About 66 years ago the United States had to learn a serious lesson about foreign currency exchange. The United States had just been attacked by Japan and had to take drastic actions rapidly as they entered World War II.

One of those actions was to freeze all of the accounts of the country of Japan and seize all the money in those accounts.

At the time computers didn’t really exist, and it wasn’t terribly easy to stop the flow of money or seize funds from a foreign country. Someone had to invent this capability. President Roosevelt gave this responsibility to Walter Diamond and his wife Dorothy Diamond.

I had the pleasure of meeting the Diamonds back in 2001. When I was going to law school for my masters and laws, they named the LL M. program that I attended after the Diamonds.

The Diamonds didn’t have the technical capabilities that we have today. They didn’t have the computing infrastructure and they didn’t have online tools or networks to access information or even get a good idea about how to do something.

I was reviewing a new social networking site for Forex traders at FXground.com. My encounter with the Diamonds in 2001 in their story stuck in my mind as I was doing the review on this social networking site dedicated to foreign exchange traders.

I kept thinking of all of the different people and things they must’ve had to do to seize the funds from the country of Japan. Today if we were to do something like that, we would turn into a computer.

This particular site for foreign exchange traders is a good example of how to apply a social networking tool to an industry. It enables foreign exchange traders to come and share information about best and worst practices in their industry. Other traders can then review their submissions and rate them up or down and give their insights into why they think they are a good thing or a bad thing or they can identify when the right time to employ a tool might be as opposed to the wrong time.

That’s a convoluted way of saying that all technology has a purpose and it’s up to the user to make the purpose work to best advantage and not screw up!

Later I was working on a video tutorial and I utilized the mind map above to highlight several different capabilities, but the mind map shows a good breakdown of the functionality available at FXground.com.

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A little story that has slipped under the radar involves American Express.  According to the July issue of Forbes, American Express has disclosed that they have set aside $60 million to fight off money laundering and was cooperating with the Justice Department.  The DEA has separately disclosed that it is their investigation that involves American Express and that it involves Black Market Exchange Accounts.

This involves a complex web of Colombian drug dealers for example providing American Cash to Colombian importers purchasing something that can readily be sold again any where in the world.  Like cigarettes.

They purchase the cigarettes from a US wholesaler and arrange through a middle man to pay in US currency.  They pay a middle man in pesos, the middle man swaps out the pesos for dollars and pays the US wholesaler in dollars.  The wholesaler makes a trip across the border to collect payment, comes back and deposits the funds in a US bank.

The middle man gives the pesos to the drug dealer.

Money Laundered

It has not yet been described how much American Express is involved in this investigation nor how they are cooperating.

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Last year the US Congress passed a number of laws that cracked down on online gaming sites.  This has not slowed down the industry and probably shows the impotence of US law to impact an internet industry all by itself.  US authorities were obviously influenced in part by established brick and mortar gambling institutions when they crafted the laws that were not friendly to the online community.  This coddling of brick and mortar institutions that have long histories of problems makes the moral stance that the US took online seem hollow.

More and more sites that were once dedicated solely to carefree online games are moving into the virtual big time offering people the opportunity to gamble online.  Playing games is a social aspect of life that goes back many millenia.  The internet is almost a perfect tool for enabling people to socialize from all around the world and when you bring the two together you get an online gaming industry that really can not be stopped or slowed down. 

The internet has long had the potential to flow like water around physical jurisdictions and that is exactly what is happening with gaming online.

Case in point is BackgammonMasters.com, they have historically provided people with the ability to play backgammon online at BackgammonMaster.com and at a sister site for backgammon, called gammonish.com.  They have now opened up poker rooms on their site where people can gamble for real money.  They even have setup an incentive where the house will not take a commission on the games played by members against other members.

The bottom line is that online gambling is legal throughout most of the world.  The United States has established a law that is only partially enforceable against businesses in the US and against persons in the US playing games.  The concern of the US government is that these sites and the people that gamble on them could use the site to launder money, collude or a number of other activities.

Online gambling sites do have this potential, but the nasty truth is that any business that operates online has the same capability.  If someone really wants to launder money, they do not need to attract attention by establishing an online gambling site, all they have to do is establish an online business.  In fact, the law has probably done more to hide money laundering activity than to prevent it.  It has probably also served to clear money launderers out of a large segment of the online gambling industry.  Why would money launderers choose to perform their illegal activities where they know the authorities will be watching when the world wide web is infinitely large and offers many other rocks to hide under.

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Republished from Distribution Business Articles Site under Perils of Business 2 Busienss Credit Card Processing

During a routine audit of credit card transactions, relatively small dollar frauds from credit card transactions are sometimes found.This sometimes can be part of a larger pattern.

Apparently, the small time (assuming they are small time) fraudsters that put credit card transactions through a system realize that the targeted company may have identified their business names, addresses, phone numbers, fax numbers or several other identifying characteristics.  They realize that we are highly dependent on computer systems to screen the incoming data for these unique characteristics.  

Here is where they get a little smart.

Basically, they routinely submit and resubmit these small dollar orders with many variations of names, addresses, phone numbers etc.  Sometimes the change can be as small as including an extra space ‘ ‘ between an address or company title

for example
1 short street
1  short street
1 short  street
1 s hort street
1   short  street

etc.

