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E-Money Laundering and the Incapability of Current Legal framework Le Tan Quan Tran Van Long University of Economics Ho Chi Minh City, Vietnam Abstract We always concern about crimes, especially hi-tech crimes This may be considered an extortion of the advent of Informational and communication technology in an attempt to transnationally commit a crime The instance hereby discussed will be criminal acts conducted in the environment of e-commerce to launder their “dirty” money This paper is aimed at clarifying the process of the so-called e- money laundering and suggesting some legal solutions for detection, prevention and combat with this new kind of crime in the case of Vietnam Keywords: prevention, e-money laundering, Vietnam, Bitcoin, e-commerce Introduction E-money laundering is a not a new concept but remains contestable I may be simply defined as a process to launder criminal benefits “through non‐face to face transactions” (He, P 2010) 1, or by using of “wire transfer systems” (Hoffman, C D 1997).2 More specifically, FATF provides recommendations related to money-laundering carried out through digital cash systems3 This paper will clarify some relevant definitions and by doing so, the concept of e-money laundering as well as the practice of Vietnam legal framework will be analyzed 1.1 E-commerce and Cyberspace: legal definition and its arguments According to Article 3.1 Decree 52/2013 ND-CP4, E-commerce means commercial activities conducted partially or entirely in electronic environment through connecting “to the Internet, mobile telecommunications network or other open networks.” In fact, this legal definition narrows the scope and applications of e-commerce that may be conducted without the internet or mobile network We argue that e-commerce should be understood as commercial transactions carried out the electronic means in the cyberspace, as Daniali, G (2014) sketches out: “Any type of commercial transaction information through the electronic instruments is called Electronic Commerce”5 Correspondingly, the environment of e-commerce is cyberspace The question of what cyberspaces is still remained debatable Thus, this paper will initially clarify the concept of cyberspace as a He, P (2010) A typological study on money laundering Journal of Money Laundering Control, 13(1), 15-32 Hoffman, C D (1997) Encrypted Digital Cash Transfers: Why Traditional Money Laundering Controls May Fail Without Uniform Cryptography Regulations Fordham Int'l LJ, 21, 799 See Financial Action Task Force, 1996-1997Report on Money Laundering Typologies p.65 (visited Jun 12, 2018) English full text is available at https://luatminhkhue.vn/en/decree/decree-no-52-2013-nd-cp-dated-may-16 2013-of-the-governmenton-e-commerce.aspx (visited Jun 12, 2018) See Daniali, G (2014) E-money Laundering Prevention New Marketing Research Journal, 573 foundation for analyzing the phenomenon of e-money laundering We find that, it is very important to clearly perceive the term “cyberspace” prior to any discussion relating to cyberlaundering According to Professor Daniel T Kuehl (2009), cyberspace means A global domain within the information environment whose distinctive and unique character is framed by the use of electronics and the electromagnetic spectrum to create, store, modify, exchange, and exploit information via interdependent and interconnected networks using information-communication technologies.7 We argue that this definition considers cyberspace as “a global domain”, but does not differentiate this domain to other existing “domains”, including Earth’s surface with 70% water and 30% land covered by the space, and the universe subsequently Also, this definition cannot identify physical criteria of cyberspace when using the term “information environment” Therefore, we need to determine where the exact location of cyberspace is within this universe in the reference with physical domains What are the cyberspace’s contents, and what are the components of cyberspace? Based on our observation, we define the cyberspace as follows: Cyberspace is a human-made, knowledge-based, and natural global domain that has been created and developed continuously It (cyberspace) was embedded in other domains: land, sea, space and universe This domain mainly contains information and it (information) exists in the form of electromagnetic, optical, electromagnetic waves, framed by the use of electronic devices and electromagnetic spectrum to create, store, process, exchange and exploit information through interconnected and interdependent networks by using the information and communication technology infrastructure 1.2 Social structure of Cyberspace In different aspects, cyberspace can be approached with many dimensions Typically, scholars have exploited the cyberspace in three respects: information environment, social perspective, technical perspective In this article, we focus mainly on the policy issues and law-making suggestions, we, therefore, discuss the concept of cyberspace in respect of its social structure, including 1) policies and laws; 2) Technology capability; 3) Information content; 4) Human resources; 5) Organizational structure; 6) Human knowledge in cyberspace - Policies and laws: the regulations issued by the state or international organizations that govern the cyberspace, which contains general codes of conduct for individuals and groups while participating in cyberspace The cyber laws and legislation