E-commerce transaction laundering is a loophole in the AML regime

//DH

There are a number of reasons that would explain this. First, global money laundering efforts have historically and understandably been focused on laundering in the $400 trillion-plus financial services sector, where money laundering risks have been long recognized.8 Second, the e-commerce market, as noted above, has grown very quickly and is highly dispersed with more than 24 million e-commerce sites on the internet — and establishing an e-commerce site is decidedly easier than establishing a financial institution.

Third, there is no uniform framework for e-commerce anti-money laundering (AML) regulation and supervision. To their credit, regulators will often observe market developments for some period of time before they impose regulations that may frustrate innovation. That means that regulation often has to play catch up with reality. The AML regulatory framework for e-commerce providers is disparate, more so than that of the financial services industry, which despite national nuances, is grounded in the Forty Recommendations of the Financial Action Task Force (FATF). In some jurisdictions, e-commerce activities require providers to register as money services businesses, which in turn does subject them to some AML requirements. In other jurisdictions, e-commerce platforms are treated as payment providers with limited, if any, scrutiny of their money laundering risks.

Fourth, as proven time and time again, the bad guys are very clever and keeping up with them is a challenge for all industry sectors. While the scale of transaction laundering is difficult to quantify, one industry observer suggested more than three years ago that the global volume of transaction laundering exceeded $350 billion.9 In another attempt to describe the dimension of the problem, Thomson Reuters referenced10 the following information released by the Electronics Transactions Association (ETA):

• About 50-70% of online sales for illicit drugs, counterfeit goods and unlawful adult content involve some form of transaction laundering.

• More than 90% of illegal gambling sites make use of transaction laundering to move their credit card receipts into the payment system.

• Between 35,000 and 45,000 rogue internet pharmacies are online at any one time and illicit pharmacies are only one segment of the much larger $450 billion counterfeit goods market.