To be or not to be... anonymous digital cash! That is the question! The battle that emerges is between the right to privacy by means of anonymous digital cash verses the desire of law enforcement to ferret out crime. The fact of complete anonymity guarantees that some money laundering will be easier to pull off. On the other hand, the lack of anonymity means that every move made on the Internet will be traceable. Thus, whether money laundering becomes rampant under the guise of anonymous ecash may be one of the first tests of the practical aspects of DigiCash's future. Any discussion of privacy rights would be woefully incomplete without mentioning the famous privacy article published by Samuel Warren and Louis Brandeis in 1890. This article, barely a century after the Constitutional Convention, professed that the "right to be let alone" was of the utmost importance. Almost two hundred years after the Constitution was initially ratified, the Supreme Court defined the scope of privacy for an individual's financial information in two landmark decisions.
In California Bankers Association v. Schultz, the Court held that bank record keeping requirements do not violate the Fourth Amendment right to privacy and do not amount to an illegal search and seizure.In United States v. Miller, the Court held that a criminal defendant had no Fourth Amendment right to protection of his bank records, and did not have a legitimate expectation of privacy regarding these papers.
Concluding over two centuries of Constitutional erosion, it is apparent that an individual's right to financial privacy is limited. The issue involving cyberspace is whether financial privacy rights are so limited that the federal government could monitor a digital cash user's financial transactions in a detailed fashion. In effect, rendering completely anonymous digital cash completely pointless.
While the Supreme Court has sliced financial privacy rights on several, previously mentioned, occasions, Congress has attempted to restore financial and informational privacy rights to the individual. The Privacy Act of 1974, The Right to Financial Privacy Act of 1982, and The Electronic Communications Privacy Act of 1986 are currently the three best hopes for individual financial privacy.
First, The Privacy Act of 1974 regulates the practices of federal agencies regarding personal information. With certain exceptions, no federal agency may disclose any record contained in its system to any other person or agency without the written request or consent of the individual.
Next, The Right to Financial Privacy Act of 1982 ("RFPA") attempted to further protect financial records.Under RFPA, in order to obtain a customer's financial records from a financial institution, the federal government must serve a subpoena on the customer before or concurrently with service on the bank. The government must show that the records are related to a "legitimate law enforcement inquiry," and notify the customer that it can take steps to block the bank's disclosure of the records.
Finally, The Electronic Communications Privacy Act of 1986 ("ECPA") attempts to protect the individual against the unauthorized interception of electronic communications. Title I focuses on the interception of wire, oral and electronic communications. Title II prohibits an electronic communications service provider from knowingly divulging the contents of a communication while in electronic storage.
Applying current law to the Internet, the result is inadequate protection of individual financial privacy. The combination of The Privacy Act and RFPA prevent the government from groundless searches of individual financial records. However, the standard required for a search is only that there exist some evidence that the records are related to a "legitimate law enforcement inquiry." Due to this relaxed standard, individual financial privacy may be violated without any probable cause. A "legitimate law enforcement inquiry" is clearly an easier requirement to meet than a Fourth Amendment probable cause standard.
Expanding into cyberspace, if the Internet falls under the protection of the ECPA, as it is an electronic communication, then individual financial privacy in cyberspace is afforded as little protection as financial privacy in the tangible world. Essentially, the government need only claim that it requires access to financial records due to a "legitimate law enforcement inquiry."
Taking one step further, the application of current financial privacy laws to DigiCash's Ecash may be the eulogy for completely anonymous digital cash. If the government believes that ecash is overflowing with money launderers, a "legitimate law enforcement inquiry" into the situation would likely allow access to ecash account records. Since even the bank can not trace ecash to a user, pressure would be placed on various agencies to solve the problem.
First, the Federal Reserve would likely announce that all cyberbanks accepting anonymous ecash conform with FDIC regulations. Thus, these banks would be subject to federal scrutiny and pressured into insuring anonymous ecash deposits. Since insuring anonymous ecash might prove unprofitable, it is probable that many timid cyberbanks will succumb to federal intimidation and abandon anonymous ecash altogether.
Second, cyberbanks could be convinced to implement special "investigatory software" into their computer systems so as to flag suspicious ecash accounts. While the technical aspects of such a system are beyond the scope of this article, it is fair to say that if such programming is both possible and practical, then no ecash account would be safe from the "legitimate law enforcement inquiring" software.
Finally, if ecash accounts become subject to greater scrutiny, the IRS and FinCen will capitalize on the additional information being unearthed. Since there is no requirement of probable cause to search an individual's financial account, the IRS and FinCen could use the preliminary information obtained from the "legitimate law enforcement inquiry" so as to have sufficient facts to establish probable cause, enabling a full scale search and seizure of an individual's financial records.



