Key Definitions and Potential AML / CFTFATF Risks

The Financial Action Task Force on Money Laundering (FATF) is an independent intergovernmental organization developing and promoting its principles to protect the global financial system from threats of money laundering, terrorist financing and financing proliferation of weapons of mass destruction. FATF Recommendations are generally recognized international standards for countering money laundering and terrorist financing (AML / CFT).

VIRTUAL CURRENCIES - KEY DEFINITIONS AND POTENTIAL RISKS IN AML / CFT SPHERE ¹

INTRODUCTION

Due to the fact that decentralized, based on mathematical principles, virtual currencies, in particular, Bitcoin ² , attract increased attention, two common points of view:

(1) virtual currencies are a springboard for future development payment systems; and (2) virtual currencies in the hands of criminals, individuals those involved in the financing of terrorism, and other criminal elements, trying to circumvent sanctions are becoming a powerful new tool for moving and storing funds in such a way that they are beyond the reach of law enforcement and other competent organs ³ . With this in mind, this document presents provisions of the Guide to New Payment Methods and Services (Guide FATF on NPPS, 2013), and a conceptual framework for understanding and mitigating the risks in the field of anti-money laundering and financing of terrorism (AML / CFT) associated with one of the types of systems online payments with virtual currencies. In particular, in this document a glossary (dictionary) of general terms and definitions for clarification and clarification of what virtual currencies are, and the classification of various types of virtual currencies is given, based on various business models and their functioning ⁴ , and also identified the participants of ecosystems of common systems virtual currencies. In addition, this document discusses risk factors identified in Section IV (A) of the NPPS Guidelines from 2013, in relation to virtual currencies to identify potential risks. A description of some recent investigations and measures taken by law enforcement agencies in in relation to virtual currencies, and examples of current different jurisdictions approaches to the regulation of virtual currencies.

Although the 2013 NPPS Guidelines deal with general features of the online payment system, there are no definitions of “digital currency "," virtual currency "or" electronic money ". In the specified Guidelines

also, no attention is paid to virtual currencies that differ from online payment systems allowing payments in fiat currency (for example, payment systems "PayPal", "Alipay" or "Google Checkout"). It also does not address decentralized convertible virtual currencies such as Bitcoin. In the 2013 Guide noted that “given the degree of development of alternative online currencies, The FATF may consider continuing its work in this direction in the future ”(Guide to NPPS, 2013, p. 21, paragraph 29). In this regard, a short-term typological project was initiated, whose goals are:

• development of a matrix (table) of risks typical for virtual currencies (or perhaps more broadly for virtual currencies, and for electronic money);

• promoting a deeper and more complete understanding of the composition of the participants systems of convertible virtual currencies and possible ways and means the use of virtual currencies in payment systems;

• stimulating discussion on the implementation of a risk-based approach in AML / CFT regulation in this area.

Based on the results of this typology project, the FATF may conduct further work: for example, prepare additional guidance on applying a risk-based approach to virtual currencies, including a glossary and a risk matrix, as well as an explanation of application of specific FATF Recommendations in the context of virtual currencies.

KEY DEFINITIONS

Defining a single set of terms that reflect and describe the functioning of virtual currencies is an important starting point for ensuring that officials, law enforcement officials and private sector organizations were able to analyze potential AML / CFT risks specific to virtual currencies as new payment methods. As employees of regulatory and law enforcement agencies around the world are beginning to delve into and understand with the problems and challenges posed by virtual currencies has become it is obvious that there is a lack of a single glossary that can accurately reflect the various forms that virtual currency can take. The set of terms presented below is intended to facilitate discussion and discussion, held between the FATF members. It is important to note that in this glossary changes and additions can be made as further development virtual currencies and ongoing review by officials regulatory and law enforcement / government officials of the problems and challenges posed by virtual currencies. Despite this, the proposed glossary provides a single terminology for the development of conceptual tools for the purpose promoting a better understanding of how virtual currency, as well as an understanding of the risks and potential benefits that they represent.

VIRTUAL CURRENCY

Virtual Currency is a means of expressing value ⁵ , which can be traded digitally and which functions as (1) a medium of exchange; and / or (2) estimated monetary unit; and / or (3) a store of value but does not possess legal tender status (i.e. not officially current and legal tender for settlements with creditors) ⁶ in any jurisdiction ⁷ . Virtual currency is not is issued and not provided by any jurisdiction and fulfills the above features are only by agreement within the community users of virtual currency. Virtual currency is different from fiat currency (also called “real currency” , “real money” or "National currency" ), representing the coins and paper money of the country, who are its legal tender, address and widely used and accepted as a medium of exchange in the issuing country. Virtual currency is also different from electronic money , which is a digital medium fiat currency expressions and are used for wire transfers value (expressed) in fiat currency. Electronic money are a digital transfer mechanism for fiat currency, i.e. they are used for electronic currency transfer, have the status legal tender.

