Money Laundering Techniques #8 - Online gaming currencies, B2B credit cards & Chinese money brokers

?? Once a month, let's discover new money laundering, terrorist financing and fraud techniques as well as ancestral methods.?

On today's menu we have:

?? Online gaming currencies, a new digital way to launder money

?? B2B credit cards, a variant of the Black Market Peso Exchange

???? Chinese money brokers, another scheme involving casinos

??

I hope you will like it and do not hesitate to contact me ?? if you have any suggestions for changes in the format or topics to cover.?

Enjoy your reading! ??

Online gaming currencies ??

?? Over the past decade, the video game industry has managed to eclipse the movie, music and television industries.?

There are currently an estimated 2.5 billion active gamers worldwide who spent more than?$150 billion on games in 2019 alone.

While common money laundering channels, such as real estate, online gambling ?? and shell companies ??, are increasingly monitored, criminals have flocked to low or unregulated channels.

The gaming industry, particularly the online multiplayer gaming market, has seen an upsurge in malicious activity in recent years due to:

?? its unregulated status by local and international organizations

?? the absence or scarcity of KYC rules

?? the ease of transferring in-game (virtual) currency

?? overcrowded platforms that allow criminal transactions to get lost in a myriad of legitimate small-value micro-transactions (<200€)

?

?? Criminals use game currencies, originally created to fuel video games virtual economies, to launder their money.

There are 2 types of them:

1?? Convertible in-game currency that can be bought and sold in exchange of fiat currencies ??

2?? Non-convertible in-game currency that can only be bought in exchange of fiat currency?

However, the FATF noted that secondary black markets can appear and facilitate their sale, turning them into convertible currencies.

?? Money launderers can either create new accounts or hack into existing ones to further protect their identity.

Then, they channel the proceeds of their illegal activity or stolen credit cards into the game and convert the money into in-game currency.?

In-game, they purchase rare weapons ?? or upgrades through micro-transactions, and then sell their items, accounts or virtual in-game currency stash at a discounted price on websites acting as parallel gray markets such as eBay.

APT41, a hacker collective, recently generated tens of millions of dollars in virtual currency in less than 3 hours ?? and effectively laundered them through underground markets.

?? Fortunately, the video game industry, after focusing on preventing the theft of account login data, is now taking actions to fight against money laundering.

Following a recommendation from the FATF, some games providing convertible currencies required all their players to register and identify themselves.

The company developing Second Life even hired senior compliance analysts. ??

Moreover, regulators are more and more interested in this sector, slowly transforming an unregulated industry into a vigilant and compliant one in the future. ??

B2B credit cards ??

?? This might seem unlikely, but the narcotics trade is often based on a robust and surprisingly reliable system of credit.

Indeed, very few wholesale buyers have the liquidity to pay cash upfront for a ton of cocaine.

In a sense, transnational organized crime (TOC) groups, like the Sinaloa cartel ????, have no choice but to offer a financing option, just like any legitimate business.

However, this does not tell us how these drug cartels get the cash generated on US soil ???? back into their possession.

?

?? We’ve seen it in previous posts, Mexican cartels are particularly innovative when it comes to move illicit proceeds across international borders.

On top of the Black market peso exchange, Chinese money brokers and the art market, they also often use B2B or corporate credit cards.

As their usage is consistently growing in the US, it has become a very efficient way for them to move value across borders undetected. ??

Indeed, it became more common for a business to use a company credit card to make large purchases in a single transaction, especially with the attractive cash back reward programs offered.

?

?? TOC groups usually proceed as follows:

1?? They ship drugs to the US, often on credit

2?? Local representatives sell them and generate copious amounts of cash ??

3?? Using a network of cash-intensive businesses, they deposit the illicit cash, commingled with regular one, on various corporate accounts ??

4?? Businesses involved usually take a fee, but they can also simply be coerced into receiving deliveries of cash

5?? They use the funds to regularly purchase goods from Mexican merchants with company credit cards and receive “phantom shipments” (nothing is actually shipped) ??

6?? Mexican merchants gives back the funds to the TOC groups minus their fee?

?

?? To prevent this scheme, there are several red flags to look for:

?? The goods purchased are not likely to be resold by the merchant

?? The possibility to purchase similar products at comparable prices from another merchant located within the United States

?? The merchant doesn't usually use its company credit card to purchase other items it routinely sells

However, it is hard for the merchants’ banks to detect such patterns, as the red flags may only be contained in the business' credit card activity, which they cannot see.

Chinese money brokers ????

???? In early 2020, the Treasury Department discovered a new money laundering threat to the US.

It involves Chinese money laundering networks, or money brokers, and Mexican ???? drug cartels.

The method is actually a mix of two money laundering techniques described in my previous posts: Trade based money laundering (TBML) ? and Casinos. ??

?

?? As narcotics sales continue to flourish in the US, we observe an increase in complex schemes to launder its proceeds.

Professional Money Laundering Networks (PMLNs), run by Chinese citizens residing in the US, are designed to sidestep two separate obstacles:

?? $4,000 a month dollar deposit restrictions per individual imposed by Mexico and limiting the amount that cartels can repatriate to the country

?? Chinese capital flight law allowing Chinese citizens to transfer abroad, at most, the equivalent of $50,000 held in Chinese bank accounts?

?

?? The money laundering system is complex and involves a variety of Chinese money brokers, processors and money couriers.

It goes like this:

1?? Chinese money brokers collect cash in the US from drug dealers. ??

2?? Then, they find gamblers coming from China in need of cash. Often, casino hosts do the introduction to increase their earnings. ??

3?? In exchange, gamblers transfer the equivalent value of yuan, using banking apps ??, from their Chinese bank accounts to the brokers’ one.

4?? The brokers use the yuans to buy commodities in China and export them to Mexico.

5?? There, they sell them locally for pesos and give them back to the cartels, minus their commission. ??

6?? Finally, the cartels can reinvest part of the clean looking funds in their operations and smuggle more drugs to the US.

?

?? With this technique, brokers manage to convert electronic funds in China into hard currency in the United States.?

Alternatively, brokers sometimes also directly launder the cash in the US and transfer it to US based Chinese buyers looking for investments.?

The rest of the process remains the same.

See you in a month with more ML schemes! ??