The Evolution of Money Laundering
The landscape of financial crime is shifting dramatically. With the rise of digital assets, criminals are finding new ways to turn illicit gains into clean money, challenging traditional methods of detection and prevention.
Recently, the U.S. Secret Service has taken a significant step forward by training thousands of agents in cutting-edge technology to combat these sophisticated schemes. This move underscores the importance of staying ahead of the curve in our field, where innovation is both a tool and a battleground. Criminals don't fully think they will ever be caught and become complacent in the creative ways they are able to orchestrate scams of all kinds. The cliche "Fast money comes just as fast as it goes." does not bring anything significant to mind in recent years other than crimes involving crypto-currencies, with high profile arrests like those of Sam Bankman-Freid, who was sentenced to 25 years in prison following the collapse of his once mammoth corporations in the Silicon Valley, Alameda Research and FTX.
Brief History of The USSS
The U.S. Secret Service was organized on July 5, 1865, during the presidency of Andrew Johnson. It was initially established as a part of the Department of the Treasury. The creation of the Secret Service was driven by the pressing political and economic need to combat the rampant counterfeiting of U.S. currency that plagued the nation following the Civil War. By the end of the Civil War, nearly one-third of the currency in circulation was estimated to be counterfeit. This posed a significant threat to the stability and credibility of the U.S. economy.
A stable and reliable currency was essential for the economic reconstruction and political stability of the post-war United States. Counterfeiting undermined both public trust in the government and the integrity of the nation’s financial system. Officials within the Department of the Treasury, recognizing the severity of the counterfeiting problem, advocated for the creation of a dedicated law enforcement agency to address this issue. There was bipartisan support in Congress for establishing a specialized agency to combat counterfeiting and ensure the security of the nation’s currency, during a volatile point in our history maybe as volatile as the present day political landscape, with the recent attempt to assassinate former and current Republican candidate Donald J. Trump.
President Andrew Johnson, who assumed office after the assassination of President Abraham Lincoln, approved the establishment of the Secret Service as part of the broader efforts to restore and stabilize the post-war economy. Johnson's presidency was marked by the challenges of Reconstruction, and creating the Secret Service was one measure aimed at rebuilding confidence in the federal government's ability to manage and secure the national economy.
Initially focused on combating counterfeit currency, the Secret Service’s mandate expanded over time, and In 1901, following the assassination of President William McKinley, the Secret Service was tasked with protecting the President of the United States. This role eventually extended to other high-profile officials and visiting dignitaries.
A New Digital Criminal Network
Today, the Secret Service has a dual mission of safeguarding the nation’s financial infrastructure and protecting national leaders and visiting foreign dignitaries. It employs advanced technologies and works closely with other law enforcement agencies to fulfill these roles. In 2001 follow the attacks in New York City's World Trade Center and Washington D.C. by hijackers of commercial air craft, the United States Congress quickly passed the USA Patriot Act into law. Title V contained new laws that extended the authority of the secret service as a counter-terrorism task-force to stop the flow of funds being trafficked back into those responsible for invading our nations peace.
TITLE V--REMOVING OBSTACLES TO INVESTIGATING TERRORISM:
Sec. 501. Attorney General's authority to pay rewards to combat
terrorism.
Sec. 502. Secretary of State's authority to pay rewards.
Sec. 503. DNA identification of terrorists and other violent offenders.
Sec. 504. Coordination with law enforcement.
Sec. 505. Miscellaneous national security authorities.
Sec. 506. Extension of Secret Service jurisdiction.
Sec. 507. Disclosure of educational records.
Sec. 508. Disclosure of information from NCES surveys.
The USA Patriot Act, signed into law by President George W. Bush on October 26, 2001, enhanced the capabilities of various federal agencies, including the Secret Service, in several ways. It allowed the Secret Service to participate in joint task forces, enhancing its ability to investigate computer-based crimes that could affect national security. The agency gained increased authority to detect and prevent potential cyber threats to critical infrastructure, including financial systems and communications networks.
It expanded the Secret Service's jurisdiction over certain types of financial and computer-based crimes, including access device fraud, computer fraud, and identity theft. This bolstered the agency's ability to address cyber threats and financial crimes linked to terrorism. It also empowered the USSS to provide greater protection to critical infrastructure and key resources, including the financial sector, which is vital to national security.
Enhanced information sharing between federal, state, and local agencies. The Secret Service benefited from improved access to intelligence and information pertinent to national security threats, enabling more effective coordination and response.
