Cash-Free Money Laundering Method

[ImposterJack]

Small scale money laundering has traditionally been done through cash-heavy businesses. For example, a DNM vendor could run a small computer repair business and then pump their dirty cash into it, claiming that they perform far more repairs than is actually the case. However, as I described in a recent post, cash is slowly disappearing. In countries like Sweden, cash is almost extinct. Countries like the US with have more time, but eventually everyone will need to adapt to the new reality. In the remainder of this post, I will derive a new cash-free laundering method which I believe could be suitable for DNM vendors.
So how can vendors launder their money without using cash? First we need to review how money laundering works in gerneral. Fortunately, the basic laundering process is the same regardless of the type of money used:

• the trail between the money and its illicit origin needs to be broken
• a fake trail must be created which links the money to some new legal origin

The first step is trivially completed by converting to cash or by just taking cash payments in the first place. Other than a serial number, hard cash is untraceable. It is impossible to determine the previous owners of a bill simply by physical examination. The banking system is the exact opposite. Thanks to KYC/AML/ATF, every account corresponds to a real identity and every transaction is traceable. These characteristics make hiding the origin of funds is extremely difficult. Offshore banking secrecy is an option, but it has a high barrier to entry and is just as endangered as cash. The most obvious solution for the DNMs is to adopt Monero. If used properly, Monero can be even more untraceable than cash.
The second step requires much more effort. The vendor must find a way to funnel their dirty profits into a legal business. The ideal type of business depends on the characteristics of the launderer. DNM vendors tend to:

• have a small number of core members (often just one)
• be at least somewhat technologically skilled
• have limited connections to traditional organized crime

Based on these traits, a vendor would traditionally own a small cash-based service business as previously described. Service businesses are good because there is often no clear connection between their inputs and their outputs, so it's very difficult for observers to spot extra money being placed into the business. Unfortunately, few service business accept Monero, and so any attempt to launder serious funds through them would trigger red flags at the vendor's bank. An alternative business would be one which sells digital goods. These businesses are ideal as they have small variable costs, greater acceptance of cryptocurrencies, and can often be operated by a single person.
A good example I have seen is OB2 vendors selling public domain ebooks for 1 USD in BTC. If the vendor washes their BTC properly then it would be extremely difficult to show that they were simply paying themselves. However, the main downside is that the business does not appear to be legitimate. Many people on the DNMs seem to be under the impression that the IRS does not care how you earn your money as long as you pay your taxes. This is not the case. If you trigger too many Suspicious Activity Reports (SARs) at your bank then the IRS could seize your entire business under civil asset forfeiture. You may not go to prison, but you would still suffer a massive loss and have yearly audits for the rest of your life.
The goal then is to make the business appear more legimate. The real adversaries in this endeavor are the bank and the IRS. At small scales, a vendor could simply place their business profits into their own personal bank account. At larger scales, the vendor will need to apply for a business bank account and undergo much more scrutiny. Staying on the ebook subject, a copyrighted ebook seller on Amazon looks more real than a public domain ebook seller on Openbazaar. See this article for an example of Amazon ebook merchant money laundering.
The launderers in question don't actually do a very good job, but I like the general idea. I that assume that they live in a country with rather lax enforcement and therefore just need to get their money into the banking system rather than truly laundered. The main problems are that the book prices are way off, the books are just random text, and they committed tax fraud so they didn't actually fully clean the money. The concept is still sound though. A DNM vendor can setup an Amazon merchant account and list ebooks for sale. They can then use their Monero to generate artificial sales for their own ebooks. The main choke point will be when the launderer sets up their business bank account. The bank will demand detailed information about the business and will file SARs should they suspect that anything is off.
The launder must create a believable front for their business. Most DNM vendors probably can't pass as authors, so it would be much more plausible for them to claim to be ebook republishers/remarketers. Anyone can purchase the rights to unpopular ebooks at very low cost, so that can provide a source of legitimate looking product. The next step is to translate Monero into ebook sales on Amazon. The vendor has a few options:
1. Convert their Monero into Amazon gift cards and use the cards to purchase their own ebooks and leave positive reviews. This is very simple, but doesn't provide any of the usual credit card traffic for a merchant. I don't know if Amazon analyzes the proportion of puchases using gift cards vs credit cards, but it could use that data to locate possible launders.
2. Use their Monero to buy social media accounts and Command and Control (C2) infrastructure so that they can shill their ebooks on relevant websites. They could also outsource this shilling to other people once their business gets larger. These shills could probably be found on one of many crypto pump-and-dump chat groups. This method has the benefit of the Amazon purchases being mostly with credit cards from a wide assortment of accounts, and thus not raising much suspicion. The downside is that it may take longer to see results, especially if the ebooks aren't any good.
3. Use their Monero to directly pay people to use their credit cards to buy the ebooks and leave positive reviews. The vendor would tell the purchasers that they are simply buying fake reviews and not mention the laundering. These people could again be recruited from a pump-and-dump group. This has the advantage of creating immediate sales for the ebooks, while also increasing the number of positive verified reviews. The downside is that the purchasers may realize that the vendor is laundering money and threaten to report them if they don't give them more Monero.
Overall, I think that a combination of 1 and 2 would be the safest bet. The vendor could start off with a lot of gift card purchases to increase their ebooks' positive reviews, while slowly transitioning to a Monero funded advertising model as their business grows. I am not aware of any KYC/AML laws hindering this arrangement with Amazon, so it should be very straightforward to pull off.
I have presented a rather specific strategy, but the general ideas can be applied to a variety of laundering scenarios. I used Amazon as a sample sales platform, but of course others could be used. I can also imagine similar operations with obscure video games instead of ebooks. Perhaps cryptocurrencies will eventually become popular enough to revert back to laundering though service business, but I don't think that will be any time soon. Please let me know what you think of my post.