Digital currency can act as a means of digital expression or virtual currency (non-fiat currency), or electronic money (fiat currency), and therefore is often used as a synonym for "virtual ". To avoid confusion, this document uses only the terms "virtual currency" or "electronic money".

NON-CONVERTIBLE AND NON-CONVERTIBLE VIRTUAL CURRENCY

This paper proposes to split virtual currency into two main types: convertible and non-convertible virtual currency ⁸ . Although in this document the terms “non-convertible” and "Closed", as well as "convertible" and "open", are used in as synonyms, it should be emphasized that the reference to "convertible currency "does not in any way imply its official convertibility (for example, as in the case of the gold standard), but only indicates it actual convertibility (for example, due to the presence corresponding market). Thus, the virtual currency is "Convertible" exclusively as long as some private participants offer deals with her, while others accept them, since her "Convertibility" is in no way guaranteed by law.

Convertible (or open) virtual currency has an equivalent value in real currency and can be exchanged for real currency and back ⁹ . Examples convertible virtual currencies are: Bitcoin (Bitcoin); E-Gold (Electronic Gold - no longer exists); Liberty Reserve (Liberty Reserve - no longer exists); Second Life Linden Dollars (Linden Dollars in the game "Second Life"); and WebMoney (WebMoney) ¹⁰ .

Non-convertible (or closed) virtual currency intended for use in specific virtual realms or worlds such as global massively multiplayer online RPG or Amazon.com store, and which, according to the rules governing its use, cannot be exchanged for fiat currency. Examples of non-convertible virtual currencies are: Project Entropia Dollars (Dollars in the game «Project Entropia "); Q Coins (Kew Coins); and World of Warcraft Gold (Gold in game "World of Warcraft").

It should be noted that even if under the conditions established by administrator, non-convertible currency can officially used only in a specific virtual world and is inconvertible, an unofficial additional black market may emerge with opportunities for exchanging "non-convertible" virtual currency for fiat currency, or other virtual currency. Usually, the administrator applies sanctions (including cancellation of the player's account and / or forfeiture of the remaining virtual currency) to those persons who are trying to create or use the black market in violation of the rules using the ¹¹ currency. Developing a sustainable black market specific "non-convertible" virtual currency can in practice lead to the transformation of such a currency into a convertible virtual currency. In this regard, the characteristic of "inconvertibility" is not necessarily is constant and unchanging.

CENTRALIZED AND DECENTRALIZED VIRTUAL CURRENCIES

All non-convertible virtual currencies are centralized: by definition they are issued by a central administrator who sets rules limiting their convertibility. Unlike non-convertible virtual currencies, convertible virtual currencies are subdivided into 2 subtypes: centralized and decentralized.

In systems of centralized virtual currencies there is a single administrator , i.e. person (third party) ¹² , which controls the system. The administrator issues currency, sets the rules for its use, maintains a centralized register of payments and has the right to withdraw currency from treatment. The exchange rate of the convertible virtual currency can be or floating , i.e. be determined by market supply and demand for virtual currency, or fixed , i.e. bound by the administrator to a given value in fiat currency or in other values ​​used in the "real world" such as gold or a basket of currencies. At present At the same time, the vast majority of payment transactions in virtual currency use centralized virtual currencies. Examples of such currencies are: E-Gold (Electronic Gold - no longer exists); Liberty Reserve dollars / euros Liberty Reserve - no longer exist); Second Life Linden Dollars (Linden Dollars in Second Life); PerfectMoney (Perfect Money); WM units (WebMoney units) and World of Warcraft Gold (Gold in the game "World of Warcraft").

Decentralized virtual currencies (also called cryptocurrencies) are distributed ¹³ , based on mathematical principles peer-to-peer virtual open source currencies that do not have a central administrator and there is no centralized control or oversight. Examples are: Bitcoin (Bitcoin); LiteCoin (Litecoin); and Ripple (Ripple) ¹⁴ .

Cryptocurrency means based on mathematical principles a decentralized convertible currency that is protected by cryptographic methods, i.e. uses cryptography to create distributed, decentralized and secure information economy. Cryptocurrencies use public and private keys to transfer of currency from one (natural or legal) person to another, and to transfer cryptocurrency every time you need a cryptographic signature. The security, integrity and relevance of registries of transactions with cryptocurrency is provided by a network of unrelated persons (in the case of Bitcoin called "miners" that protect the network in exchange for the possibility of obtaining randomly distributed commission fees. (In the case of Bitcoin, a small number of new created bitcoins, called "block reward" (block reward), and in some cases also transaction fees, paid by users as a material incentive Miners to include their operations in the next block). Have been discovered hundreds of variations of cryptocurrencies, most of which are related to Bitcoin, in which uses the principle of "proof-of-work" ("evidence performance of work "- a system based on the fact that any operation requires a certain amount of computation - approx) to check and confirming the correctness of operations and maintaining the block chain. Though Bitcoin is the first working cryptographic protocol for cryptocurrencies, there is a growing interest in the development of alternative, more effective methods of checking and confirming the correctness of operations, such as "proof-of-stake" systems ("proof of ownership" - a system in which new coins are generated not by using computing resources, and due to the storage duration of older coins ". - approx. lane).

