OECD to clean up Web of crime

Think of money laundering and you will call to mind gangsters, trilby hats, sharp suits and shooters. But if a recent international report is to be believed, the modern mobster is more into Internet banking and online gambling than numbers rackets and bookmakers.

The OECD wants more regulation to control illegal transactions online. Joy Macknight reports

The Organisation for Economic Co-operation and Development (OECD) has called for increased regulatory controls to stem the huge amounts of illegal funds being laundered through a complex web of electronic payment systems.

In a report published last month, the OECD's Financial Action Task Force (FATF) targeted online banks and gambling Web sites in an effort to raise awareness about Web-based money laundering.

Although cash remains the main form in which illegal funds are held, launderers must move cash proceeds to locations where they can be put into the financial system.

The lack of face-to-face contact between client and bank, the ease of access to the Internet and the speed of electronic transactions makes Internet banks a refuge for money launderers, according to the task force.

The report says, "Although [Internet banking] could be considered as contributing positively to the level of efficiency and the reduction of costs of financial services, they also make customer identification and routine monitoring of accounts and transactions by financial institutions more difficult."

The task force considers online gambling as an ideal Web-based activity to act as a cover for a money laundering scheme through the Internet. Transactions are primarily performed through credit cards. The offshore placement of many Internet gambling sites makes locating and prosecuting the perpetrators extremely difficult.

Although the FATF experts were not able to provide examples of money-laundering through online banking and gambling, that does not mean it is not happening by this method. Some cases have been reported in FATF member countries, but many more go undetected because of poor regulation and the means of detection have not been fully developed.

Patrick Moulette, secretary general of FATF said, "Money laundering through online activities has become a important and serious issue. The FATF is fighting to increase legislation and regulation, proposing measures to detect the perpetrators of money laundering."

All financial institutions in the UK are legally obliged to show they have measures in place to prevent money laundering, such as a system to identify illegal transactions.

Transactions over the Internet need to be monitored and assessed to develop profiles of customers. This is becoming impossible to do by traditional methods because there are millions of customers making millions of transactions electronically.

Artificial Intelligence (AI) technology has been developed to track transactions and act automatically to detect suspicious activities and notify a human analyst.

Ian Horobin, spokesman for AI developer SearchSpace, said, "What you're looking at is the next level of service provision. Now, this information can be gathered using advanced AI, which monitors transactions, builds up expectation about every customer and accounts and determines if a transaction breaks the normal pattern."

The SearchSpace technology uses an anti-money laundering sentinel, which has an adaptive profiling engine allowing it to "learn" patterns of transactions.

Customers include the Royal Bank of Scotland, the London Stock Exchange and the Bank of New York.

How money can be laundered via the Net

• Mr X sets up a company offering services payable through the Internet

• Mr X then uses these services and charges for them using credit cards from accounts containing illegal gains located in offshore holdings and held under false names

• Mr X's firm invoices the credit card company, which forwards the payment for services rendered. Illegal funds become legal.

The credit card company, the ISP, the Internet invoicing service and even the bank where the original illegal funds began, would have no reason to believe there was anything suspicious about the activity, since each only sees one part of the transaction.

OECD's proposals for ISPs

• Maintain reliable subscriber registers with appropriate identification information

• Establish log files for a reasonable period (six months to a year) with traffic data relating IP number to subscriber and telephone number used in the connection

• Ensure information is available globally.