Reference:
http://osaka.law.miami.edu/~froomkin/seminar/papers/bortner.htm

An appropriate place to begin a study of the US statutes regarding money laundering would be in the United States Code. The appropriate legal codes relating to money laundering include Title 18 U.S.C. 1956, enacted in 1986, and Title 18 U.S.C.1957. However, the history of US legislation begins with the Bank Secrecy Act of 1970(BSA) This act is considered to be one of the initial legislative measures against money laundering in the US. Primarily targeted at tax fraud related activities, this act was also designed to create a paper trail for large currency transactions (Currency Transaction Report). Noncompliance could result in criminal and civil penalties. Under this act casinos among other groups were defined as financial institutions and subsequently had to report cash transactions over the $10,000 limit. Tribal casinos were not included in this act at this time. In addition to the CTR requirements, the act specifies that a report of international transportation of Currency and Monetary Instruments (CMIR) must be made for physical transportation of monies and similar instruments out of the US if the aggregate total exceeds the same $10,000 limit.
This act was upheld first in 1974 against a 4th amendment challenge in California Bankers Association v. Schultz, 416 U.S. 21. Then again in 1978 against a 1st amendment challenge in U.S. v. Fitzgibbon, 576 F.2d 279 (10th Cir.), cert. den. 439 U.S. 910 (1978). Finally, a 5th amendment challenge against this act was defeated in 1980 with U.S. v. Dichne, 612 F.2d 632 (2d Cir), cert. den. 445 U.S. 928 (1980). Following the Bank Secrecy Act of 1970, the next major piece of legislation was the Money Laundering Control Act of 1986(MLCA). This act officially made money laundering a crime. It created three offenses, which included:

1. Knowingly helping launder money from criminal activity.
2. Knowingly engaging (including by being willfully blind) in a transaction of more than $10,000 that involves property from criminal activity.
3. Structuring transactions to avoid Bank Secrecy Act (BSA) reporting.

