How to find the launderers … or not

Someone asked me this week: why isn’t digital identity working? After all, there have been numerous attempts at tackling the issue. Specifically, in finance, we have onboarding, compliance, AML, KYC, PEP and more … and yet none of it is working. If it was working, there would be zero criminal activity in the financial world. Instead, we have $2 trillion of money laundering taking place every year.

The critical thing in all of this is finding out who you are. Are you a trusted person or someone from the underworld? A Politically Exposed Person (PEP) is a specific area of interest, as these are individuals who are known to be bucking the system. From there, let’s not even go into sanctioned nations. How can a sanctioned nation still make money? Oh, investing in property in another nation.

The question therefore always arises: how can you find the suspect person in the system?

This is the question raised all the time, and it is massively difficult due to all the dimensions involved. You have governments, financial institutions, commercial companies and individuals all in the loop, and very few of them co-ordinated or in synch.

It’s like the way in which we deal with airline security. If you want to prove everyone is not carrying a bomb, then everyone should fly naked. We near enough do that these days in the security scanners of boarding, but does anyone really want to fly with all their dangly bits hanging out or having TSA rubbing you up and down in all those sensitive areas?

Just like airline security, financial security is pretty much the same and yet probably easier to get around. Why? Because there are no physical interactions today. Finance is digital; airlines are physical.

So how do I get around the onboarding checks of  banks?

Well, first of all, it’s not just banks. It’s payment services, cryptocurrency, PayPal, Wise, Revolut and such. Where there’s a will, there’s a way and these days there are many more ways to get around the system.

For starters, you don’t need a bank account. If you can’t get the right documents to open a bank account, you could use a prepaid card account instead or, these days more likely, a cryptocurrency.

Equally, if you do need a bank account, the best way is to create a nested bank account. The idea is that there’s a holding company with subsidiaries operating in multiple countries. So, now you’ve created a two-, three- or four- tier system of cover and can move millions because no-one knows the relationship between each.

Bear in mind there are three main stages of laundering:

• Placement (i.e. moving the funds from direct association with the crime)
• Layering (i.e. disguising the trail to foil pursuit)
• Integration (i.e. making the money available to the criminal, once again, from what seem to be legitimate sources)

… and you get the idea.

All in all it means that, when it comes to proving identity, it can easily be dodged today if you have the mission and intent to dodge it. Solution? Well, identity has always been hard. Think back to the last century when everyone had to carry their identity documents with them. Whenever an inspecitor from the police or government asked to see you idenityt papers, it wasn’t popular. It still isn’t, although we luckily live in a much more peaceful world without world wars … oh, Ukraine, Russia, Israel, Iran, America … is all of this about to change?