In recent months, there has been much discussion about the hearing that Mark Zuckerberg held at the United States Congress to answer a series of questions regarding the development of Facebook ‘s cryptocurrency, Libra. Their discussion was about AML and cryptocurrency.
Congress members expressed skepticism about the social network ‘s ability to adequately control threats of money laundering and terrorist financing, in light of the serious vulnerabilities shown by the platform over the years, the Cambridge Analytica scandal , the difficulty of fighting fake news of a political nature , and in consideration of a privacy management with several smudges.
This article consists of two analyzes: a comparison with the most probable financial risks , mainly connected to the money transfer activity and computer fraud, and a comparison with the money laundering risks inherent in existing cryptocurrencies , based on the knowledge of the blockchain and on the review of some similar cases, which occurred at the dawn of the World Wide Web.
Given the use of Facebook , made up of individuals, and therefore retail customers , it is legitimate to focus our attention on a use for money transfer purposes , where, visibly, the most relevant concerns concern the financing of terrorism . The phenomenon is difficult to counter also for traditional banking and financial intermediaries , in light of:
- the limited size of transactions,
- the use of informal networks such as hawala and
- the lack of clear anonymous behavior patterns .
The September informative Facebook, however, is in many cases higher than that of the incumbent : because it has all the connections between the profiles ( “friends”) which will monitor and can then calculate, through network analysis , ties indicative of potential risks . For example, a profile of potential terrorist could follow pages that incite Jihad or be “friends” with terrorists known in the news. Secondly, the technology already today allows to carry out sentiment analysis on published posts and to detect real threats, due for example to the use of violent language and indicative of concrete risks of taking action.
More worrying is the use of Facebook for computer fraud . In fact, the social network is already very populated with scammers , so much so that it is not difficult to find articles on the net that describe them in detail; the best known are fake love relationships, fake charitable associations, requests for help from duplicate or hacked accounts , fake coupons (1) .
Another threat, naturally connected to the first aspect of which it is a precondition, is the ease with which it is possible to open false profiles , stealing photos of real profiles or creating them at the table through very advanced software such as that made available by Nvidia .
A risk, however, already present in the more mature banking sector (2).
Unfortunately this problem, in terms of money laundering, presents itself as a real Achilles heel , given that false profiles could easily play the role of money mules , to allow branched transactions that could make it difficult to identify the real beneficiaries or origin of money. Europol recently conducted an important investigation to find 3800 money mules (3).
A marketplace is active on Facebook which will probably also accept payments with Libra ; a precedent on Amazon may be helpful in understanding the risks inherent in retail sales . A recycling tool recently discovered on the world’s largest e-commerce platform is to create a “seller ” account with stolen documents, and then sell fiction ebooks for $ 555 containing only “stories” generated by very basic software . The seller thus collects money from abroad via legitimate wire transfers , and then probably withdraws all the funds with rechargeable cards (4) . In addition to fake ebooks we can very well imagine the sale of everyday products at astronomical prices , earplugs at $ 200, wooden spoons at 700, no bank or payment institution can verify if the price applied is correct – only sees a transaction involving a well-known and reliable e-commerce site .
To counter fake accounts , Facebook has started experimenting with machine learning techniques , but checking two billion profiles is still a very demanding challenge, which will probably require the social network to allow other operators to process their data to develop analysis tools. innovative (5).
WHERE IS THE AML ACTIVITY EXPLICATED?
From reading the Whitepaper (6) on cryptocurrency it is not possible to understand in detail certain fundamental aspects to understand Libra’s AML strategy which, probably, is still to be developed. We can only speculate, and predict Facebook’s behavior based on different scenarios:
- sale of Libra by associates ;
- sale of Libra on authorized exchanges .
In the first case, we would be faced with IMEL and IP , already subject to anti-money laundering legislation.
In the second case, we can refer to the recent regulatory innovations introduced in Europe with the IV and V Anti-Money Laundering Directive . The V Directive (implemented with Legislative Decree 125/2019) (8), included among the obliged:
- the exchange , understood “as providers of foreign exchange services including virtual currencies and fiat currencies” and
- The e-wallet , “providers of digital wallet services that provide safeguard services of private cryptographic keys on behalf of clients in order to hold, store or transfer virtual currency”.
Any exchange that also sells Libra will therefore be required to comply with customer due diligence obligations .
BITCOIN FORENSIC
From the aforementioned Whitepaper it is known that the Libra blockchain will be pseudonymous , like Bitcoin , allowing a user to have multiple addresses not connected with his real identity. It is not clear how this option can relate to the Facebook account : will there be multiple addresses for the same account?
In any case, the fact that Libra uses a register probably allows to use on it all the techniques developed so far of bitcoin forensic , i.e. statistical analysis tools that allow you to aggregate transactions (see my article The risks for those who work with the world of cryptocurrencies ).
Since Libra is a centralized initiative , it is reasonable to expect that various instruments used to make one’s tracks lose, such as mixers, are prohibited . Unfortunately it cannot be excluded that the role of mixer is played by some bogus accounts , programmed for the purpose, or by real profiles baited on the same social network upon payment of commissions, as I have already discussed above talking about money mules .
BACKGROUND: E-GOLD AND LIBERTY RESERVE
Libra is certainly not new in the world of the Web , there are at least two precedents that deserve attention, E-gold and Liberty Reserve .
E-gold was a virtual currency based on gold, therefore a stable coin ante litteram , invented in 1996 with the aim of becoming a private payment system , independent of any government. To use E-gold you needed an online account , the conversion between fiat and E-gold coinswas guaranteed by exchangers . The virtual currency was very successful thanks to:
- low transaction costs ,
- to the trust created by the support for gold,
- the total absence of user identification procedures.
In 2005 there were a billion and a half dollars of transactions, anonymity pushed the US secret services to undertake investigations which led to the discovery that 70% of the 65 richest users were associated with criminal activities. L ‘criminal use led to the closure of the company responsible for E-gold in 2007, on charges of violating the law on remittance.
It is also worth mentioning quickly also to Liberty Reserve (LR) , born in 2006 to fill the gap left by the closure of E-gold (two of the founders operated in an E-gold converter ). In Liberty Reserve (LR) users could choose two currencies, one hooked to the dollar, one to the euro, buy them with their fiat , then exchange them with other users with an account on LR. An e -mail address was technically sufficient to open an account valid, given that LR did not verify the validity of the personal data entered in the identification forms. From 2009 to 2013, 300 million dollars a month transited, among the 500 largest accounts 32 belonged to credit card thieves, 117 to operators in Ponzi schemes and scammers . The dark webhad found its currency, until at least 2013, when the founder was arrested and Liberty Reserve was finally closed in the United States.
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