Posts Tagged 'money laundering'

Tips for adversarial analytics

I put togethers this compendium of thngs that are useful to know for those starting out in analytics for policing, signals intelligence, counterterrorism, anti-money-laundering, cybersecurity, and customs; and which might be useful to those using analytics when organisational priorities come into conflict with customers (as they almost always do).

Most of the content is either tucked away in academic publications, not publishable by itself, or common knowledge among practitioners but not written down.

I hope you find it helpful (pdf):  Tips for Adversarial Analytics

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Unexplained Wealth Orders

Money laundering conventionally focuses on finding the proceeds of crime. It has two deterrent effects: the proceeds are confiscated so that ‘crime doesn’t pay’; and discovering the proceeds can be used to track back to find the crime, and the criminals that produced it.

Since crimes prefer not to leave traces, the proceeds of crime used to be primarily in cash — think drug dealers. As a result, criminals tended to accumulate large amounts of cash. To get any advantage from it, they had three options: spend it in a black economy, insert it into the financial system, or ship it to another country so that its origin was obscured.

Money laundering detection used to concentrate on these mechanisms. Many countries have made an effort to stamp out the cash economy for large scale purchases (jewels, cars, houses, art) by requiring cash transactions of size to be reported, and by removing large denomination currency from circulation (so that moving cash requires larger, more obtrusive volume). Most countries also require large cash deposits to banks to be reported. Preventing transport of cash across borders is more difficult — many countries have exit and entry controls on cash carried by travellers, but do much less well interdicting containers full of cash.

One reason why much of current money laundering detection is ineffective is that there are now wholesale businesses who provide money laundering as a service: give them your illicit money, and they’ll give you back some fraction of that money in a way that makes it seem legitimate. These businesses break the link between the money and the crime, making it almost impossible to prosecute since there’s no way to draw a line from the crime.

Unexplained wealth orders target the back end of the process instead. They require people who have and spend money in quantity to explain how they came by the money, even if the money is in the financial system and apparently plausible. This is extremely effective, because it means that criminals cannot easily spend their ill-gotten gains without risking their confiscation.

Of course, this is not a new idea. Police have always kept a look out for people who seemed to have more money than they should when they wanted to figure out who had committed a bank robbery or something similar.

The new factor in unexplained wealth orders is that the burden of proof shifts to the person spending the money to show that they came by it legitimately, rather than being on law enforcement to show that the money is proceeds of crime (which no longer works, because of the middemen mentioned above). This creates a new problem for criminals.

Of course, the development and use of unexplained wealth orders raises questions of civil liberties, especially when the burden of proof shifts from one side to the other.  However, unexplained wealth has always attracted the attention of taxation authorities and so these orders aren’t perhap as new as they seem. Remember, Al Capone was charged with tax evasion, not racketeering.

Unexplained wealth orders seem like an effective new tool in the arsenal of monay laundering detection. They deserve to be considered carefully.

Cash and money laundering

Although privacy advocates often favour continuing a cash economy, it’s becoming clear that cash is heavily the place where bad things happen.

There are two ways in which cash is used in the black (and often criminal) economy. The first is as the basis of a barter economy — those involved buy and sell almost exclusively in cash, and their activities never get onto the radar of banks, taxation departments, or financial intelligence units. There’s not much that can be done about this, except that those who live in the cash economy usually have a lifestyle that’s much higher than their official income, so tax authorities might take an interest.

Cash is much more usable if it can be converted into electronic currency in banks. The number of ways this can be done is steadily diminishing. In Canada, banks and other financial institutions are required to report cash deposits above $10,000 unless they can show that they come from routine business activities (and there are quite specific rules about what this means). There are some loopholes, but not many and not big.

Australia has just taken steps towards banning cash deposits above $10,000 altogether. The uproar has been revealing.

One operator of an armoured car business complained to the media that he was moving ~$5 million a month in cash, about half from car dealers, and that this would ruin his business. The treasurer’s response was, roughly speaking, “Good”. (Businesses that sell transport already have quite strong restrictions about their cash activities in many countries.)

http://www.news.com.au/finance/economy/federal-budget/im-being-kicked-in-the-teeth-security-company-owner-says-10000-cash-limit-will-demolish-him/news-story/05c71552b8f5c63c6846b13335763063

Also in Australia, the proportion of cash transactions dropped to 37% by 2016, with a corresponding drop in the total value they represent. However, the ratio of physical currency to GDP is at an all time high; there is $3000 in circulation for every Australian.

https://www.smh.com.au/business/the-economy/we-re-turning-from-cash-but-demand-for-notes-has-never-been-higher-20180510-p4zegm.html

There are either some people with vast sums stashed under their mattresses, or this money is being used mostly by criminals. (Hint: it’s the latter.)

It’s no wonder that many countries are trying to be more aggressive about reducing the cash in circulation, mostly by removing high-denomination notes (because more value can be packed into a tighter space).

But it also seems clear that banks can’t resist to lure of large cash deposits, no matter how much they should. And as long as banks don’t tell them, country’s financial intelligence units can’t do a lot about it.

 

Cell phones for money laundering?

There’s been some recent discussion about the risks of being able to store money on cell phones and so to move it about in a way that’s hard to see using conventional tools. Of course, this isn’t really a new thing — putting money on a credit card before a trip and then using it in a different place is a well-known way of moving money across international borders (and, for a while, getting a decent exchange rate while doing it). You can find some of the discussion, in a counterterrorism setting, here.

This concern seems overblown to me. There are significant disadvantages to a terrorist in carrying and using an electronic device that is able to reveal where he is and, worse still, do so without making it obvious. There are a number of issues that require different amounts of skill to exploit:

  1. Cell phones that are turned on tell the nearest tower(s) roughly where they are. The tower can tell the direction in which the phone lies, and can estimate its distance. If multiple towers can see it, they can triangulate to get an even better position estimate. This ability is built in as part of the Extended 911 service that lets emergency services find someone in difficulty easily.
  2. Increasingly cell phones know where they are because they have inbuilt GPS sensing. They can be interrogated for this information under certain circumstances (a beloved plot device in TV dramas). This data can be integrated with other s/w on a phone, providing other channels for it to be disseminated.
  3. Cell phones are not robust from a security point of view and it is relatively straightforward to install hacks on them. For example, you can find instructions for turning every call into a silent conference call with another phone.
  4. SIM cards can be cloned so that another phone in the same cell receives the same packets (although this seems likely to confuse the cell tower).
  5. Even without access to the telco system and the encrypted communication, the device is radiating and so all of the standard location technologies will work. (Picking the device of interest may be difficult in urban settings.)

All of which suggest that cell phones are not going to be the terrorists’ friend any time soon. If they don’t want to carry such devices, they are unlikely to want to use them as electronic wallets.

It may help to keep a cell phone turned off, but this assumes that there’s no backdoor that enables the phone to communicate even when powered down. And it has to be on to be used as a wallet.

Of course, there are anonymous cell phones around, but even this does not solve the problem. There are already data-mining services that attempt to predict when multiple phones are owned by the same person based on the pattern of cell towers that they use with what frequency.

Knowledge Discovery for Counterterrorism and Law Enforcement

My new book, Knowledge Discovery for Counterterrorism and Law Enforcement, is out. You can buy a copy from:

The publisher’s website

Amazon.

(Despite what these pages say, the book is available or will be within a day or two.)

As the holiday season approaches, perhaps you have a relative who’s in law enforcement, or intelligence, or security? What could be better than a book! Or maybe you’d like to buy one for yourself.

(A portion of the price of this book goes to support deserving university faculty.)


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