While the average person interacts with the internet using the ‘surface Web’, commonly defined to include webpages that are indexed by normal search engines, there is another larger part of the internet which is known as the Dark web.
The Dark Web refers to websites and networks that is deliberately hidden and cannot be access with regular web browsers. “Tor”- The Onion Router- for example is a free software which enables anonymous communication. Tor for instance directs internet traffic through a free worldwide volunteer network consisting of more than 7000 relays to conceal a user’s location and internet usage from anyone conducting network surveillance or traffic analysis. Content on the dark web is designed to be hidden from search engines and from casual users. The primary goal of the dark web is to maintain privacy and anonymity.
The dark web today facilitates, on a massive scale, the worst things imaginable including the exchange of illicit content, collaboration on criminal plans, financial crimes, money laundering, fraud, selling of weapons and other illegal activities. The dark web is commonly used by criminals because it is difficult to locate and trace criminal activities. It is home to the fraud economy and criminal communities.
A survey conducted by the Ponemon Institute says that 59% of companies had a data breach due to compromised third parties including cybersecurity vendors.
How the Dark web works and the various risks that it poses
According to a 2019 Global Risks Report by World Economic Forum, two of the Top 5 global risks (likely to happen) aside from natural disasters are data fraud and cyber-attacks.
The below are the most famous types of online financial crimes:
- Phishing is one of the most common and worrying attacks because it is relatively easy to implement. Criminals use fraudulent communication such as using fake emails, SMS or websites that entices a user into entering their credit card details in good faith.
- Malware is a software designed to damage or compromise networks or devices such as computer or mobile phones through a potent virus designed to glean through data and damage devices to access financial account.
- Identity theft refers to the stealing of personal data. This is done by absconding with physical IDs which allows criminals to use information such as names, addresses, birthdays and more to create a fake online profiles and accounts.
- Money laundering also occurs online as Dark Web allows the transfer of illicit funds to anonymous accounts which help thieves secure ill-gotten gains.
- Card Fraud is the use of stolen credit card to purchase goods or make fraudulent purchases and this card information can be bought from other hackers who have stolen the data from compromised networks.
According to an article published on The Guardian, criminals who work in the dark web are often paid in different types of virtual currencies which increases the risk of money laundering. For example, bitcoin store all transactions in a public ledger called “The Blockchain.” This records only the transactions and not the identities of the users. The TOR (The Onion Router) works in anonymity and it hides online activities by sending securely encrypted messages through a distributed network of randomly selected proxy servers before they reached their final destination.
Example of illegal dark web activity
The “Silk Road 2.0” website, the leading illicit dark web marketplace in 2014 is an example of illegal dark web usage. Investigations by FBI revealed that during its two and a half years in operation, the site had used several thousands drug dealers to distribute hundreds of kilograms of illegal drugs and the site was used to launder hundreds of millions of dollars from unlawful transactions. AlphaBay and Hansa market which were two of the biggest successors of Silk Road were shut down in 2017.
Law enforcement
The growth of illegal dark web transactions has spurred many governments around the world to disrupt criminal activities by improving the capabilities of domestic law enforcement agencies such as the US Federal Bureau of Investigation (FBI).
In Mauritius, there are different mechanisms in place to detect money laundering. At the level of the Financial Services Commission (FSC), there is the AML/CFT Code on anti-money laundering and the combating of the financing of terrorism pursuant to which all licensees of the FSC need to comply with and which provide for measures relating to the prevention of money laundering. For example, licensees including Management companies have to conduct Customer Due Diligence (CDD) on clients. Failure to comply with the AML/CFT Code may lead to disciplinary actions.
Moreover, the FIAMLA sets up a framework for anti-money laundering and the combating of the financing of terrorism for the whole jurisdiction include financial services but also other sectors, which may be at risks of money laundering. In addition, there is also the National Committee which is set up under the FIAMLA, which coordinates policy matters for anti-money laundering and for the combating the financing of terrorism.
How to minimize the risk from the dark web
A critical component in combatting money laundering is understanding who your customer is, who is the Ultimate Beneficial Owner (UBO) and the nature of their business. Management companies should check suspicious transactions by verifying the source of fund of their client and the source of wealth of the ultimate beneficial owner.
With the emergence of innovative financial services and products, money launderers on dark web are using sophisticated ways to carry out illegal activities. Regulators can encourage the use of Artificial Intelligence and machine learning to detect money laundering or complex transactions.
How temple consulting can help:
Temple consulting Ltd has been assisting financial entities in meeting their legal requirements through various compliance exercises. With a team of professionals with niche expertise, we can assist in customer onboarding exercises, conducting due diligence, client screenings and ongoing monitoring reports on high risk clients to minimize the risk of money laundering.
Sources:
- https://www.lemauricien.com/le-mauricien/crimes-financiers-le-dark-web-alimente-les-criminels-en-faux-documents/389280/
- https://www.immuniweb.com/blog/state-cybersecurity-dark-web-exposure.html
- https://www.elibrary.imf.org/view/IMF022/26082-9781498316040/26082-9781498316040/26082-9781498316040_A007.xml?language=en&redirect=true
- https://www.fraud-magazine.com/article.aspx?id=4294993747
- https://pideeco.be/articles/dark-web-and-money-laundering/
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