create a legal framework that ensures the safety, the effectiveness of cyberspace - Technology capability: the ability to use available technology, to research and develop new technologies that affect cyberspace, platform technologies such as network technology, semiconductors, microprocessors, software technology Notably, innovative technologies and its applications, a strong technological capability is the foundation for mastering the cyberspace - Information content: it should be stored, processed, exchanged and exploited in cyberspace Relying on different requirements of participants and stakeholders, cyberspace will be built to serve different specific purposes For example, in the case of e-commerce, an online trader will decide to set up an online sales site, he then will deploy the cyberspace in the direction of building a web page, connecting to the Internet, and “Cyberlaundering occurs when individuals use the Internet and associated technologies to transform criminal proceeds into clean funds that are untraceable” For details, see Turner, S (2003) US Anti-Money Laundering Regulations: An Economic Approach to Cyberlaundering Case W Res L Rev., 54, 1389 In fact, cyberlaundering is a concept that has been rarely used academically This paper tends to use the term “e- money laundering” as mentioned in FATF guidance, See, Supra note Kramer, F D., Starr, S H., & Wentz, L K (Eds.) (2009) Cyberpower and national security Potomac Books, Inc P 29 Dodge, M., & Kitchin, R (2001) Atlas of cyberspace (Vol 158) London: Addison-Wesley, p.12 574 trading through social networks, electronic trading platforms, or building a Blockchain network Thus, the content of information will determine the operation and development of the in a particular industry - Human resources: people who are trained professionally and specifically in cyberspace activities, adequately eligible in legal and technological knowledge and skills Such people will play a decisive role in all human activities on cyberspace - Organizational structure: Including entities in both public and private sectors, including the political, social, economic and social systems operating in a close network established for supporting the development of cyberspace, as well as ensuring the cybersecurity - Human knowledge involved in cyberspace: including legal, standardized, normative knowledge of people using cyberspace for their own purposes The degree to which people aware of the importance of cybersecurity and comply with its legal framework also plays a determinant factor in the development of cyberspace 1.3 Money laundering in cyberspace According to the law, money laundering means acts of organizations or individuals aiming to legalize the origin of property acquired from crimes 10 Nowadays, along with the advent of information technologies, as well as e-commerce (comprising e-commerce websites and e-commerce trading floor)11, e-finance in the global trade, money laundering activities have been facilitated with advantages coming therefrom, and thus creating the new type of crime: e-money laundering12 Therefore, the Governments around the world now have faced with new kind of money laundering, they need to enhance the current legal systems in order to detect and combat with sophisticated tricks of e-money laundering, effectively and efficiently, based on the social structure of cyberspace that mentioned previously This paper is mainly based on the achievements of the development of information technology applications in e-commerce, with the aims at indicating the different forms of electronic money laundering and providing some appropriate legal solutions, in the case of Vietnam From E-Commerce To E- Money Laundering 2.1 E-commerce and its benefits E-commerce is widely developed around the world Due to its convenience, efficiency in trading and consumption, all types of e-commerce such as B2B (business To-business, B2C (business-to-consumer), C2C, or C2B have been addressed and regulated by the law Primitively, e-commerce was based on Web technology, the Internet, and then continuously developed on the social networking, mobile technology, or electronic trading platforms New technology will lead to new challenges, risks and hazards For instance, the advent of Blockchain technology that created the backbone of a new type of internet which is based on the Internet, peer-to-peer network and the crypto currency such as “The blockchain as a public ledger means that it is easy to query any block explorer (such as https://blockchain.info/) for transactions associated with a particular Bitcoin address” See, for example, Swan, M (2015) Blockchain: Blueprint for a new economy " O'Reilly Media, Inc 10 Article 1, Law on Anti- money laundering 2012 11 According to Decree 52/2013/ND-CP, E-commerce website (hereinafter referred to as website) is the electronic information page set to serve a portion or the whole process of buying and selling activities of goods or provision of services, from display and introduction of goods or services to contract commitment, service provision, payment and after-sales service E-commerce trading floor is an E-commerce website permitting the traders, organizations or individuals that are not the website owners may conduct a portion or the whole process of buying and selling goods and services on that website Supra note 12 In the era of technology, e-finance, e-payment and e-currency that have resulted in different approaches of e- money laundering This danger