Laundromat Called Digital Advertising

In the earlier days of digital advertising, advertisers (media buyers) traditionally bought from publishers (sellers of ad space) directly. But with programmatic ad exchanges, ads are placed on millions of websites and mobile apps that no one has ever heard of. Advertisers don’t interact with any of the millions of sites and apps; they just buy ads through one place, the ad exchange. By disconnecting the buyer from the seller, programmatic ad exchanges brought about a disconnect and lack of transparency into the digital advertising ecosystem. This led directly to much greater opportunity for fraud and other crimes.

Ad Exchanges Created More Opportunity for Fraud

Over the years, case upon case of fraud have been documented (e.g.?AppNexus, 92% of their inventory was fraudulent); yet everyone seems to forget those happened or simply assumes fraud doesn’t happen to them. But fraud affects everyone from the advertisers, to the good publishers, to consumers. Bad guys set up fake websites, copy and paste some ad tech code onto the sites, and start selling billions of impressions. Prior to the arrival of ad tech (“advertising tech”) fraudsters could never sell ads to the biggest brand advertisers like P&G, Unilever, Coca Cola, etc. Now every manner of bad guys can sell ads to the biggest advertisers that spend billions in digital advertising, and divert those ad dollars into their own pockets under false pretenses.?

In-Game Currency

The laundering ranges from very simple schemes - using a stolen credit card to buy V-bucks - to more advanced ones, like the one detailed in the following?Financial Times article:

"In Counter-Strike: Global Offensive, a popular video game developed and published by Seattle-based Valve, players can choose to become terrorists — planting bombs and holding hostages — or counter-terrorist fighters who take on the bad guys.?

In October (2019), Valve itself had to step up against the criminals. In a blog post, it abruptly announced that players of CS: GO would no longer be allowed to trade the “container keys” that are used to obtain in-game items, such as guns, rare knives or limited-edition stickers.

“Worldwide fraud networks have recently shifted to using CS: GO keys to liquidate their gains,” Valve wrote. “At this point, nearly all key purchases that end up being traded or sold on the marketplace are believed to be fraud-sourced.”

Coming from one of the world’s largest video games companies, the admission that money-laundering and fraud had become so widespread that it accounted for “nearly all” of a particular trading activity on the game’s marketplace was startling."

The Mother of All Money Laundries: Digital Advertising

What's an even more scalable, versatile, cost efficient, and safe way to launder massive amounts of money? Right. Digital advertising. There are many flavors of how to do this so let me walk you through the simplest ones first.

If you had a whole bunch of ill-gotten gains that need cleaning, what do you do? Buy some digital ads! That's right. Pay an ad exchange the whole wad, but be sure to cut a deal with the exchange so they pay out the proceeds back to you, after their fee, of course. What if you wanted to make it more believable? You set up a whole bunch of fake websites to pretend to run billions of impressions. All those impressions will cook the books to make it appear that all the ads you bought were actually placed.

This technique of money laundering is so scalable, it works for any amount of funds you need to clean. The ad tech can simply make up enough impressions to make the numbers look right on the books. It's cost efficient too, because it's all virtual bits and bytes and no one actually has to move product or hard currency around in giant duffel bags. So the ad tech provider probably doesn't need a full 15% for his troubles. He's just letting you use his cloud servers that are on all the time anyway. Perhaps a smaller-than-15% cut is justified? OK, what if you were a greedy bad guy. Why not cut out the middleman entirely and save the small fees?

In digital advertising this is not only possible, it's easy. Just set up your own ad exchange. This means the bad guys are "vertically integrated." This is now documented?https://twitter.com/acfou/status/1217270156025638913?The bad guys own the fake sites that pretend to show the ads. The bad guys have their own bots to generate traffic and ad impressions. They own the ad exchange so they don't have to pay Google or Facebook to do their laundry. Basically their right hand pays their left hand and the money comes out clean! They didn't even need to leave the comfort of their own homes. It's certainly safer than robbing a bank at gunpoint (who does that any more?) or reading in an accomplice at someone else's ad exchange. They might squeal on you.

But wait, there's more. Since you have all this digital infrastructure, fake sites, fake traffic, and an actual ad exchange, why not also let big brand advertisers and their media agencies buy from you? After all, they've got billions of dollars to spend, and not enough places to spend it. Mainstream publishers that have real human audiences don't scale. That's because you can't get more humans to visit the site much more than they do now. But you've got the scale to absorb ANY amount of dollars that advertisers want to throw at you. If you take their money you can even offset any cloud server costs and make easy money on top of that. Imagine that - a wholly owned money laundering infrastructure that is not a cost center, but is a profit center instead!

Ad Revenues Flow to Fraudsters Who Pay No Taxes

With so much money flowing into fraudsters' pockets via digital advertising, even tax revenues of entire countries are being affected, because fraudsters don’t pay taxes. One would expect a fraudster who cheats on making money via digital ads (using fake sites and bot traffic) will also cheat on their taxes — i.e. not pay it. This kind of international tax evasion is particularly difficult to track down if the fraudsters’ companies are also offshored. The legitimate ad exchanges that facilitate the flow of funds to these offshore companies will show legitimate tax deductions - they did pay out to those companies. But those offshore companies fail to pay taxes. State attorneys have the power to subpoena financial records of the legitimate ad exchanges to see who they paid and determine whether there was tax evasion by those payees.?

So digital advertising is not only a way to CLEAN money; it is also a way to MAKE money, lots of it. The biggest brands spend so much in digital there's nearly $130 billion spent in the U.S. and $350 billion worldwide every single year. The question now is why WOULDN'T any criminal (or "entrepreneur" as they like to call themselves) do as much digital advertising as they possibly can? It not only supports their other businesses with cleaning services, it's also a bonafide high margin business all on its own.