Seminar 4 Financial operation of money laundering

Seminar 4Seminar 4Financial operation of money Financial operation of money

launderinglaunderingThe problem of credit cards and The problem of credit cards and

electronic bankingelectronic banking

Judge . PhDJudge . PhDAmjad AL-juhaniAmjad AL-juhani

The banking and Financial business continues to evolve, both in The banking and Financial business continues to evolve, both in terms of the worldwide electronic connection among banks, as well as terms of the worldwide electronic connection among banks, as well as the increasing sophistication of banking methods. This is likely to the increasing sophistication of banking methods. This is likely to facilitate a number of matters, among which is money laundering facilitate a number of matters, among which is money laundering operations via the international electronic networks. In addition, operations via the international electronic networks. In addition, globalization facilitates the movement of goods and transpiration of globalization facilitates the movement of goods and transpiration of passengers, resulting in cash amounts which cross the borders, passengers, resulting in cash amounts which cross the borders, including money emanating from crime. Although crimes, especially including money emanating from crime. Although crimes, especially organized ones, that yield money to be laundered, are less frequent in organized ones, that yield money to be laundered, are less frequent in the Jordan, due to strict laws and severe punishment’s imposed on the Jordan, due to strict laws and severe punishment’s imposed on smuggling, distribution and taking of drugs, in addition to the smuggling, distribution and taking of drugs, in addition to the difficulties faced by criminals to enter the country due to entry visa difficulties faced by criminals to enter the country due to entry visa requirements, the Central Bank, however, feels that it should extend a requirements, the Central Bank, however, feels that it should extend a helping hand, within the legal constraints of the Jordan laws, to the helping hand, within the legal constraints of the Jordan laws, to the international regulatory authorities that are in charge of combating international regulatory authorities that are in charge of combating money laundering.money laundering.

The ProblemThe Problem The use of credit cards as an alternative for dealing with The use of credit cards as an alternative for dealing with

paper money raised several problems, especially what paper money raised several problems, especially what concerns money laundering . It is not possible to track concerns money laundering . It is not possible to track or detect the trace of financial dealing using these or detect the trace of financial dealing using these cards, which makes the prevalent principle in bank cards, which makes the prevalent principle in bank dealings “Know Your Customer” a difficultly applied dealings “Know Your Customer” a difficultly applied principle .principle .

In addition to the fact that dealing with these cards In addition to the fact that dealing with these cards takes place directly between two people, and does not takes place directly between two people, and does not require an intervention by the financial institution. Also, require an intervention by the financial institution. Also, these dealings take place smoothly and rapidly, since these dealings take place smoothly and rapidly, since they guaranty an immediate transfer of the money from they guaranty an immediate transfer of the money from and into any place in the world, and the principal is and into any place in the world, and the principal is anonymous and without barriers or legal restrictions . anonymous and without barriers or legal restrictions .

Credit cards have lately become vastly used Credit cards have lately become vastly used in money laundering operations, due to the in money laundering operations, due to the rapid development that occurs to facilitate rapid development that occurs to facilitate payment and transfers, such as using the payment and transfers, such as using the phone and the internet electronically in phone and the internet electronically in banking procedures, which enable the banking procedures, which enable the money launderers to use the credit card in money launderers to use the credit card in transferring large sums of money without transferring large sums of money without fear of having their identity revealed, fear of having their identity revealed, especially that this card is easily carried especially that this card is easily carried across the country’s borders, and used across the country’s borders, and used internationally, and it is difficult to detect the internationally, and it is difficult to detect the source of the money through it .source of the money through it .

One of the most famous of One of the most famous of these cards is The these cards is The Commemorative Card due Commemorative Card due to its ability to have million to its ability to have million of dollars saved on its own of dollars saved on its own CD, and the possibility of CD, and the possibility of electronically transferring electronically transferring these monies to another these monies to another card bia the phone card bia the phone especially prepared for this especially prepared for this purpose, and without the purpose, and without the intervention of any bank, intervention of any bank, i.e. away from any control i.e. away from any control or supervision which paves or supervision which paves the way for money the way for money laundering in an accurate laundering in an accurate manner, and in a neat manner, and in a neat process that is not easily process that is not easily detected or tracked .detected or tracked .

