[LINK] Currency exchanges

[stephen at melbpc.org.au]

Anonymous Payment Schemes Thriving on Web


By NICOLE PERLROTH Published: May 29, 2013
<http://www.nytimes.com/2013/05/30/technology/anonymous-payment-schemes-
thriving-on-web.html?nl=todaysheadlines&emc=edit_th_20130530>


SAN FRANCISCO — Eight years ago, Ernie Allen, the head of the International 
Center for Missing and Exploited Children, called the heads of major banks 
and credit card companies. Why, he wanted to know, were they letting child 
pornographers move illicit profits through their systems?

And so began a collaboration between his organization, major banks, credit 
card companies, Internet service providers, payment processors, and 
Internet companies like Google and Microsoft. They had hoped to follow the 
money and quash child pornography for good.

But at some point the money trail went cold. For the last year, Mr. Allen 
has been working with global law enforcement and financial leaders to find 
out why.

He may be getting closer to an answer. Today, cybersecurity experts say 
billions of dollars made from child pornography and illicit sales of things 
like national secrets and drugs are being moved through anonymous Internet 
payment systems like Liberty Reserve, the currency exchange whose operators 
were indicted Tuesday for laundering $6 billion. 

Preet Bharara, the United States attorney in Manhattan, described it as the 
largest online money-laundering case in history.

“What we have concluded is that illegal enterprises — commercial child 
pornography, human trafficking, drug trafficking, weapons trafficking and 
organized crime — has largely moved to an unregulated system that is not 
connected to any central bank or national authority,” Mr. Allen said. “The 
key to all of this has been anonymity.”

Liberty Reserve was shut down last weekend, but cybersecurity experts said 
it was just one among hundreds of anonymous Internet payment systems. They 
said online systems like the Moscow-based WebMoney, Perfect Money, based in 
Panama, and CashU, which serves the Middle East and North Africa, require 
little more than a valid e-mail address to initiate an account. The names 
and locations of the actual users are unknown and can be easily fabricated. 
And they worry that the no-questions-asked verification system has created 
a safe harbor for illicit activity.

“There are a multitude of anonymous payment systems out there, similar to 
Liberty Reserve, of which there are over one hundred,” said Tom Kellermann, 
a vice president at the security company Trend Micro. “Many pretend to 
‘know your customer’ but do not actually do due diligence.”

Representatives for WebMoney, Perfect Money and CashU did not return e-
mailed requests for comment.

Currency exchanges like Liberty Reserve do not take or make payments of 
actual cash directly. Instead, they work with third parties that take 
payments and, in turn, credit the Liberty Reserve account.

After the authorities went after Liberty Reserve, underground forums buzzed 
with comments from people mourning the potential loss of frozen funds and 
others offering alternatives, including Bitcoin, the peer-to-peer payment 
network started in 2009 to offer a decentralized way to create and transfer 
electronic cash around the world.

In closed underground Russian-language forums, one person wrote, “I had 
almost 6k there. Where to now?” Another suggested, “Maybe another 
alternative is Perfect Money? I wonder if Bitcoin exchange rate will go up 
or not.”

Indeed, the value of the Bitcoin virtual currency spiked temporarily on 
news of the Liberty Reserve shutdown. But law enforcement officials say 
Liberty Reserve operated with more anonymity than Bitcoin. Unlike Liberty 
Reserve and other anonymous payment systems, Bitcoin transactions are 
stored in a public ledger, called a block chain, that make it possible to 
trace Bitcoin transactions even years after the fact.

“You can track specific Bitcoin movements just as you would the serial 
number on a U.S. dollar,” said Jeff Garzik, a Bitcoin developer. The real 
concern, security experts say, are private payment services that claim to 
do due diligence, but do not do even the most basic verification.

Typically, money transfers are subject to strict regulation, which include 
maintaining customer identification records, filing suspicious activity 
reports, mandatory reporting on large currency transfers, and “know-your-
customer requirements.” But security experts say there are a multitude of 
anonymous payment systems that require no customer identification and have 
little capability to detect or report suspicious activities.

Of online payment processors, PayPal is considered the gold standard. The 
company, now owned by eBay, has payment experts to ensure PayPal is 
compliant with “know-your-customer” regulations and with law enforcement 
agencies in each country in which it operates.

“It’s unfortunate that as many of these new services come on board, it’s 
the people looking to abuse them who are the first to use them,” said Anuj 
Nayar, a spokesman at PayPal. “There’s a lot more than just having the 
right technology in place to be an efficient global payment processor.”

In March, the Treasury Department’s Financial Crimes Enforcement Network, 
or FinCen, began applying anti-money laundering rules to virtual 
currencies, amid worries that new forms of cash purchased on the Web, like 
Bitcoin, were being used to finance illicit enterprises.

While Bitcoin is just a software system, there are multiple gateways and 
exchange points that allow Bitcoin owners to exchange their Bitcoins for 
cash. Federal authorities recently seized accounts associated with a United 
States intermediary of Mt. Gox, the world’s largest Bitcoin exchange, 
because it was not FinCen compliant. That, and other exchanges in the 
United States are now racing to be fully compliant with “know-your-customer 
laws” and anti-money laundering requirements.

Mr. Allen said he believed that was a good first step.

“With anonymous payment systems, tracking has become virtually impossible,” 
he said. “How do you prevent these kinds of problems when you are dealing 
with an unregulated currency, monitored by nobody? The answer, I think, is 
there has to be some kind of structure.”


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