Complexity and Combination
Although many tried and tested methods continue to be used to launder drug trafficking proceeds, the NDTA also points out that the complexity of money laundering methodologies has increased today.
Criminal organizations will adapt and combine methods to continue to launder money.
An example given in the NDTA is the use of ‘third-party money brokers.’ Those involved in drug trafficking will look to send funds back outside the US, making use of the networks of accounts and companies created by these brokers, many of which only exist on paper.
This activity can be combined with other methods such as the use of BMPE (Black Market Peso Exchanges) and TBML activity.
The report points out that it can be hard to prove, due to their nature, that these third-party money brokers knew they were helping move illicit funds from drug trafficking activity and as a result tend to avoid the legal consequences of money laundering.
It also notes that such money laundering outfits have increasingly been used “to simplify the acquisition and payment for precursor chemical shipments.”
Whilst BMPE’s are not new, some may remember a FinCEN Advisory in 1997 detailing their use by Colombian drug cartels, yet they continue to be used today and have evolved since.
A recent settlement in January 2021 showed that, whereas previously BMPE’s were used in TMBL schemes, on this occasion a real estate company was used as part of the scheme which resulted in the forfeiture of approximately $30 million to resolve charges of laundering drug money.
Advances in financial technology from mobile Apps and decentralized platforms away from more conventional banking and transacting has led to the rise of Virtual Currencies, such as Bitcoin.
While giving more options to store value in a global and digital, if volatile, format, it has also opened up more options for criminal organizations to transact.
Although the illicit purchase of drugs on the Dark Web has often been associated with tech savvy drug purchasers, large-scale drug traffickers have not typically been associated with using virtual currencies in large amounts currently.
The NDTA does however highlight that money laundering groups are using virtual currency ATM’s (Automated teller Machines) to move illicit proceeds of drug trafficking as these ATM’s accept cash, which is quickly and easily converted to virtual currencies.
Other individuals working with the narco group could then morph the value back from digital to cash at an ATM in another part of the world, typically regions with weak AML laws and law enforcement information sharing treaties with the US.
Although these types of ATM’s are regulated in the US, this has not stopped owners looking to knowingly accept illicit cash to help launder the proceeds of drug trafficking.
Cash deposited into these ATM’s can be mixed with that of revenues from the ATM owners whilst the illicit funds have been converted to virtual currencies that can be used for onward transfers and conversion back to cash.
Strikingly, the report also states such ATM’s “may be unlisted, and unavailable for use by the general public; instead kept hidden away for exclusive use by money launderers and couriers.”
An announcement by the DOJ (Department of Justice) in mid-2020 of charges against a man who ran an illegal virtual currency ATM business highlighted just how much illicit cash could easily be moved through virtual currency ATM’s when unscrupulous owners operate them with no regard for who or how they are set up and used.
In the case, a California man going by the alias ‘Superman29’ owned and ran an illegal virtual currency MSB (Money Service Business) called ‘Herocoin.’
He was accused of intentionally not registering his business with the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN), a requirement under AML rules.
As well, even after they contacted him asking him to register the operation, he failed to comply with any of the core AML duties, including customer due diligence, risk ranking and suspicious activity reporting requirements.
In all, the business exchanged up to $25 million according to investigators, which included funds on behalf of criminals, through both in-person transactions and Bitcoin ATM kiosks – with transactions running up to $25,000 each and exchange rates well above market rates, some as high as 25 percent.
Other examples of the use of virtual currencies with a drug trafficking nexus include reports where the Head of the Mexican Finance Ministry’s Financial Intelligence Unit (UIF), Santiago Nieto, was quoted in December 2020 saying “There’s a transition to committing crimes in cyberspace, like acquiring cryptocurrencies to launder money … and the pandemic is accelerating it”.
As the adoption of virtual currencies continues to grow, drug traffickers and those that launder drug money will also continue to increase their use of crypto coins.
The NDTA notes DEA reporting has shown times where bulk currency shipments have been completed using virtual currency as opposed to cash, with this money then being integrated into TBML schemes.
The use of virtual currencies in this manner, with tried and tested schemes such as TMBL, suggests a willingness to combine old and new methods to help laundering drug proceeds and shows the willingness of criminal organizations to adopt new technology such as virtual currencies.