In Terms of the LawIn Terms of the Law Article Two of the Jordanian Bill on Anti-Article Two of the Jordanian Bill on Anti-

money laundering operations defined money money laundering operations defined money as being:”Every in-kind object or right, as being:”Every in-kind object or right, whether physical or moral, movable or whether physical or moral, movable or immovable, tangible or intangible, existing in immovable, tangible or intangible, existing in the Kingdom of outside it, as well as any the Kingdom of outside it, as well as any document or deed regardless of its form or document or deed regardless of its form or nature, that ascertains the ownership of the nature, that ascertains the ownership of the in-kind object to a person or attributes the in-kind object to a person or attributes the right to him”. Based on this definition, we right to him”. Based on this definition, we see that the Credit Card is covered by the see that the Credit Card is covered by the definition of money under this Bill .definition of money under this Bill .

Article Three of the same Bill stipulates the Article Three of the same Bill stipulates the following : following :

“ “Money laundering is considered …Money laundering is considered …

1- Exchanging any illegitimate money or 1- Exchanging any illegitimate money or transferring it, or investing it for the purpose transferring it, or investing it for the purpose of concealing its source, or place, or of concealing its source, or place, or movement or ownership .movement or ownership .

2- Concealing or camouflaging the nature of 2- Concealing or camouflaging the nature of any illegitimate money, source, place, any illegitimate money, source, place, movement or ownership or giving any movement or ownership or giving any misleading information on the matter” .misleading information on the matter” .

The Guidelines of the new Anti-Money The Guidelines of the new Anti-Money Laundering Jordanian Law, and the Laundering Jordanian Law, and the Instructions for Combating Money Instructions for Combating Money Laundering issued by the Jordanian Laundering issued by the Jordanian Central Bank for the year 2006, a Central Bank for the year 2006, a special item about electronic money special item about electronic money laundering ways. However, they did not laundering ways. However, they did not explicitly nor specifically stipulate the explicitly nor specifically stipulate the money laundering ways via credit money laundering ways via credit cards and ways to combat them .cards and ways to combat them .

The UN Convention for combating the illicit drugs The UN Convention for combating the illicit drugs trading has included references to a group of trading has included references to a group of concepts, terms and ways relevant to money concepts, terms and ways relevant to money laundering operations . Paragraph (R) of Article One laundering operations . Paragraph (R) of Article One hereof stipulates : “Collected monies mean any hereof stipulates : “Collected monies mean any monies directly or indirectly obtained from monies directly or indirectly obtained from committing one of the crimes stipulated in paragraph committing one of the crimes stipulated in paragraph (A) of article three”.Also, paragraph (T) of Article One (A) of article three”.Also, paragraph (T) of Article One specified what is meant by “monies” as specified what is meant by “monies” as being:”monies regardless of their kind, whether being:”monies regardless of their kind, whether physical or non-physical, movable or immovable, physical or non-physical, movable or immovable, tangible or intangible, and the legal documents and tangible or intangible, and the legal documents and deeds that prove the ownership of the monies or any deeds that prove the ownership of the monies or any right relevant thereto” .right relevant thereto” .

According to this specification, the credit card is According to this specification, the credit card is considered part of these monies .considered part of these monies .

Ways of Money Laundering Ways of Money Laundering Through Credit Cards Through Credit Cards

The client often applies for The client often applies for subsequent orders to the issuing subsequent orders to the issuing bank, to have it issue for him credit bank, to have it issue for him credit cards for local and international use, cards for local and international use, and for his employees,assistants and and for his employees,assistants and members of his family, and for any members of his family, and for any other individuals that deal with him other individuals that deal with him with the collateral of the cash or in with the collateral of the cash or in kind deposits of the company.These kind deposits of the company.These cards are used in the field of money cards are used in the field of money laundering operations, whereby laundering operations, whereby incoming financial transfers are incoming financial transfers are carried out electronically , and carried out electronically , and before they settle, they are before they settle, they are withdrawn also electronically then withdrawn also electronically then collected, and the client transfers collected, and the client transfers them in large sums abroad .them in large sums abroad .

First Way First Way : Using the card in ATM : Using the card in ATM machinesmachines

The client cashes the sums through the The client cashes the sums through the card from the ATM machine using his pin card from the ATM machine using his pin number, then the branch from where it number, then the branch from where it was cashed or through its systems was cashed or through its systems requests the transfer of the money to it requests the transfer of the money to it from the branch issuing the card. The from the branch issuing the card. The latter automatically transfers and latter automatically transfers and deducts the value from its client’s deducts the value from its client’s account who would have thus evaded the account who would have thus evaded the restrictions imposed on these transfers .restrictions imposed on these transfers .