 

[HellCatNPC]

You're onto something here but there are too many human weak points in the integration phase of your ebook example. The people you hire to integrate the money into your hands could snitch on you. You also open yourself up to being scammed. It would also suck to pay amazon 15-40% of your revenue in the form of commission just to clean your cash.
A potentially better idea I've thinking about involves posing as a legitimate blockchain developer. Perhaps you could build something like crypto kitties and layer cleaned/mixed crypto funds directly to your app. Then you simply transfer to a legit crypto exchange for deposits. You'll probably have to talk with an KYC/AML auditor at the crypto exchange but as long as your story holds up to scrutiny, you could clean millions this way. With this example, you wouldn't have to trust any humans and you wouldn't have to pay fees to a sales platform like Amazon.

 

[FreeTJ]

The people you hire to integrate the money into your hands could snitch on you.
I agree that this could be a problem if you start recruiting shills/smurfs. However, if you just push your own money directly into your business then it won't be a problem. You could also run your own shilling campaign entirely unassisted if you had enough fake accounts and good C2 software.
It would also suck to pay amazon 15-40% of your revenue in the form of commission just to clean your cash.
Everyone who uses Amazon pays that fee, and they do it because it opens up a large market to them. If you don't want to pay the fee then you could find another platform, but it may not provide as much cover traffic in which to hide your dirty money. If you don't want to pay any fee, then you don't have to use a platform at all, although your business will look more unusual and thus more suspicious.
A potentially better idea I've thinking about involves posing as a legitimate blockchain developer.
I considered writing about this, but mostly in the context of an ICO. I chose not to pursue the concept as there's a lot of heat on ICOs right now from the SEC. Your game/app suggestion is probably better for avoiding scrutiny. I think the main problem would be convincing the exchange that your business is legitimate. If they used a company like Chainalysis and saw that most of your money was coming from tumblers or xmr.to then they would likely close your accounts and/or file SARs. To avoid this, you would need to provide normal-looking purchases by convincing a sufficient number of regular people to actually use your game/app. At this point you run into the same personnel problems you identified with my ebook concept.
The main reason I used a non-crypto business as an example is due to the lesser scrutiny applied to them. If you create a blockchain app then you need to deal with AML checks at both the exchange and bank levels. With a non-blockchain digital goods business, you should only need to deal with AML checks at the bank level, as platforms like Amazon don't seem to do very much law enforcement.

 

[HellCatNPC]

Yeah if you went the ICO or blockchain app route, you'd have to put some work into it to make it legitimate. Probably not worth it if you are cashing out less than a half million.
Sure you want all of your bases covered but I don't think compliance officers use chain analysis on every customer. If there were red flags and LE was notified, then I could see chain analysis being used. Better to be safe than sorry though.
Also, in the case that they did discover most of your money was coming from Monero, that makes things look suspicious but isn't exactly evidence that you've obtained the funds through crime.

 

[ImposterJack]

Yeah if you went the ICO or blockchain app route, you'd have to put some work into it to make it legitimate. Probably not worth it if you are cashing out less than a half million.
Sure you want all of your bases covered but I don't think compliance officers use chain analysis on every customer. If there were red flags and LE was notified, then I could see chain analysis being used. Better to be safe than sorry though.
Also, in the case that they did discover most of your money was coming from Monero, that makes things look suspicious but isn't exactly evidence that you've obtained the funds through crime.

The blockchain developer front is probably better for laundering millions of dollars. I'm sure that many ICOs were just enormous money laundering plots. Especially back when regulation was non-existent. I still like the idea of a digital goods store though as it seems like it could be more practical for a medium sized vendor.