Monday, August 30, 2010
In August 2010, due in part to these efforts, one alleged ringleader of an international card fraud scheme was nabbed, and a business owner charged by the FBI with money laundering settled in court.
On Aug. 7, French authorities arrested Vladislav Anatolieviech Horohorin, 27, of Moscow, six years after a Secret Service Operation Firewall investigation yielded 28 arrests in eight states and six foreign countries involving individuals engaged in a global cybercrime network. Horohorin, an alleged co-founder of CarderPlanet, one of multiple websites taken down in the 2004 investigation, is being detained in Nice, France, awaiting extradition to the United States, where he faces a federal indictment.
According to investigators, the network created by CarderPlanet's founders is one of the most sophisticated organizations of online financial crime to date. The network has been used to sell stolen credit card information to online purchasers. The Secret Service estimated that suspects collectively trafficked at least 1.7 million stolen credit card numbers, with losses to financial institutions totaling approximately $4.3 million.
Payment attorney Adam Atlas stated, "In a sense, this example is the other end of all the PCI compliance frenzy we're undergoing right now in the payments industry. It helps to put things into perspective in terms of why security is so important right now in the industry."
Unfortunately, the rapid movement of data makes it difficult to capture criminals, he said. "A whole thieving operation involving credit cards could be complete from soup to nuts within one day," he added. "You steal the cards in the morning, run the cards in the afternoon, and cash out at the end of the day or the following morning – and then disappear. That is, unfortunately, what I think makes it difficult for law enforcement to catch these guys."
Atlas advises ISOs to work closely with merchants to achieve Payment Card Industry (PCI) Data Security Standard (DSS) compliance. He said small merchants are especially vulnerable; they are often unaware that antiquated POS systems may link to back-office computers where sensitive credit card information could be stored, which exposes merchants to data breaches by hackers operating from virtually anywhere in the world.
On Aug. 17, Ahmad Khawaja, owner of two payment processors, Allied Wallet Inc. and Allied Systems Inc., reached a settlement agreement with the U.S. Attorney for the Southern District of New York to forfeit $13,335,248.91 to resolve civil forfeiture claims alleging the "funds are property involved in money laundering" and are "traceable to proceeds of the operation of an illegal gambling business and traceable to property used to operate an illegal gambling business."
From January 2009 to May 2009, over $13,335,248.91 in funds traceable to PokerStars, an online gambling site based in the Isle of Man, and other offshore Internet gambling companies, were deposited into a Goldwater Bank account held by Allied Wallet. In sworn affidavits, the FBI found probable cause to believe funds on deposit in eight Allied and Khawaja bank accounts were subject to seizure and civil forfeiture. In June 2009, the FBI seized funds in those accounts.
According to Atlas, online gaming was permitted in the United States until laws were enacted making it illegal to process online gaming payments for U.S. residents. He said online gaming is legal in Europe and tolerated in Canada, where two provinces, British Columbia and Quebec, currently have pilot programs for regulated online gaming.
Atlas warned that service providers to illegal online casino operations, whether a web hosting company or Internet processor, are open to prosecution. Processing online gambling payments initiated with a U.S.-issued credit card is also prohibited. He further emphasized that anyone involved in the payment process is responsible not just for illegal payment processing, but also for secondary charges if the casino is found to be a front for money laundering.
"As a lawyer practicing in payments, occasionally I run across a scenario where it doesn't pass the smell test," Atlas said. "It's where the volume doesn't match the goods and activities of the merchant. You have to be careful of a merchant that has enormous volume but very little metering to show for it.
"You run across these operations once in awhile, where you'll see a business that only has a few people that work there, but processes millions of dollars. In that scenario, you have to be alert to the fact that this may be a sham or a scheme to process payments on behalf of a third party, such as an online casino."
Generally speaking, gambling is state run and operated, requiring a state license and payment of taxes, Atlas noted. "The reality is that people like to gamble and are doing an awful lot of it on the Internet, legally or illegally," he said. "The traditional brick-and-mortar casinos are hurting for it. The states, in turn, that receive tax revenue from those brick-and-mortar casinos, are also hurting."
The tide against online gambling is beginning to shift. On July 28, 2010, the House Financial Services Committee approved the Internet Gambling Regulation, Consumer Protection, and Enforcement Act (H.R. 2267) sponsored by Rep. Barney Frank, D-Mass., that would legalize and regulate some forms of Internet gambling, allowing U.S. residents to place online wagers with companies licensed by the U.S. Department of the Treasury. It would also provide consumer protection and enforcement of tax codes.
In a separate measure sponsored by Rep. Jim McDermott, D-Wash., federal and state taxes would be collected on licensed online gaming deposits, gaming profits and bettor winnings. The passage of the tax measure hinges on full House approval of H.R. 2267. U.K.-based H2 Gambling Capital, consultants to the gambling industry, estimates U.S. online betting, excluding sports, will rise from $14.4 billion to $26.7 billion within five years of regulation, should it pass.
Atlas believes the movement toward licensing of online casinos in the United States will continue as legislators grapple with regulation of a lucrative growth industry that has the potential to increase tax revenue substantially, as well as offset losses from the downturn in brick-and-mortar gambling.
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