Posts Tagged 'money laundering'

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.)

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.

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


(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.)