has been initially reckoned since 2000 See, Ping, H E (2005) New trends in money laundering-from the real world to cyberspace Journal of Money Laundering Control, 8(1), 48-55 575 Bitcoin, By Bitcoin the tech community is now finding other potential uses for this technology, namely, smart – contract in cyberspace13 In summary, e-commerce transactions, regardless of their model, form or technology, are also conducted s in cyberspace, anonymously and intangibly Consequently, e-money laundering has been facilitated by a new method that entirely adheres to the cyberspace14, with the following characteristics: Globally, without territorial restriction in commercial transactions The impact of domestic law on e-commerce transactions would be somehow formalistic in case if the state does not have sufficient technological resources for regulating Virtual environment should be highly anonymous Identifying the subject of a behavior or chain relating to crime should be complicated and difficult, sometimes it would be impossible if it is conducted through a high technological skills E-commercial transactions can be accomplished quickly without trace or clue 2.2 E-money systems and e- money laundering In line with e-commerce, the presence of virtual currencies has become ubiquitous Virtual money is an attractive investment channel, and it also simplifies cross-border payment processes Money laundering is has been facilitated by the advantages coming from virtual currency in e-payment process, invisibly, conveniently and anonymously.15 Generally, the process of money laundering includes three following basic steps: Placement: This is the hardest and most dangerous step, the main task is to find out and get money into a legitimate financial institution, and ensure that undetected Layering: This step is mainly to convert the money source through many banks or financial institutions located in different countries, by consecutively withdrawing, depositing, or buying, investing and selling high-priced assets with the purpose to conceal the origin of money This is a very complicated step, as it is impossible to trace back the source of money Integration: finally the money is officially formalized and legalized, by laundering in different ways The “clean” money shall be back to crimes.16 However, given the characteristics of e-commerce and the money laundering process mentioned previously, the combination between them then results in a new method: e-money laundering, or laundering the origin of money through e-commerce transactions in cyberspace By doing so, the role of banks and financial institutions in the prevention of money laundering tends to be completely disabled The e-money laundering process can be described in the following diagram: See, for details, Crosby, M., Pattanayak, P., Verma, S., & Kalyanaraman, V (2016) Blockchain technology: Beyond bitcoin Applied Innovation, 2, 6-10 See, also, Supra note 11 14 See, Page 2-3 15 See, Straub, J P (2001) The prevention of e-money laundering: Tracking the elusive audit trail Suffolk Transnat'l L Rev., 25, 515 16 See FATF (2017) Guidance on anti-money laundering and terrorist financing measures and financial inclusion, at http://www.fatfgafi.org/publications/financialinclusion/documents/fatfguidanceonantimoneylaunderingandterroristfinancingmeasuresandfinancialinclusion.html (accessed on 6/7/2018) 13 576 Figure E-money laundering by using Bitcoin Step 1: Using cash to buy Bitcoin and create Bitcoin wallets for saving, which is also an important and dangerous step, but actually much easier than finding a financial institution to put money into This step is equivalent to step of the money laundering process aforementioned Step 2: Creating a lot of Bitcoin wallet to decrease the amount of Bitcoin collected, with many different locations to be anonymous Step 3: Building an e-commerce transaction platform, then creating goods that cannot be verified and selling them at high prices, such as intellectual property, Hi-tech products Notably, all commodities selling on e-commerce platform is artificially created and owned by money launderers, then traded by themselves and for themselves Step 4: Using layered Bitcoin wallet to buy their own commodities by different wallets in different locations that cannot be detected This means the buyers are also the sellers holding Bitcoin wallets described in Step Step 2, 3, hereby mentioned can be deemed as Step in the traditional method discussed above Step 5: Bitcoin interest earned through trading on the e-commerce platform then will be transformed to be “clean” money by trading This is equivalent to step of the basic money laundering process In details, E-money laundering can be described by the following e-processes: E-placement: We find that it should be not easy for criminal organs to put their “dirty” money into a financial institution as traditional way since most traditional financial institutions have strict rules for anti- money laundering Rather, money launderers may sit at their home, connect to the internet, split up their cash and buy Bitcoin from many Bitcoin sellers around the world Money launderers in this scenario include one boss and his juniors The boss may divide his amount of money earned from illegal activities into small pieces, and his juniors will use those pieces to buy a reasonable amount of legal Bitcoin, this process will be repeated in many times, on many exchanges, with many different accounts, whether anonymously or not Launderers