And since the ATM cards enable their And since the ATM cards enable their holders to withdraw funds locally and holders to withdraw funds locally and internationally – throughout 53 countries internationally – throughout 53 countries in the world – this facilitates for the in the world – this facilitates for the money launderers the task of smuggling money launderers the task of smuggling the suspicious fundsthe suspicious funds . .

The American authorities have The American authorities have discovered through the reports that the discovered through the reports that the monies deposited in some of the monies deposited in some of the American banks are withdrawn via ATM American banks are withdrawn via ATM machines in some drugs producing machines in some drugs producing countries, and that these processes are countries, and that these processes are recurrent .recurrent .

Second Way Second Way : Money Laundering via the : Money Laundering via the Payment Systems .Payment Systems .

This process takes place on three stages This process takes place on three stages :: Stage One : Depositing or Replacing .Stage One : Depositing or Replacing . Where the suspicious funds are deposited in a bank Where the suspicious funds are deposited in a bank

whether local or foreign, and credit cards are whether local or foreign, and credit cards are obtained with a ceiling equaling the deposited obtained with a ceiling equaling the deposited balance .balance .

Stage Two : Fraud and CamouflageStage Two : Fraud and Camouflage These cards are used later on in purchasing physical These cards are used later on in purchasing physical

assets such as precious minerals and expensive art assets such as precious minerals and expensive art paintings . The purchasing process is usually direct paintings . The purchasing process is usually direct or via others by handing him the credit card, or via or via others by handing him the credit card, or via the internet while resorting to using the protection the internet while resorting to using the protection and coding systems to guaranty the confidentiality and coding systems to guaranty the confidentiality of the operations that take place through it . of the operations that take place through it .

Stage Three : Incorporating and DeclaringStage Three : Incorporating and Declaring Where the physical assets are sold in cash or against Where the physical assets are sold in cash or against

a check or a financial remittance drawn on another a check or a financial remittance drawn on another bank .bank .

Third Way :Third Way : via the internet via the internet . .

The varied and developed use of that net provides several electronic The varied and developed use of that net provides several electronic banking activities such as hypothetical banks or internet banks that banking activities such as hypothetical banks or internet banks that are not in reality banks of an ordinary kind, but a mediator for are not in reality banks of an ordinary kind, but a mediator for conducting some financial and selling operations . This way allows the conducting some financial and selling operations . This way allows the money launderers to transfer or remit huge sums of monies rapidly money launderers to transfer or remit huge sums of monies rapidly and safely, since the dealers are anonymous. They are also not and safely, since the dealers are anonymous. They are also not subject to laws nor control instructions, and they take place across subject to laws nor control instructions, and they take place across international frontiers without control nor the possibility of tracking international frontiers without control nor the possibility of tracking them . These transfers via the internet can be completed using the them . These transfers via the internet can be completed using the credit card, since the money launderers can in this way transfer their credit card, since the money launderers can in this way transfer their balances several times a day in more than a bank in the world.balances several times a day in more than a bank in the world.

Money Laundering via Forged Credit Money Laundering via Forged Credit CardsCards General Glimpse on Cards ForgeryGeneral Glimpse on Cards Forgery Forgery is considered in general a criminal way that Forgery is considered in general a criminal way that

was established since a long time and that is limited was established since a long time and that is limited to a very limited number of people that have the to a very limited number of people that have the necessary skills and efficiency to copy or extract necessary skills and efficiency to copy or extract original valuable documents .original valuable documents .

In our era, and with the technological development, In our era, and with the technological development, the criminal does not only have the ability, but has the criminal does not only have the ability, but has also all the tools to produce copies with good also all the tools to produce copies with good specifications. Forgery has developed into a very specifications. Forgery has developed into a very organized trade of a wide scope, which revenues are organized trade of a wide scope, which revenues are estimated for billions of dollars for the criminal estimated for billions of dollars for the criminal organizations .organizations .

(Continuation)(Continuation)

First way : First way : To falsify To falsify or re-carve the embossed or re-carve the embossed details on the card or re-details on the card or re-type the information on the type the information on the magnetic tape on the back magnetic tape on the back of the card .of the card .

The Second Way : The Second Way : TO retype the TO retype the details of the new details of the new account on the account on the magnetic tape .magnetic tape .

FirstFirst : The Falsified : The Falsified CardCard

9ٍ9ٍSecond : The forged cards made by the Second : The forged cards made by the criminals.criminals.

