The threats of terrorism, organized crime and money laundering have been top national security and criminal justice priorities for many governments for more than two decades. Since 1990, there has been a recognition that international cooperation to fight money laundering to deny criminal actors proceeds of their activities was necessary with the adoption of the forty recommendations of the Financial Action Taskforce (FATF) by sixteen countries including the G-7 nations which at the time made up the seven largest global economies. (Financial Action Taskforce, 2021 ) The number of participating countries expanded over a decade and in 2001 FATF issued nine special recommendations regarding terrorist financing along with subsequent updates that have served as the underpinning for much of the countering terrorist financing (CTF) regime since. Even with the FATF recommendations in place, there have been glaring oversights in criminal enforcement and resource allocation in the areas of fraud prevention and investigation which has allowed for the transfer of illicit funds to offshore jurisdiction and has made the issues of by financial crime, terrorism, and money laundering particularly difficult tackle. In the same way it can be said that armies march on their stomachs, terrorism, organized crime, and money laundering are feed easy to perpetrate fraud schemes the profits of which are transferred to jurisdictions that are often beyond the reach of domestic law enforcement authorities.

The rapid adoption of the internet and related technologies of the digital revolution has heralded in a golden age for fraud. In 2020, with a greater percentage of the world’s workforce and commerce having moved online than ever before; digitally enabled fraud grew nearly exponentially. A report by the Internet Crime Complaint Center (IC3) managed by the United States Federal Bureau of Investigation found that in 2020 reports of cyber enabled fraud increased by sixty nine percent from 2019. (Federal Bureau of Investigation: Internet Crime Complaint Center , 2021 , p. 3) Fraud losses reported to IC3 have increased from  $ 1.5 Billion in 2017 to $ 4.2 billion in 2020. (Federal Bureau of Investigation: Internet Crime Complaint Center , 2021 , p. 5) In the U.K., fraud is now the number one reported crime type with 3.7 million incidents reported in fiscal 2019 exponentially eclipsing both traditional theft and burglary combined. (Wood, et al., 2021 , p. 7 )Eighty five percent of this fraud is digitally enabled. (Wood, et al., 2021 , p. 3) Fraud schemes such as business email compromise (BEC), ransomware, and romance or lonely-hearts scams, as they are known in the UK; allow funds to quickly be spirited to foreign jurisdictions. Law enforcement has only recently begun to have limited success in recovering funds for victims in the case of BECs and where bitcoin has been paid to ransomware extortionists. (United States Department of Justice: Office of Public Affairs , 2021)

In the case of romance schemes, the money is often offshore before authorities can catch up with the perpetrators. Recently, a romance scam group was broken up by U.S. federal law enforcement authorities based in the state of Oklahoma. The group was made up of a mix of U.S. citizens and Nigerian nationals who set up social media and dating profiles using fake  information. (USA v. Adebara et. Al, 2019 )The profiles were then used to lure lonely older women (all but one was over the age of 50) to send them money based on lies told about foreign business dealings and promises of future romantic involvement. They then set up bank accounts using forged passports and utility bills. (USA v. Adebara et. Al, 2019 ) All told the scheme netted the conspirators more than $ 2.5 Million USD much of which was sent back to Nigeria based unnamed co-conspirators in the form of cash, cars, and car parts. (USA v. Adebara et. Al, 2019 ) While restitution has been ordered in all cases where the defendant has been sentenced, the seizure of the proceeds is limited to those that were still held in the United States. The exportation of cars and car parts to Nigeria is a form of hard to trace trade-based money laundering which has in the past benefited terrorist organizations such as Hezabollah. (Cassa, 2020)

Current law enforcement efforts surrounding the investigation and prosecution of cyber enabled fraud have largely been unsuccessful. According to Thirdway, a non-partisan think tank in Washington, DC only approximately one percent of cyber criminals are ever arrested. (Eoyang, et al., 2019 , p. 3) In the U.K., cybercrime is listed as a tier one national security threat but it had a third of its enforcement budget cannibalized, self defeatedly, to counter-terrorism. (Eoyang, et al., 2019 ) As terrorism has shifted from the centrally based command and control model to an individual activation paradigm new funding sources were necessary. The phenomenon of credit card fraud being utilized as a terrorism funding tool likely began well before the digital era with the IRA using it to fund activities in the 1980’s but the technique has been made much easier through the use of technology. (Mullins & Wither, 2016, p. 67)As early as 2008, it began to emerge that fraud is a terrorism funding source with individual actors engaging in “credit card fraud, identity theft, and the sale of counterfeit goods.” (Wood, et al., 2021 , p. 29 ) It has been found that there is significant overlap between the types of crimes that organized criminals and terrorist actors engage in, however while criminal actors will spend their funds on material wealth; terrorists will reinvest their profits to fund their ideologically driven goals. (Mullins & Wither, 2016, p. 67)