then will clean their money through various e-activities such as purchasing of goods from ecommerce platform, transferring e-money into countries where being lack of effective financial management Though there are many other e-currencies, but in our paper, we concentrate on Bitcoin as a research sample due to its ubiquitous usage in practice 577 In doing so, money will be laundered through transformation into Bitcoin quickly, safely and legally In this process, boss will finally clean his dirty money by a network of his juniors who have consecutively electronically traded by Bitcoin, as sketched out in the following figure E-layering The boss (in aforementioned scenario) selects a bunch of trusted juniors and assigns them to create more and more Bitcoin by themselves through self-trading by Bitcoin, for example, creating their own e-commerce trading platform, then selling cheap goods with high price, and buying these goods by themselves or their partnerships This step is relatively easy E-integration This process combines with these steps: Step three is "integration" step three to three things: 1) The boss directly, or through his juniors, launch an electronic trading platform; 2) Hiring people (or his own juniors) to create virtual goods, or cheap goods selling with high price, and pay the fee for the owner of the e-commerce platform (the boss), the earned revenue then tends to be used as described in e-layering process Sellers, buyers and participant will be changed regularly to ensure safety 3) Juniors who holding Bitcoin as mentioned in e-layering process will the interchangeable buyers in the e-trading platform created by the boss Finally, the boss will use the earned Bitcoin to exchange for legitimate cash officially and legally It is important to note that, this entire process is created and managed by money launderers themselves, thus the origin of money becomes undetected More dangerously, this e-money laundering process completely eliminates the intervention and prevention from banks or financial institutions 578 Relevant Legal Loopholes And Some Suggestions For Enhancement Of Anti- E-Money Laundering Framework It is necessary to affirm that the current anti-money laundering legal framework, in accordance with the Law on Anti-Money Laundering 2012 and its implementing guidelines, is completely incapable of detecting and preventing e-money laundering activities on e-commerce transaction platform by e-currency tools: Commercial banks and financial institutions play a key factor in money laundering prevention related to financial activities in traditional commerce Meanwhile, e-commerce platforms and e-currency tools are the main environment for e-money laundering Legal requirements relating to internal regulations of financial institutions and business organizations on the prevention and combat of money laundering, including collecting and reporting of suspicious transaction not apply to e-commerce platform or e-business activities.3 In other words, the current law in Vietnam, like other developing countries as well, is entirely incapable of detecting and combating e-money laundering For improving the legal framework of anti- e-money laundering, we need firstly define exact stakeholders of this process that can be categorized as follows: Public sector Ministry of Finance, the State Bank, State Treasury, Investment Fund, the Capital Management Committee, the state-owned commercial banks or Investment Fund, Ministry of Planning and Investment, Ministry of Industry and Trade, Ministry of Justice; Ministry of Information and Communication, Ministry of Public Security and judicial agencies such as Procuracy and the People’s Courts; State-owned companies engaged in the field of information technology, telecommunications and e-commerce Private sectors Foreign and domestic Commercial banks, investment funds, financial institutions, Charity, non-governmental charity organizations, Private companies providing information technology services for e-commerce, telecommunication business, information technology, e-commerce Organizations and individuals engaged in trading by e-currency Table Stakeholders of e-money laundering combating 3.1 On the policies and laws For the prevention and fighting against money laundering on cyberspace, we rely on the cyberspace’s structure as mentioned previously4, and concentrate on stakeholders discussed above, to propose the following specific solutions: The National Assembly should consider to codify a law on regulating e-money E-money or e-currency must be taken into account, be legally recognized, be adequately stipulated, be effectively managed For implementation, the State Bank shall have to issue administrative regulation, in which, E-money should be treated as a kind of foreign currency without liquidation value Correspondingly, The Ministry of Finance and the Ministry of Planning and Investment need to stipulate regulations on trading of e-money These regulations should clarify prohibitory provisions in the field of emoney in e-commerce activities According to Article Law on Anti-money laundering, Article Decree 116/2013 detailing implementation of a number of articles of Law on prevention and combat of money laundering Article 13, 14 Decree 116/2013 See, Social structure of Cyberspace 579 The Ministry of Public Security, the Courts and the Procuracy need to cooperate and build a draft law on electronic data in consideration of its importance to be trustable evidences in criminal