The criminal needs to effect the forgery the information about the The criminal needs to effect the forgery the information about the account, the thrown selling slips or the merchant’s copy thereof, account, the thrown selling slips or the merchant’s copy thereof, or the typing of the information from the card or from the selling or the typing of the information from the card or from the selling slip .However, with the use of anti-forgery measures on the slip .However, with the use of anti-forgery measures on the magnetic tape, the use of information on the face of the card has magnetic tape, the use of information on the face of the card has become of less value currently, and it is restricted to the become of less value currently, and it is restricted to the possibility of using the card in a fraudulent way .possibility of using the card in a fraudulent way .

Nowadays, the valuable information of the account are obtained Nowadays, the valuable information of the account are obtained through a more complicated way called “reproduction” . through a more complicated way called “reproduction” . Reproduction requires the typing of the magnetic tape and storing Reproduction requires the typing of the magnetic tape and storing it on the computer, and then typing the information in embossed it on the computer, and then typing the information in embossed letters on a forged, missing or stolen card . This way, the original letters on a forged, missing or stolen card . This way, the original information are obtained including the security information, and information are obtained including the security information, and this is how the original magnetic tape is reproduced . In spite of this is how the original magnetic tape is reproduced . In spite of that, the information relevant to the account must be typed on the that, the information relevant to the account must be typed on the forged card , stolen or missing original card . forged card , stolen or missing original card .

Forms of Forged CardsForms of Forged Cards

The used V letter The used V letter is not the V is not the V security lettersecurity letter

The identification number printed above or The identification number printed above or under the four digits of the account number under the four digits of the account number is not present .is not present .

?ٍ?ٍEven though the spectrogram looks like a bird Even though the spectrogram looks like a bird flying, but it is not the picture of the dove that Visa flying, but it is not the picture of the dove that Visa uses, it is flat and not of the same color, and does uses, it is flat and not of the same color, and does not give the three dimensional movement that not give the three dimensional movement that appear in the original spectrogram .appear in the original spectrogram .

Typing around the visa logo is not the accurate typing required according to the visa measures . The thin line around the logo which needs a magnifying glass to read it should show the first four numbers of the account number, in addition to other security information .

Notice that the signature plate in both cards is not in its right place, and this led to the appearance of a white line on the lower part of the plate on one of the two cards and to the right of the other card .

On the signature plate, the word visa was placed in the wrong place. It should be inclined with a 45 degrees angle, and should be repeated in colors . Notice that on one of the signature plates, the word visa was typed once in a horizontal manner .

Notice that the word “bank” that appears on the card of the Hang Sing Bank Ltd. is wrongly written as follows “back” .

The picture of the spectroscopic dove was replaced by the picture of a full face, and there is no spectrogram at all . The thieves apparently try to give an impression that this is an original card, and exert pressure on the merchant to accept it, as if it was presented by the legitimate holder of the card.

The Bank’s identification number is different from The Bank’s identification number is different from the first four digits of the account number that the first four digits of the account number that are printed in embossed lettersare printed in embossed letters..

Even though the spectrogram seems to be the Even though the spectrogram seems to be the picture of a bird flying, but not like the dove that picture of a bird flying, but not like the dove that Visa uses. It is flat and was printed on a metal or Visa uses. It is flat and was printed on a metal or golden chip to represent a spectrogram. The golden chip to represent a spectrogram. The criminals have used on some cards reflecting criminals have used on some cards reflecting metal chips on mosaic drawings in an attempt to metal chips on mosaic drawings in an attempt to imitate the spectrogram .imitate the spectrogram .

The account number apparent on the invoice is different from The account number apparent on the invoice is different from the account number that is printed on the card, which the account number that is printed on the card, which indicates that the magnetic tape does not belong to this card .indicates that the magnetic tape does not belong to this card .

This spectrogram shows the face and head of the This spectrogram shows the face and head of the Statute of Liberty on the forged card, in spite of Statute of Liberty on the forged card, in spite of the fact that the visa logo is a flying dove .the fact that the visa logo is a flying dove .

CٍCٍAll these cards are forged and not issued by All these cards are forged and not issued by any company .any company .

The most famous examples on money laundering The most famous examples on money laundering

operations using credit cardsoperations using credit cards 1- 1- What happened in the US where the What happened in the US where the

money launderers managed to install money launderers managed to install ATMs machines , through which they could ATMs machines , through which they could to detect and know the pin numbers of the to detect and know the pin numbers of the clients using them, then they forged the clients using them, then they forged the cards and used them in the withdrawal cards and used them in the withdrawal and deposit operations, through real and deposit operations, through real machines. Thus, large amounts of money machines. Thus, large amounts of money were laundered in this manner until they were laundered in this manner until they were discovered .were discovered .

