("Has knowledge" is defined as pertaining to that of a partner, director, officer or employee of a financial institution or on the part of any existing system at the institution that permits it to aggregate transactions).
  13. ↑ A wire transfer is simply the transfer of funds by electronic messages between banks. U.C.C. Article 4A Prefatory Note (1991) defines a wire transfer as "a series of transactions, beginning with the originator's payment order, made for the purpose of making payment to the beneficiary of the order."
  14. ↑ There are three major electronic funds transfer systems: (1) SWIFT: the Society for Worldwide Interbank Financial Telecommunication, is a Belgian-based association of banks that provides the communications network for a large number of international funds transfers, as well as intracountry transfers within the United States; (2) CHIPS: the Clearing House Interbank Payments System, is a funds settlement system operated by the New York Clearing House; and (3) Fedwire: the funds transfer system operated exclusively by the Federal Reserve System.
  15. ↑ See Office of Technology Assessment, Congress of the United States, Information Technology for the Control of Money Laundering, iii (1995) (OTA-ITC-630).
  16. ↑ Id. at 2.
  17. ↑ In 1994, the number of CTRs was approximately 10,765,000. The IRS, who is in charge of checking on suspicious transactions, does not have enough investigators to consistently check these reports. However, FinCen, in its desire to keep the IRS up to speed, is currently attempting to process every CTR by means of its artificialintelligence[sic] system. See Id. at 6-7.
  18. ↑ See supra note 11 for a brief explanation of the limited contents of a CTR.
  19. ↑ As a result of the Money laundering Suppression Act of 1994, an additional form will be required for suspect transfers. If it currently cost a bank between $3 to $15 to file a CTR, the cost will only increase as additional forms are required. See Office of Technology Assessment, supra note 15 at 7.
  20. ↑ In addition to the information contained on a CTR, a financial institution may be required to retain either the original or a copy of both sides of the monetary instrument for a period of five years. 31 C.F.R. sect. 103.38.
  21. ↑ "Using evidence from the first court-ordered wiretap on a computer network, federal agents have charged an Argentine student with hacking his way into the U.S. military and NASA computers." WiretapSnares Hacker Who Raided Defense Net, Chicago Trib., March 29, 1996, at 1. (This could just as easily be performed on wire transfer system).
  22. ↑ Twenty-five million Americans had Internet access in early 1995. See Legal Issues in the World of Digital Cash, available online at URL: http://www.info-nation.com/cashlaw.html/.
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