Digital technologies such as peer to peer mobile payments utilizing cell phones pose significant challenges for law enforcement in some of the least formally governed areas. For instance,  Mobile payments have caught on in Sub-Saharan Africa to a greater degree than anywhere else in the world with over half of the mobile payment services are based there. (Chironga & Grandis, 2017 ) Mobile payments allow the millions of unbanked individuals on the continent a quick and easy way to transfer funds and conduct commerce. Mobile payments pose a significant risk for money laundering by giving individuals the ability to transfer money rapidly between accounts and individual proxies known as “smurfs” to transfer small amounts of money to a master account bypassing AML controls with much less ability to determine who the customer is due to lax know-your-customer(KYC) requirements. (Cassa, 2020, p. 275 )The lack of KYC requirements is a feature of the system as they are designed to expand access to the banking system. Additionally, jurisdictional challenges as money moves from phone to phone and sometimes from country to country give criminal actors an additional advantage. The proceeds of fraud or other illicitly acquired funds can be disguised as a remittance and sent to a jurisdiction that lacks the capacity to effectively investigate financial crimes. (Interpol, 2020, p. 27 ) According to Interpol, mobile payments have been utilized to facilitate wide array of criminal activity including fraud, money laundering, and terrorism in Africa. (Interpol, 2020, p. 6)

The use of online marketplaces and social media platforms while engaging commerce   in order to commit fraud; known as eCommerce fraud, is another crime typology of concern. Organized retail crime (ORC) and eCommerce fraud cost U.S. based retailers billions of dollars a year. ORC has been defined by the United States General Accounting Office, in additional to large scale theft of merchandise for the purposes of resale as “ a broader set of crimes that can affect retail stakeholders, such as fraud associated with gift cards or product returns.” (United States Government Accountability Office, 2011 ) eCommerce fraud often falls under the ORC umbrella due to the serious impacts it can have on retailers and consumers. Individuals will utilize third party selling websites in order to “fence” goods or gift cards that have been acquired through theft, return fraud, or credit card fraud. (United States Government Accountability Office, 2011 ) In order to accomplish this, there  is a veritable constellation of third party selling websites that each have their own methods of selling goods that ranges from mobile applications, sites that handle payments and the exchange of goods for the buyer and seller, to others in which the buyer and seller must arrange for payment to be made in person. Additionally, specialty sites exist that re-sell gift cards that are provided to them by customers which have been activated through both legitimate and illicit means. The problem of eCommerce fraud is getting noticed at the highest levels in Europe with Europol listing “card not present fraud” or credit card fraud in the digital environment; just below ransomware as a top cyber priority. (Moiseienko, 2020 , p. 5)

In both the UK and the United States, there is a growing realization that fraud, once shrugged off as a non-violent crime, is a growing threat to national security. Fraud serves as the underpinning to a wide array of serious and organized criminal activity and helps to undermine institutions and societal systems. Crime, up until recently, has been something that happened in the streets as both victims and police alike did not see fraud in the same light as other crime types. The Peelian policing model that has served as the bedrock of policing in the UK, defined by Wall as a “ bureaucratically organized agency formed locally but partly funded by government to keep the dangerous classes off the streets, maintain order and enforce law” does not lend itself well to fighting digitally enabled fraud. (Wall, Revised 2011 ) This assertion is bolstered by the fact that of 842 organized crime groups mapped by UK authorities most involved drugs and firearms while the majority with a primary offending pattern of fraud were not mapped. (Wood, et al., 2021 , p. 20) This can have real societal consequences as schemes such as ransomware are increasingly prevalent causing not just economic loses but crippling infrastructure on both sides of the Atlantic. In 2017, the Wanna Cry Ransomware disabled 60 NHS Facilities delaying non-emergency procedures and causing ambulances to be diverted to alternative facilities. (Collier, 2017 ) In May 2021, a different strain of ransomware was utilized to disable the Colonial Pipeline that supplied gasoline to much of the eastern half of the country. (United States Department of Justice: Office of Public Affairs , 2021)While the disruptions were relatively brief, it was a window into the chaos that tool whose primary purpose is for fraud can sow.

