Money Transfer in Cyberspace MTRA 16th Annual Conference November 13 15, 2006 Presented by Joseph Ca

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Money Transfer in CyberspaceMTRA 16th Annual
ConferenceNovember 13 15, 2006Presented by
Joseph Cachey IIISVP, Global AML ComplianceThe
Western Union Company
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Money Transfer in Cyberspace

• What is Cyberspace?
• A term coined by William Gibson in Neuromancer
  (1984)
• A metaphor for the Internet
• The opposite of Meatspace
• A virtual reality which represents the Noosphere
  / Popperian Cosmology both inside computers and
  on computer networks
• All of the Above

Source Wikipedia (from cyberspace) 2006
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Money Transfer in Cyberspace
In terms of Money Transfer, Cyberspace is Use
of the internet for purposes of facilitating
movement of funds or conducting a money transfer.
These include

• Consumer to Consumer transfers (C2C)
• Consumer to Business transfers (C2B)
• Business to Consumer transfers (B2C)
• Business to Business transfers (B2B)

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Money Transfer in Cyberspace
Typical Transaction Flow
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Money Transfer in Cyberspace
Typical Cyberspace Money Transfer Methods Money
Transmitter (MSB) Websites

• Credit / Debit / Prepaid Card to MSB Payout
• Bank ACH to MSB Payout / MSB Funding to Bank
  ACH
• Bill Payments
• Staged Transactions
• Prepaid Card top-ups and Virtual Account Funding

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Money Transfer in Cyberspace
Source of Funds for Internet Money Transfer

• Common
• Banking Accounts
• Credit Cards
• Debit Cards
• Prepaid Cards

• Emerging
• Virtual Accounts / Virtual Prepaid
• Staged Online then funded by Cash
• Digital Currencies / Electronic Cash

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Money Transfer in Cyberspace
Benefits of Cyberspace Money Transfer

• Consumer Benefits
• Convenience
• Speed
• Costs
• Privacy
• Ease
• Security

• Money Transmitter Benefits
• Low Costs of entry
• Low Overhead
• Speed
• Widespread Access
• Consistency
• Revenue

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Money Transfer in Cyberspace
Risks with Cyberspace Money Transfers
Consumer Risks
Money Transmitter Risks

• Receiver Fraud
• Rogue Websites
• Account Takeovers (Identity Theft)
• Undisclosed Fees
• Limited Consumer Protection (Emerging Sources)
• Possible Limited Recourse
• Security Phishing

• Customer Identification and Verification
• Transaction Authorization and Merchant Liability
• Sender and or Receiver Fraud
• Account Takeovers (Identity Theft)
• Money Launderers
• Terrorist Organizations
• Website Compromises
• Disasters

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Money Transfer in Cyberspace
Steps to controlling your programs risk

• Sever links between your products and unapproved
  transfer methods
• Police the internet and protect your brand
• Impose limits and velocity checks on amounts that
  can be transferred
• Enhance your customer authentication remember
  international!
• Enhance your transaction authorization process
• Develop a robust monitoring and early warning
  program

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Money Transfer in Cyberspace
Risks from Regulators Perspective

• Rapid Proliferation with low barriers to entry
• Lack of Regulation (Emerging Sources)
• Unregistered Companies
• Money Laundering and Terrorist Financing
• Borderless

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Money Transfer in Cyberspace
Risks from Regulators Perspective (cont.)

• Offshore Website Hosting
• Stopping illegitimate websites
• Stopping links between legitimate and
  illegitimate transfer methods
• Consumer Protection
• Who Regulates?
• What / who do you regulate?

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Money Transfer in Cyberspace
Current Regulatory Environment

• PCI Compliance Rules (Dual Factor
  Authentication)
• Regulation E (Transaction receipts and account
  statements)
• MSB Registration Required?

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• New Product Examples

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Money Transfer in Cyberspace
Prepaid Cards A card or device with stored
value that is used for payment in the form of
electronic cash. Often referred to as Stored
Value Cards.
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Money Transfer in Cyberspace
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Money Transfer in Cyberspace
Virtual Accounts / Virtual Prepaid A prepaid
card or account number with stored value that
exists in cyberspace only. Mainly used for online
transactions or card to card money transfers.
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Money Transfer in Cyberspace
Staged Online then funded by Cash Prearranging a
purchase online or possibly a money transfer then
funding via a cash remittance at a money
transmitter.
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Money Transfer in Cyberspace
Electronic Cash is a digital form of money. Can
be stored electronically or held virtually. Can
be denominated in an official currency or a
derived artificial currency. New section in the
2006 FFIEC BSA/AML Examination Manual. Pages 202
204
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Money Transfer in Cyberspace
Current Regulatory Environment (cont.)

• State Laws are virtual accounts monetary
  instruments?
• International Regulations
• Reporting Requirements
• AML Programs for Offshore sites?

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Money Transfer in Cyberspace
A world of Electronic Cash awaits you
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Money Transfer in Cyberspace
How digital currency works
Source FATF / GAFI Report on New Payment
Methods, 13 October 2006
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Money Transfer in Cyberspace
Popular Examples
e-bullion
e-gold
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Money Transfer in Cyberspace
Typical Cyberspace Money Transfer Methods Bank
Websites

• Account to MSB Payouts
• Prepaid Card Purchases
• Other

• Bill Payments
• ACH Payments
• Account to Account

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Money Transfer in Cyberspace
Sample Bank Money Transfer Website
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Money Transfer in Cyberspace
Sample MSB Money Transfer Website
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Money Transfer in Cyberspace
Non-Typical Cyberspace Money Transfer Methods

• Anonymous Accounts and Products
• Accounts or products which do not require
  customer ID or provide
• anonymous ways to transfer money.
• Digital Currency transfer services
• Allows movement of funds between
  alternative forms of
• electronic cash

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Money Transfer in Cyberspace

• Sample of a Fully Anonymous Prepaid Card

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Money Transfer in Cyberspace
Cards Tied to Numbered Accounts with No ID
Required
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Money Transfer in Cyberspace

• What loading methods are appropriate?

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Money Transfer in Cyberspace
Phishing the bait
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Money Transfer in Cyberspace
Phishing the hook
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Money Transfer in Cyberspace
The End
Cyberspace Contact joseph.cachey_at_westernunion.com
Meatspace Contact 720-332-4642