Title III of the Patriot Act, known as the "International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001," strengthened the Secret Service’s ability to combat money laundering and terrorist financing. This included stricter regulations on financial institutions to prevent the movement of funds used to support terrorist activities.
Less than a year later Congress would also establish the Department of Homeland Security, under which the Secret Service was transferred in March 2003. This reorganization aimed to improve the coordination of federal efforts to protect the homeland. The Secret Service established and expanded Electronic Crimes Task Forces (ECTFs) to enhance its ability to prevent, detect, and investigate electronic crimes, particularly those that pose a threat to national security, and other laws to protect the national communications networks from future terror attacks. Bush also signed the controversial
Authorization of the Terrorist Surveillance Program was signed into law by way of executive order by then President Bush which:
During this time in history, investigations were much different than they are today. Methods to combat these crimes would include things like physical surveillance. Agents would follow suspects to observe their activities and identify connections to illegal enterprises. Or investigators would manually combed through financial records, such as bank ledgers and account statements, looking for discrepancies and unusual patterns.
The use of informants were very common practice also, where law enforcement relied heavily on within criminal organizations and undercover agents to gather information about money laundering schemes. This was often impractical due to the danger and difficulty coordinating the various challenges to obtain evidence of crimes.
In the years following 9/11/2001, the semiconductor market exploded with the adoption of social media and the internet culture, and the race to digitize every aspect of our social and romantic lives, and naturally money would soon become one of the things widely adopted by main stream & black markets alike.
Crypto-currency, as it is often referred to, is a cryptographic method of transacting in a public and open way on the public ledger what is known as the blockchain. It works through transacting in a way using key pairs and in some instances, nonces, to generate a value that can then decrypt data contained in a block, and when it is successfully mined like it is on the Bitcoin network, the block is then added to the chain of validated blocks in a process known as mining. Bitcoin was unique in that, there was no physical Bitcoin, all of it was contained on the internet, and looking back the first time I downloaded the entire Bitcoin chain it was only 19 Gigabytes and took me 4 or 5 days. Today it is nearly 6 Terabytes, requiring huge amounts of storage space in order to download. The only reason Bitcoin is valuable, is due to the anonymity it provided users initially, and without requiring a bank or other financial regulatory body oversight for users to transact with across international borders, including those on sanction lists.
Normally, bankers are known and sought after for their willingness or unwillingness to guard secrets on your behalf. Remember The Wolf Of Wall Street, starring Leonardo DiCaprio, depicts the lengths criminals would go to smuggle wads of cash taped to their bodies to international swiss banks because Switzerland was and still is a relavant hotbed for money laundering activity due to the reputaiton banks have there for guarding assets regardless of their sources. When Bitcoin first began, the network offered just that to everyone, or so we thought. We had no way to foreshadow what would happen later.
A series of high profile criminal cases involved Bitcoin as the preferred method for illicit activity, after Ross Ulbricht was found guilty for operating the world's most popular and first ever underground marketplace, Bitcoin immediately had a black cloud over its head due to the consistent illicit uses it drew its notoriety from. Ross was sentenced to Double life plus 40 years for what I believe to be a case of entrapment by the FBI, where they coaxed Ross into hiring a hitman to murder his website admin whom was actually compromised by an FBI sting operation while investigating the silk road, rather than just railroading him like a normal American to make an example out of him, the authorities wanted to put Ross in prison with no hope of redemption for an otherwise non-violent crime by a person who made some poor decisions at a fairly young age, but still pretty serious litany criminal enterprises.
Following a series of other marketplaces falling into the hands of various international and federal law enforcements, there was a huge shift within criminal financial networks & Jan. 31st, 2024, law makers passed the Combating Money Laundering in Cyber Crime Act?to align criminal and banking statutes and clarify the U.S. Secret Service’s (USSS) investigative authority over crimes related to illicit digital asset transactions.
USSS investigates a variety of cyber-related criminal activity, including the illicit use of digital assets, through its global network of 44 Cyber Fraud Task Forces. However, significant aspects of this illicit activity involve unlicensed money transmitting businesses, the illicit structuring of transactions, and other criminal or unlawful activity in or against organizations that are not federally insured financial institutions, but are financial institutions as defined under the Bank Secrecy Act (31 U.S.C. § 5312). This distinction has presented a significant gap for the U.S. Secret Service in addressing new forms of criminal activity involving digital assets.
Earlier this week a new bill was introduced known as S.4830: A bill to strengthen the authority of the United States Secret Service to investigate various crimes related to digital asset transactions and to counter transnational cyber criminal activity, including unlicensed money transmitting businesses, structured transactions, and fraud against financial institutions, and for other purposes.