2- One of the drug dealers was discovered doing 2- One of the drug dealers was discovered doing money laundering of his funds by opening accounts money laundering of his funds by opening accounts for cards in several banks, and depositing financial for cards in several banks, and depositing financial sums on installments until the remittances appear sums on installments until the remittances appear ordinary later on. Then, he travels to another ordinary later on. Then, he travels to another country in which one of his partners that owns a country in which one of his partners that owns a jewelry shop uses it as a façade for misleading and jewelry shop uses it as a façade for misleading and fraudulent purposes. He pays him using the cards for fraudulent purposes. He pays him using the cards for purchasing jewelry with high prices . These are purchasing jewelry with high prices . These are fictitious operations until his partner could collect fictitious operations until his partner could collect these sums from the banks that issued the cards, so these sums from the banks that issued the cards, so that they can be used later on for purchasing that they can be used later on for purchasing narcotics or paid against drugs that were actually narcotics or paid against drugs that were actually delivered .delivered .

3- In Britain, the British police managed in 3- In Britain, the British police managed in July 1995 to capture the largest gang July 1995 to capture the largest gang specialized in forging credit cards since the specialized in forging credit cards since the history of Britain. The police has found (80) history of Britain. The police has found (80) thousand forged cards , and managed to thousand forged cards , and managed to arrest members of the gang that intended arrest members of the gang that intended to withdraw one hundred million Sterling to withdraw one hundred million Sterling Pounds via this card from the account of Pounds via this card from the account of actual clients of British Banks, as revealed actual clients of British Banks, as revealed by the investigations, and to remit these by the investigations, and to remit these funds to other banks outside Britain to be funds to other banks outside Britain to be able to give them a legitimate capacity and able to give them a legitimate capacity and return these funds to the country another return these funds to the country another time in a different and legitimate way .time in a different and legitimate way .

4- Some illegitimate organizations use 4- Some illegitimate organizations use credit cards in illicit trade across the credit cards in illicit trade across the internet, and launder monies obtained internet, and launder monies obtained from dealing in drugs, human organs, from dealing in drugs, human organs, international prostitution and children international prostitution and children selling, by depositing funds withdrawn in selling, by depositing funds withdrawn in illegal ways in bank accounts, then they illegal ways in bank accounts, then they remit them among several branches until remit them among several branches until the connection with the illegal issuer is the connection with the illegal issuer is severed, and they use them after for severed, and they use them after for settling payments and can withdraw settling payments and can withdraw from them using the card .from them using the card .

Recommendations for combating money Recommendations for combating money laundering via credit cardslaundering via credit cards Jordan considers it extremely important to ensure that Jordan considers it extremely important to ensure that

monies earned through illegal activities abroad are not monies earned through illegal activities abroad are not run through the financial system in the country for the run through the financial system in the country for the benefit of those criminals, irrespective of where the benefit of those criminals, irrespective of where the crime was committed.crime was committed.

For stopping Possible Money Laundering via Electronic For stopping Possible Money Laundering via Electronic Banking Services :Banking Services :

- The bank/financial institution, which provides to its customers - The bank/financial institution, which provides to its customers electronic transfer systems, should connect a programme on such electronic transfer systems, should connect a programme on such systems to flag/ highlight all unusual transactions, so as to enable the systems to flag/ highlight all unusual transactions, so as to enable the concerned financial institution to report such transactions.concerned financial institution to report such transactions.

- When an account receives numerous small fund transfers - When an account receives numerous small fund transfers electronically, and then the account holder carries out large transfers in electronically, and then the account holder carries out large transfers in the same way to another country.the same way to another country.

- Customers who make regular and large payments using different - Customers who make regular and large payments using different means, including electronic payments, that cannot be clearly identified means, including electronic payments, that cannot be clearly identified as bonafide transactions, or receive regular and large payments from as bonafide transactions, or receive regular and large payments from countries which are identified by the Central Bank as large drug countries which are identified by the Central Bank as large drug markets.markets.

- Transfers from abroad, which are received in the name of a - Transfers from abroad, which are received in the name of a customer of the bank of any financial institution electronically, and then customer of the bank of any financial institution electronically, and then are transferred abroad in the same way without passing through an are transferred abroad in the same way without passing through an account (i.e, they are not deposited then withdrawn from the account), account (i.e, they are not deposited then withdrawn from the account), are not allowed. That is, these should appear in the account statement.are not allowed. That is, these should appear in the account statement.

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