investigation relating to e-money laundering By using precedence, the People’s High Court should detail the legal validity of electronic evidence, in accordance with the Criminal Procedure Code 2015 and the Civil Procedure Code 2015 Law on e-transaction 2005 needs to be supplemented, or even amended and replaced with an entirely new one, in the direction of specifying the scope of legal application, clearly defining terms relevant to e-commerce, e-finance and the likes It is urgent to build a Law on E-commerce by upgrading the Decree on E-Commerce in 20135 that does not meet the requirements of anti- e-money laundering This law should facilitate e-commerce, e-finance including e-money using on the one hand, prohibit illegal activities related to e-money laundering 3.2 On other social structures of Cyberspace Improving relevant human resources: This is an existing problem that needs to be improved urgently in the case of Vietnam We need to concentrate on specialized authorities relating to anti- e-money laundering: The State Bank shall have to play the key role in governing e-currency, e-money Ministry of Finance and Ministry of Industry and Trade need to enhance their human capability including professional skills and knowledge level to comprehensively manage e-commerce activities Similarly, Officials of Ministry of Public Security need to be trained technically so as to effectively monitor e-crimes in cyberspace Consolidating information content in e-commerce environment: Due to freedom of business as constitutionalized, the State shall not interfere e-commerce transactions of businesses In other words, etraders have their own right to trade what they want However, with the aims at maintaining the stability and health of the market economy, the safety of each participant in e-commerce transactions, the Government needs to regulate the responsibility of e-traders, stipulate technical standards for e-trading platform, on the other hand, the Government also shall have to facilitate Vietnamese entrepreneurs to develop e-commerce Conclusion In sum, this article focuses on two suggested legal solutions: Firstly, building the legal foundation for e-currency: Bitcoin and the likes Secondly, enhancing legal provisions for supervising e-commerce transactions, assigning the responsibilities of money laundering prevention and combat to e-commerce platforms’ traders It is worthy to note that, all aforementioned stakeholders, from businesspeople to consumer, from the state to any individual or group participating in e-commerce, shall all take responsibility to fight against e-money laundering in cyberspace There have been a lot of tasks to fight against traditional money laundering, and emoney laundering recently poses a new major challenge for governments worldwide With the emergence and development of e-money and e-commerce platform, Blockchain technology and its wide range of applications, a more sophisticated model of e-money laundering may come in the future We believe there will be more and more complicated procedures of money laundering, and the law also needs to be improved and upgraded subsequently English version is available at: https://luatminhkhue.vn/en/decree/decree-no-52-2013-nd-cp-dated-may-16 2013-of-the-governmenton-e-commerce.aspx (visited 17/06/2018) Though this Decree was codified in correspondence to the Model law of e-commerce introduced by UNCITRAL, but it has been considered a sub-law document with weak and ineffective impact on e-commerce practices 580 References Crosby, M., Pattanayak, P., Verma, S., & Kalyanaraman, V (2016) Blockchain technology: Beyond bitcoin Applied Innovation, 2, 6-10 Daniali, G (2014) E-money Laundering Prevention New Marketing Research Journal, Dodge, M., & Kitchin, R (2001) Atlas of cyberspace (Vol 158) London: Addison-Wesley, p.12 FATF (1997), The 1996-1997 Report on Money Laundering Typologies p.65 FATF (2017) Guidance on anti-money laundering and terrorist financing measures and financial inclusion He, P (2010) A typological study on money laundering Journal of Money Laundering Control, 13(1), 15-32 Hoffman, C D (1997) Encrypted Digital Cash Transfers: Why Traditional Money Laundering Controls May Fail Without Uniform Cryptography Regulations Fordham Int'l LJ, 21, 799 Kramer, F D., Starr, S H., & Wentz, L K (Eds.) (2009) Cyberpower and national security Potomac Books, Inc P 29 Ping, H E (2005) New trends in money laundering-from the real world to cyberspace Journal of Money Laundering Control, 8(1), 48-55 Straub, J P (2001) The prevention of e-money laundering: Tracking the elusive audit trail Suffolk Transnat'l L Rev., 25, 515 Swan, M (2015) Blockchain: Blueprint for a new economy " O'Reilly Media, Inc Turner, S (2003) US Anti-Money Laundering Regulations: An Economic Approach to Cyberlaundering Case W Res L Rev., 54, 1389 581 ... more sophisticated model of e- money laundering may come in the future We believe there will be more and more complicated procedures of money laundering, and the law also needs to be improved and. .. of e- commerce and the money laundering process mentioned previously, the combination between them then results in a new method: e- money laundering, or laundering the origin of money through e- commerce... e- finance in the global trade, money laundering activities have been facilitated with advantages coming therefrom, and thus creating the new type of crime: e- money laundering1 2 Therefore, the Governments
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