In 1988, the Anti-Drug Abuse Act allowed law enforcement the authority to seize assets that were involved in attempts to launder money or commit currency/banking crimes. It also required strict reporting rules for cash purchases of financial instruments, authorized the Treasury to require financial institutions to submit Geographically targeted reports (sometimes referred to as GTO’s Geographically Targeted Operations of the Treasury), directed the Treasury to negotiate international information sharing agreements, and increased the criminal sanctions for tax evasion relating to money laundering crimes.
In 1990 section 2532 of the Crime Control Act of 1990 set the stage for later calls for cooperation and sharing of information related to tax data and currency transfers. First, this act gave the Office of the Comptroller of the Currency (OCC) the authority to request assistance of a foreign banking authority in conducting and investigation, examination or enforcement action. Second, this gave the OCC the power to accommodate similar request in the reverse. The purpose of these exchanges is to allow the investigating body the opportunity to determine if a person has, is or will violate any banking or currency transaction laws or regulations.
The Crime Control Act was supplemented a year later by the FDIC Corporation Improvement Act. Section 206 of The Federal Deposit Insurance Corporation Improvement Act (FDICIA) allowed the OCC to disclose to foreign bank regulators or supervisory authorities information that the OCC may discover.
Then in 1992, the Housing and Community Development Act, Annunzio-Wylie Anti-Money Laundering Act, ave regulators the power to close or seize institutions found guilty of money laundering activities. It also permitted the treasury to require financial institutions and their employees to report suspicious transactions relevant to possible violation of law or regulation. Plus it required financial institutions to adopt anti-money laundering programs. Furthermore, it amended the original BSA to define structuring activities as illegal money laundering activities. Structuring, sometimes referred to as smurfing, occurs when a reportable transaction report is avoided by breaking cash denominations down into fragments that do not exceed the $10,000 threshold.
In what is sometimes viewed as a streamlining initiative and other times considered a loosening of money laundering legislation, the Money Laundering Suppression Act of 1994 aimed to reduce and consolidate Currency Transaction Reports(CTR) to one destination. It further required certain “money transmitting businesses” to register with the Treasury. This act also redefined financial institutions to include tribal casinos, which were previously not covered under the BSA. Canada Money laundering initiatives were not as substantial in Canada as early as the American efforts. However, in 1989 the Proceeds of Crime Act (Bill C-61) made up some ground by criminalizing money laundering activities. This act allowed for the seizure of property or profit resulting from drug or non-drug related crimes. Similar to the BSA act of the US and subsequent amendments this act required the filing of cash transaction reports for amounts of $10,000 or more. Later in 1993, the Seized Property Management Act was instituted to create a mechanism for sharing seized assets amongst the provinces as opposed to the seized items defaulting to the federal government.
Finally, in 2000, the Proceeds of Crime Money Laundering Act (Bill C-22) updated and replaced the earlier C-61 PCMLA from 1989. It created the Financial Transactions and Reports Analysis Center of Canada (FinTrac) to receive transaction reports and analyze international financial movements through cross border currency reporting requirements. Some of the goals of this new act included the following:

• Provide vital tools for law enforcement
• Strike a balance between privacy rights and law enforcement needs
• Minimize compliance costs for financial intermediaries
• Contribute to international efforts to combat money laundering

Source:
http://softduit.com/mavenmappersinformation/cyberlaundering-low-tech-meets-high-tech/016/

In the beginning, laundering money was a physical effort. The art of concealing the existence, the illegal source, or illegal application of income, and then disguising that income to make it appear legitimate required that the launderer have the means to physically transport the hard cash. The trick was, and still is, to avoid attracting unwanted attention, thus alerting the Internal Revenue Service (IRS) and other government agencies  involved in searching out ill-gotten gains.
In what could be described as the "lo-tech" world of money laundering, the process of cleaning "dirty money" was limited by the creative ability to manipulate the physical world. Other than flying cash out of one country and depositing it in a foreign bank with less stringent banking laws, bribing a bank teller, or discretely purchasing real or personal property, the classic approach was for a "smurf" to deposit cash at a bank. Essentially, platoons of couriers assaulted the lobbies of banks throughout the United States with deposits under the $10,000 reporting limit as required under the Bank Secrecy Act. The result was the formation of a serious loophole under the Bank Secrecy Act, allowing couriers almost limitless variables in depositing dirty money such as the number of banks, the number of branch offices, the number of teller stations at one branch office, the number of instruments purchased, the number of accounts at each bank, and the number of persons depositing the money.
In 1986, the Money Laundering Control Act (the Act) attempted to close the loopholes in the prior law that allowed for the structuring of transactions to flourish. In criminalizing the structuring of transactions to avoid reporting requirements, Congress attempted to "hit criminals right where they bruise: in the pocketbook."
Under the Act, the filing of a currency transaction report (CTR) is required even if a bank employee "has knowledge" of any attempted structuring. Thus, it appeared as if the ability to launder the profits from illegal activity would be severely hampered.
As the physical world of money laundering began to erode, the tendency to use electronic transfers to avoid detection gained a loyal following. Electronic transfers of funds are known as wire transfers. Wire transfer systems allow criminal organizations, as well as legitimate businesses and individual banking customers, to enjoy a swift and nearly risk free conduit for moving money between countries. Considering that an estimated 700,000 wire transfers occur daily in the United States, moving well over $2 trillion, illicit wire transfers are easily hidden. Federal agencies estimate that as much as $300 billion is laundered annually, worldwide. As the mountain of stored, computerized information regarding these transfers reaches for the virtual stars above, the ability to successfully launder increases as the workload of investigators increases.
Although wire transfers currently provide only limited information regarding the parties involved, the growing trend is for greater detail to be recorded. If the privacy of wire transfers is compromised, due to burdensomely detailed record keeping regulations, electronic surveillance of transfers, or other potentially invasionary tactics, then the leap from the physical to the virtual world will be nearly complete. If laundering is to survive it must expand its approach, entering the world of cyberspace.
While change is often a frighteningly awkward experience, for an enterprising criminal operation, that wishes to remain open for business, it is a necessity. As the above mentioned race through laundering history demonstrates, creativity, and not necessarily greed, has been the launderer's salvation. The recent explosion of Internet access,may be the new type of detergent which allows for cleaner laundry.

