MetaSecurity

Posted in Fraud, Money Laundering | 1 Comment

One Response

1. on June 17, 2007 at 7:32 pm | Reply Roderick Jones

   Comment Submitted by Steven Sciarrino via email:

   The Risk Management Group deserves applause to putting this review together. It clearly highlights many of the complex and emerging problems law enforcement and Financial Intelligence Units face from e-currencies and virtual economies. I have two critiques, however. I would need to hear a lot more argument before I could believe the woes of e-currencies would be solved if they became “real” currencies; also, I don’t see e-currencies as a digital Hawala at all. I see them as something far more potent.
   I’m not sure I can imagine a significant change manifesting itself if virtual currencies were given the status of “real world” currencies… first, as currencies without countries, I see many enforcement problems remaining; second, any international change in status is unlikely to affect those e-currency providers based (often only digitally–they make the ultimate shell companies) in nations that currently ignore the international norms and regulations of finance of even recognized currencies. I certainly don’t mean to dismiss the idea posed in the TRMG paper; it’s clearly one way to regulate these new economies. I merely have concerns about realistic enforcement.
   My other minor critique deals with the notion of e-currencies functioning like an online Hawala, as the article’s title suggests. I see something at least as dangerous if abused, but fundamentally different at work. While what is described in the article as a Hawala is one in theory, in reality Hawala works a bit differently. The balances between Hawaladars are settled more regularly than in the example, often through false trade invoicing (over or under charging/shipping to create a disguised transfer of value), and the flow of transmitted funds is typically not an even, two-way street through which pay-in and pay-out act to regulate debt between Hawaladars.
   In reality, value is almost always flowing one way, from wealthy areas to poor areas, in the form of remittances, usually across international borders— Dubai to Pakistan, for example.
   I see a conceptual difference between the two value transfer systems– Hawala, used to move money, and e-currencies, used to buy goods and services. While their utility sometimes overlaps (both could be used to launder money), the full extent of what each is capable of is far different. I can’t imagine using Hawala to facilitate illegal gambling, for example. Additionally, Hawala is limited by access to a Hawaladar; not all regions of the world have been equally penetrated by Hawala. Its services are also typically limited to individuals of certain cultural backgrounds, due to the personal and cultural trust involved in Hawala. The internet, however, is virtually everywhere. No personal introductions need be made; in fact, the system thrives on anonymity, rather than Hawala’s combination of social networks and trust.
   In short, virtual worlds create many ways terrorist organizations could operate their own businesses, raise funds, accept donations, communicate, recruit, disseminate propaganda, and hide finances; Hawala, on the other hand, is typically a tool to move money, period, either from command to an operation cell or from a donor to the organization itself. Despite the attention Hawala as received as of late, and its demonstrated utility as a tool of terrorism finance, I fear the potential for abuse of virtual economies far more.
   Steven Sciarrino