Obviously, given the vast array of techniques that money launderers and fraudsters utilize this is just one more way that they can through a random variable at our systems and prevent the detection of their fraud.

Fraud auditing and Business Intelligence tools today are available that not only screen for common names and addresses and screen for different degrees of variation of each.  It takes a lot of computing power to aggressively take into account all of the permutations available for a fraudster altering names, locations, and phone numbers all at once and carrying out this same fraud at multiple locations probably with dollar amounts ranging all over the place.  

Consider the implications of a higher power or organization that has controls of thousands of fraudsters with many names and businesses and addresses and even many mules that can deposit or carry out transactions all over the world.

The situation moves out of the credit card realm and into the universe of Money laundering and anti-money laundering.

If one looks at this as a military group would or an encryption specialist, it is probable that a certain degree of control needs to be exercised for the launderer/fraudster controlling group to keep a handle on what is really going on.  

Security/encryption keys could be used and probably are (hope I’m not giving ideas on how to wrong but how to stop it).  For example, in the military a person would be given an identification nomenclature.  

Whenever the person sends out a message they go through certain channels or predetermined communication methods.  The thing is they don’t want the other side to know who is sending the message so they change their nomenclature on a regular basis (daily, weekly, monthly etc.)  All of their communications should be encrypted and when a wily person or computer program comes along and happens to break this code they end up finding some possibly useful information, but they do not know who it is coming from or who it is going to (because the parties refer to each other given the nomenclature assigned for that time period.  

So let’s say the program or person is really smart or lucky and happens to figure out that the nomenclature abc stands for John Smith.  Well more than likely the next day the transmissions if decoded will not refer to abc at all.  John Smith will have switched to the new nomenclature assigned for that day maybe xyz or 123 or something else.  

Now it is time for the program or person to basically find out every nomenclature in use by the entity they are trying to track on any given day (maybe they rotate in cycles of a year, month, week or something).  So lets say they are really good and they find out what John Smiths nomenclature is for every day of a 30 day period and that it starts over at the beginning of the next 30 day period.  Great now they will always know who is sending what to whom.

Unless John Smith, gets wise to the notion that somebody has broken their code and nomenclature.  He sends out word that the code is a bust and every body up and switches all the encryption and nomenclature to a completely fresh code.

This is where business intelligence job security derives.

A company witnessing minor frauds or multiple frauds, might only see the tip of an evasive iceberg.  They could potentially be looking at a group that is running not only a rotating nomenclature of false names, businesses and addresses, but they are also keeping these false nomenclatures live and undetected by inserting random misspellings and spaces to throw off our fraud detection filters!

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As we continue this series, there is a new consideration that digitized illegal transactions create. Each of outside of law enforcement must now concern ourselves with the perils of identity theft in an all together new fashion.

Stealth Identity Theft
In a world where drug dealers or other crooks can move funds around electronically, they have a new interest in doing so in a manner that doesn’t attract attention to themselves. There is already to many scenarios every day where people experience identity theft. The typical scenario is one where someone gets access to your credit card information, and runs up a tab on your account.

Over the last few years a new version started to occur where are personal information was used by criminals that would go out and setup a bank account only to then apply for credit and run up a tab under the fictitious account, which is under our name and social security number. In both situations they are stealing funds from creditors using our good name and credit history, which immediately becomes tarnished.

In a world where drug users have become the money launderers, drug dealers might attempt to learn from credit thieves and set up fictitious accounts under an alias. They could then have payments routed to this bank account for this name, and forward payments back out again through ACH transactions.

Their end goal is not to burn our good credit, but to run accounts under the radar such that we don’t know. The longer they can keep a dummy account up and running the easier their lives are.

Disposable Id’s? (To Keep or not to Keep)
There may be some natural time limits on the usefulness of such an account. As an example, as they run cash through these accounts, they may earn interest, which will be reported to the IRS under our names. So a natural limiter might include the amount of time the IRS takes to catch a discrepancy between what we report on our taxes(correctly but ignorantly not knowing that a criminal is operating under a stolen identity belonging to us).

Criminals masterminds may however seize upon checking accounts that pay no interest. So we must arm ourselves with the ability not only to monitor our credit, but with the ability to monitor open bank accounts or asset accounts. Watching our liability accounts through equifax is not enough.

Other criminal masterminds may not concern themselves with the time limit imposed by an IRS audit. They may look to torch the account on the way out. Compiling their ill gotten gains not in an interest free checking account, but instead opening up a brokerage account with the funds. They could trade stocks or options, possibly even on margin, and attempt to increase their booty.

Investment Fraud
Organized criminals could use multiple accounts to direct trades for or against accounts to push a stock price up or down. Hostile foreign governments could do the same thing. Imagine the double, triple whammy of 10 or 30,000 middle class Americans who have sacrificed their identity unknowingly to organized crime, which has funneled money from drug sales into multiple bank accounts around the country. The same funnel is then directed to margin trading accounts where its leveraged to drive up or down a stock price, while the same organized entity buys or cells the stock knowing the impact that is soon to occur.

Rumors of Al Qaida trading on the September 11th attack were rampant in the aftermath. So as we await to proceed into Part 4, I ask do you know how many bank accounts exist in your name? Can you prove that its no more and no less? If yes, how so?

A useful source I’ve found that continues this subject can be found in the Report titled “Cyberpayments and Money Laundering: Problems and Promise“

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