Reference:
http://osaka.law.miami.edu/~froomkin/seminar/papers/bortner.htm

A number of concerns pervade the impending changeover from legacy currencies to the Euro. Amongst these is the great potential for organised crime to profiteer through money laundering and counterfeiting. There will be many opportunities for these organisations to launder vast quantities of cash with little prospect of detection during the biggest currency changeover since the introduction of the US dollar.

The value of the largest Euro note is such that it will allow greater sums to be transferred across borders without detection by the more traditional methods. The 500 Euro bill, which is the largest denomination of the Euro, will be worth around £300. This is nearly 17 times the value of the largest denomination note in Greece (10,000 drachma note).

Europol have warned that the average brief case will be able to hold the equivalent of £4.4 million in Euro notes compared to £670,000 in sterling. This will clearly make placement of ‘dirty’ cash a far easier task for money launderers. Indeed the Portuguese have refused to issue the 500 Euro note for fear of the ease with which large sums of illegally gained cash could be moved around.

Europol also have information to indicate that because of the ease with which the Euro can be moved around and the accessibility it provides to other areas of Europe, organised criminals are intending to use the Euro in favour of the US dollar.

Large sums of ‘dirty’ cash currently hoarded by criminal organisations will be exchanged for ‘clean’ Euro notes. Banks will be so overwhelmed with the volume of business that these types of transactions may well go unnoticed, further it is suggested that even if suspicious transactions are noticed authorities will not have the resources to follow them up.

The Federal Finance Ministry in Germany have warned that the police and customs have information to the effect that large amounts of cash resulting from criminal activities has been gathered in Europe with the intention of using the changeover day for laundering these sums.

There will be a large number of transactions which will involve customer accounts being changed from legacy currencies to Euros. This will again provide an opportunity for illegal transactions to go undetected. There will be thousands of large transactions of this nature providing the perfect cover for money launderers and fraudsters. Maria Jose Morgado, Deputy Director of the Economic and Financial Crime Unit in Portugal stated that the changeover would make it more difficult to trace suspect transactions. Ms Jose Morgado also commented that the trans-national nature of the Euro means that in the future large sums of money will be moved around Europe with no need for conversion. This will make it easier for launderers to hide the origin of ‘dirty’ cash. For example, although Euro coins will show the face of each head of state depending on the country, there will be no such marking on Euro notes.

The Secretary- General of the European Banking Federation commented that where bank staff are dealing with one transaction per minute “you cannot preclude that somebody who in a normal period you would spot slips through the net.”