According to a 2020 RUSI report, at least on the victim side of the equation apathy to fraud may be changing as the age range of the victim is trending lower and is no longer seen as a swindle with just elderly victims. (Wood, et al., 2021 , p. 8 ) In the U.S. there are similar findings as the fastest growing segment of victims for romance schemes in the 20 – 29 age demographic, likely due in part to the Covid-19 lock downs, while the elderly reported the highest median losses. (Fletcher, 2021) The UK Victim’s Commissioner recently called out the law enforcement response to individuals victimized by scams during the Covid-19 pandemic as “Grossly Inadequate” stating “That it was wrong that only one percent of police resources go to tackling fraud”. Victims also experience both financial and psychological effects that are just as substantial as crimes committed in the physical world. (Modic & Anderson , 2015, p. 102 )         

Offshore Jurisdictions, Kleptocracy, and Western Democracies

The problem of offshore jurisdictions and the international movement of money to the least transparent and least regulated environments is just as, if not more important to the combating of new and emerging fraud. The U.K., U.S., and other democratic countries face the duel challenge of combating proceeds of fraud being moved to jurisdictions beyond the reach of law enforcement and of international actors that exploit the openness of their economies to funnel money into investments within their borders in order to launder it. Much the time countries that are engaged in the former have often prominent citizens that will exfiltrate their wealth for the later purpose. Complicating the issue further is the phenomenon of wealthy individuals the world over are utilizing a range of professional services both on-shore and off to avoid paying taxes. In 2007, in was revealed that Swiss bank UBS had been providing services to some of the world’s wealthiest individuals to hide their money after a banker from UBS leaked the names of thousands of individuals that were attempting to avoid paying tax including fifty two thousand United States citizens. (Jucca, 2009) Additional leaks from additional offshore services providers in Panama and other “secrecy” jurisdictions show just how big the problem is. Recently, President Joe Biden proposed that corporations pay a fifteen percent tax around the globe to help reduce the opportunity for tax avoidance. (McHugh, 2021 )

Kleptocratic regimes also seek inviting offshore jurisdictions to exfiltrate the wealth of the countries that they represent. Along with terrorists and serious criminals they are primary clients of offshore jurisdictions. The Azerbaijani Laundromat scandal has shown just how integral institutions and countries lax beneficial ownership laws can be. The Azerbaijani Laundromat refers to the scheme that was undertaken to sprite away over two billion dollars from state banks in Azerbaijan through the Estonian Branch of Danske Bank utilizing UK registered shell companies. (Raileanu & Nitu, 2017 ) The money was then utilized to pursue business interests, purchase goods and services, and make philanthropic donations all in an effort to purse a strategy of reputation laundering as activists and journalists at home were being detained. (Radu, et al., 2017) It is Recently, both the UK and the U.S. have made inroads regarding secrecy surrounding the registration of corporations. On January 1, 2021 the Corporate Transparency Act was signed into law requiring beneficial ownership documentation to be filed by most companies with the Treasury Department Financial Crimes Enforcement Network. (The National Law Review, 2021)In the UK, it has been proposed that Companies House require beneficial ownership information be required when registering a company. (UK Government , 2020) Lastly, the U.S. government began an effort last month to integrate corruption and kleptocracy into the national security strategy and better align those efforts with the new fraud and money launder typologies. (Mackinnon, 2021 ) These efforts are a recognition that kleptocracy and corruption are corrosive to the democratic process and that the U.S. and should be leaders in closing off the use of their countries for criminal purposes.

Problems as complex as money laundering, organized crime, and terrorism all require new solutions for the 21^st Century. Law enforcement must rise to the challenge posed by rampant digital fraud schemes and cross border money laundering. Without making inroads on with these issue by reducing opportunities for offenders to commit acts of fraud and spirit away their gains, serious crime will continue to have combustible fuel.

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