Money Transfer in Cyberspace
MTRA 16th Annual Conference
November 13 – 15, 2006
Presented by Joseph Cachey III
SVP, Global AML Compliance
The Western Union Company
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Money Transfer in Cyberspace
What is Cyberspace?
a) A term coined by William Gibson in Neuromancer (1984)
b) A metaphor for the Internet
c) The opposite of Meatspace
d) A virtual reality which represents the Noosphere / Popperian
Cosmology both “inside” computers and “on” computer networks
e) All of the Above
Source: Wikipedia (from cyberspace) 2006
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Money Transfer in Cyberspace
In terms of Money Transfer, “Cyberspace” is:
Use of the internet for purposes of facilitating movement of
funds or conducting a money transfer. These include:
• Consumer to Consumer transfers (C2C)
• Consumer to Business transfers (C2B)
• Business to Consumer transfers (B2C)
• Business to Business transfers (B2B)
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Money Transfer in Cyberspace
Typical Transaction Flow
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Money Transfer in Cyberspace
Typical Cyberspace Money Transfer Methods
Money Transmitter (MSB) Websites
– Credit / Debit / Prepaid Card to MSB Payout
– Bank ACH to MSB Payout / MSB Funding to Bank ACH
– Bill Payments
– Staged Transactions
– Prepaid Card top-ups and Virtual Account Funding
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Money Transfer in Cyberspace
Source of Funds for Internet Money Transfer
Common
Emerging
• Banking Accounts
• Virtual Accounts / Virtual Prepaid
• Credit Cards
• Staged Online then funded by Cash
• Debit Cards
• Digital Currencies / Electronic Cash
• Prepaid Cards
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Money Transfer in Cyberspace
Benefits of Cyberspace Money Transfer
Consumer Benefits
Money Transmitter Benefits
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Convenience
Speed
Costs
Privacy
Ease
Security
Low Costs of entry
Low Overhead
Speed
Widespread Access
Consistency
Revenue
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Money Transfer in Cyberspace
Risks with Cyberspace Money Transfers
Consumer Risks
Money Transmitter Risks
– Receiver Fraud
– Rogue Websites
– Account Takeovers
(Identity Theft)
– Undisclosed Fees
– Limited Consumer
Protection (Emerging
Sources)
– Possible Limited
Recourse
– Security & Phishing
– Customer Identification and
Verification
– Transaction Authorization and
Merchant Liability
– Sender and or Receiver Fraud
– Account Takeovers (Identity Theft)
– Money Launderers
– Terrorist Organizations
– Website Compromises
– Disasters
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Money Transfer in Cyberspace
Steps to controlling your program’s risk
• Sever links between your products and unapproved transfer methods
• Police the internet and protect your brand
• Impose limits and velocity checks on amounts that can be transferred
• Enhance your customer authentication – remember international!
• Enhance your transaction authorization process
• Develop a robust monitoring and early warning program
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Money Transfer in Cyberspace
Risks from Regulator’s Perspective
– Rapid Proliferation with low barriers to entry
– Lack of Regulation (Emerging Sources)
– Unregistered Companies
– Money Laundering and Terrorist Financing
– Borderless
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Money Transfer in Cyberspace
Risks from Regulator’s Perspective (cont.)
– Offshore Website Hosting
– Stopping illegitimate websites
– Stopping links between legitimate and illegitimate transfer methods
– Consumer Protection
– Who Regulates?
– What / who do you regulate?
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Money Transfer in Cyberspace
Current Regulatory Environment
– PCI Compliance Rules (Dual Factor Authentication)
– Regulation E (Transaction receipts and account statements)
– MSB Registration Required?
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New Product Examples
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Money Transfer in Cyberspace
Prepaid Cards – A card or device with
stored value that is used for payment in the form
of electronic cash. Often referred to as Stored
Value Cards.
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Money Transfer in Cyberspace
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Money Transfer in Cyberspace
Virtual Accounts / Virtual
Prepaid: A prepaid card or
account number with stored
value that exists in cyberspace
only. Mainly used for online
transactions or card to card
money transfers.
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Money Transfer in Cyberspace
Staged Online then
funded by Cash:
Prearranging a
purchase online or
possibly a money
transfer then funding
via a cash
remittance at a
money transmitter.
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Money Transfer in Cyberspace
Electronic Cash – is a digital form of money. Can
be stored electronically or held virtually. Can be
denominated in an official currency or a derived
artificial currency.
New section in the 2006 FFIEC BSA/AML Examination Manual.
Pages 202 – 204
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Money Transfer in Cyberspace
Current Regulatory Environment (cont.)
– State Laws – are virtual accounts monetary instruments?
– International Regulations
– Reporting Requirements
– AML Programs for Offshore sites?
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Money Transfer in Cyberspace
A world of Electronic Cash awaits you…
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Money Transfer in Cyberspace
How digital currency works
Source: FATF / GAFI Report on New Payment Methods, 13 October 2006
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Money Transfer in Cyberspace
Popular Examples
e-bullion
e-gold
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Money Transfer in Cyberspace
Typical Cyberspace Money Transfer Methods
Bank Websites
– Bill Payments
– Account to MSB Payouts
– ACH Payments
– Prepaid Card Purchases
– Account to Account
– Other
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Money Transfer in Cyberspace
Sample Bank Money Transfer Website
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Money Transfer in Cyberspace
Sample MSB Money Transfer Website
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Money Transfer in Cyberspace
Non-Typical Cyberspace Money Transfer Methods
– Anonymous Accounts and Products
Accounts or products which do not require customer ID or provide
anonymous ways to transfer money.
– Digital Currency transfer services
Allows movement of funds between alternative forms of
electronic cash
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Money Transfer in Cyberspace
Sample of a Fully Anonymous Prepaid Card
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Money Transfer in Cyberspace
Cards Tied to Numbered Accounts with No ID Required
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Money Transfer in Cyberspace
What loading methods are appropriate?
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Money Transfer in Cyberspace
Phishing – “the bait”
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Money Transfer in Cyberspace
Phishing – ”the hook”
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Money Transfer in Cyberspace
The End
Cyberspace Contact: joseph.cachey@westernunion.com
Meatspace Contact: 720-332-4642
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