Layering may also become easier if the money can be exchanged through on-line banks. The anonymity features of this type of transaction may make the source virtually untraceable.

The fact that anyone can change money into Euros in any bank, whether they hold an account or not, adds another anonymity feature to the process and another method which can and will be exploited by organised crime. Europol thinks that the Mafia, Latin American drug cartels and Asian criminal groups will all be active during the changeover


Reference:
http://www.antimoneylaundering.ukf.net/papers/solicitor.htm

The Ministry of Commerce for The Peoples Republic Of China joins Korea in announcing a new initiative to implement controls on the conversion of virtual to physical currency. The press release on the MOFCOM site highlights the scope of the problem:

According to media reports, the virtual money trade topped several billion yuan (￥1B=US$146M)  last year after rising around 20 percent annually.

Though this move seems to be targeted towards individuals bypassing tax payments by transacting online money for real goods and services, it also touches on the greater problems of CyberLaudering and Gold Farming.

Gold Farming is of course not shovel, pick and dirt. It’s the act of playing an online game to earn game currency, and then exchanging this with someone else for hard currency. This is against the terms of use for most online games, Second Life, World of Warcraft etc, but because there are people (typically in the West) with more money than time, and people in emerging markets like China and India with more time than money, it was obvious that something like this was going to happen.

The money-starved spend their time generating online wealth, and then sell that to the time-starved for real money. Although eBay banned the sale of virtual items back in 2007 (typically swords and other ‘power ups’ for MMORPG’s), there are still innumerable ways of performing the transaction.
Nick Ryan’s article on gold farming indicates the market to be worth around US$10B per year, with over 1 million people involved. Though the Ministry of Commerce does not talk about this specific problem, it does mention that taking currency transactions outside the traditional money markets has the potential to impact the real financial systems.

Though there are reports of fairly benign (but out-of-band) transactions, gamers buying groceries etc by exchanging popular ‘QQ Coins‘, there are a lot more reports of criminals using the virtual>physical transfer to launder money. As many games allow both conversion of physical>virtual and virtual>physical transactions, often at the same rate less a handling fee, this “cyberlaundering”  is an attractive route for criminals because it plays on the novel routes our law enforcement agencies are ill equipped to handle.
One simple route to doing this is for a collusion of buyers and sellers to transact online items at strange prices – for example the seller offers some trivial item for sale for some outrageous price, e.g. 1000 virtual coins, the buyer purchases this using virtual coins bought with stolen money. The seller then cashes out his profit back to US$ and the money is washed clean.
Of course the nature of the online world means that such transactions can be relatively small and numerous – it’s no problem to use technology to open hundreds, or thousands of accounts to move money without ever coming up on the radar.
For those who think of online services such as Second Life and World of Warcraft as “games”, consider this – if you could sit at your computer all day and play the “game”, yet at the end of the day be US$500 better off, tax free, and untraceable, wouldn’t that appeal?


Source: http://simonhunt.wordpress.com/2009/07/02/china-takes-steps-to-criminalize-gold-farming/

The truth is that technology has created the means and ability to launder money by use of completely untraceable digital currency. While current money laundering laws apply to the fledgling art of cyberlaundering, the actual effect of these laws may be limited.

Structuring of transactions so as to avoid currency reporting requirements becomes less risky if the funds used to structure are virtually untraceable. In addition, the filing of currency transaction reports may be pointless if the money can not be traced into a specific account. However, the actual requirement that a transaction report be filed may be nonexistent if cyberbanks which accept ecash deposit accounts do not fall under current federal or state regulation of financial institutions.

For these reasons, most of the governments are  worried that the Internet may become a launderer's paradise. Nevertheless, should completely anonymous digital cash be prohibited or secretly monitored  for the reason that it may facilitate some illegal activities?

I think that prohibiting or secretly monitoring ecash transactions on the grounds that such transactions are difficult .