Money Transfer in Cyberspace

1. Money Transfer in CyberspaceMTRA 16th Annual ConferenceNovember 13 – 15, 2006Presented by Joseph Cachey IIISVP, Global AML ComplianceThe Western Union Company

2. Money Transfer in Cyberspace • What is Cyberspace? • A term coined by William Gibson in Neuromancer (1984) • A metaphor for the Internet • The opposite of Meatspace • A virtual reality which represents the Noosphere / Popperian Cosmology both “inside” computers and “on” computer networks • All of the Above Source: Wikipedia (from cyberspace) 2006

3. 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)

4. Money Transfer in Cyberspace Typical Transaction Flow

5. 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

6. Money Transfer in Cyberspace Source of Funds for Internet Money Transfer • Common • Banking Accounts • Credit Cards • Debit Cards • Prepaid Cards • Emerging • Virtual Accounts / Virtual Prepaid • Staged Online then funded by Cash • Digital Currencies / Electronic Cash

7. Money Transfer in Cyberspace Benefits of Cyberspace Money Transfer Consumer Benefits • Convenience • Speed • Costs • Privacy • Ease • Security Money Transmitter Benefits • Low Costs of entry • Low Overhead • Speed • Widespread Access • Consistency • Revenue

8. 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

9. 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

10. 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

11. 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?

12. Money Transfer in Cyberspace Current Regulatory Environment • PCI Compliance Rules (Dual Factor Authentication) • Regulation E (Transaction receipts and account statements) • MSB Registration Required?

13. New Product Examples

14. 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.

15. Money Transfer in Cyberspace

16. 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.

17. 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.

18. 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

19. Money Transfer in Cyberspace Current Regulatory Environment (cont.) • State Laws – are virtual accounts monetary instruments? • International Regulations • Reporting Requirements • AML Programs for Offshore sites?

20. Money Transfer in Cyberspace A world of Electronic Cash awaits you…

21. Money Transfer in Cyberspace How digital currency works Source: FATF / GAFI Report on New Payment Methods, 13 October 2006

22. Money Transfer in Cyberspace Popular Examples e-bullion e-gold

23. Money Transfer in Cyberspace Typical Cyberspace Money Transfer Methods Bank Websites • Account to MSB Payouts • Prepaid Card Purchases • Other • Bill Payments • ACH Payments • Account to Account

24. Money Transfer in Cyberspace Sample Bank Money Transfer Website

25. Money Transfer in Cyberspace Sample MSB Money Transfer Website

26. 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

27. Money Transfer in Cyberspace Sample of a Fully Anonymous Prepaid Card

28. Money Transfer in Cyberspace Cards Tied to Numbered Accounts with No ID Required

29. Money Transfer in Cyberspace What loading methods are appropriate?

30. Money Transfer in Cyberspace Phishing – “the bait”

31. Money Transfer in Cyberspace Phishing – ”the hook”

32. Money Transfer in Cyberspace The End Cyberspace Contact: joseph.cachey@westernunion.com Meatspace Contact: 720-332-4642