Bitcoin (Bitcoin) was launched in 2009 and became the first decentralized convertible currency and the first cryptocurrency. Bitcoins are units of account in the form of a unique chain of digital and alphabetic characters, constituting in the aggregate of currencies and having value only due to the fact that users are willing to pay for them. Trade bitcoins are carried out by users in digital form with a high degree of anonymity, and bitcoins can be exchanged (bought or sold) for US dollars, euros and other fiat or virtual currency. Anyone can download a free open source software application from a website to send, receive and store bitcoins, and to control of operations in the Bitcoin system. Users can also get Bitcoin addresses that function as accounts on providers' websites services for the exchange of bitcoins or on the sites of online wallet services. Information about transactions (cash flows) is publicly available and placed in the general register of transactions, where the transactions themselves identified by the Bitcoin address, which is a chain digital and alphabetic characters without systematic reference to physical face. In this regard, the Bitcoin system is called "pseudonymous". The maximum number of bitcoins that will be generated is 21 million (however, each unit can be subdivided into smaller parts), and this level will be reached by 2140 ¹⁵ . By as of April 2, 2014, more than 12 and a half million bitcoins, the total value of which slightly exceeded 5.5 billion USD based on the average exchange rate for this date.

Altcoin means based on mathematical principles a decentralized convertible virtual currency other than bitcoins, which became the first currency of its kind. Currently examples of altcoins are: Ripple (Ripple), PeerCoin (Peercoin), Lite-coin (Litecoin), zerocoin (Zerocoin), anoncoin (Anoncoin) and dogecoin (dogcoin). According to reports, "Cryptsy", one of the popular exchange services, carries out exchange operations with more than than 100 different virtual currencies (as of April 2, 2014 of the year). [N. Popper (N), 2013]

Anonymiser means tools and services, such as such as darknets and "Mixers" designed to hide the source Bitcoin transactions and promoting anonymity. Examples are: Tor network (anonymous network), Dark Wallet (anonymous service networks), Bitcoin Laundry ("mixer").

"Mixer" (washing service, "mixer") is one of the types of anonymizer, which provides hiding the chain of operations in the blockchain by binding all operations to the same bitcoin address, and, sending them all together in a way that gives the impression that they are sent from a different address. "Mixer" or "mixer" directs operations through a complex series of quasi-arbitrary fictitious operations, which makes it extremely difficult to link specific virtual money (addresses) for a specific operation. Mixer services work, receiving an order from the user to send funds via specific bitcoin address. After that, the "mixer" "mixes" this an operation with operations of other users in such a way that it becomes unclear to whom the user intends to send money facilities. Examples of "mixer" services are: Bitmixer.io; SharedCoin; Blockchain.info; Bitcoin Laundery; Bitlaunder; Easycoin.

Tor Network (originally called "The Onion Router") is an anonymous distributed network of computers in The Internet, which hides the true IP addresses (addresses of network protocols) and, therefore, the identity of network users by routing communication / operations through a large number of computers, located all over the world, and repeatedly coding them. Tor network makes it extremely difficult to establish a physical location computers that host or through which access to web sites on the network. This task can be additionally difficult due to the use of additional "mixers" or anonymizers on the Tor network. The Tor network is one of several underground distributed computer networks, often referred to as "dark networks ", cyberspace," deep Internet "(Deep web) or anonymous networks used by individuals to obtain access to content in such a way as to disguise their identities and related activities on the Internet.

"Dark Wallet" means a wallet which is a component of the Chrome browser (and possibly Firefox as well), designed to ensure the anonymity of bitcoin transactions at the expense of using the following functions: automatic anonymizer ("mixer"), decentralized trading, uncontrolled collection platforms funds, black markets of stock exchanges and information, and decentralized markets like "Silk Road" (Silk Road).

"Cold Cold Storage means a Bitcoin wallet operating in the offline, i.e. Bitcoin wallet that has no connection to The Internet. Cold storage helps protect the stored virtual currency from hacking (hacker attacks) and theft.

Hot Storage means a Bitcoin wallet operating in the online. Since in this case the wallet is connected to the Internet, the "hot storage "is more vulnerable to breaking (hacker attacks) / theft than "Cold storage".

Local Exchange Trading System means a local economic organization (community) that allows its members to exchange among themselves goods and services. Within the local exchange trading system uses its own created currency to express units costs that can be used as payment or exchange for goods or services. In theory, bitcoins can be accepted as such local currency used in trade local exchange systems. (Examples: Ithica Dollars and Mazacoin).

VIRTUAL CURRENCY MEMBERS

Exchange Service Provider (Exchanger) (also sometimes called exchange virtual currencies) - natural or legal person, dealing for a commission commercial activities to exchange virtual currency for real currency, non-cash funds or other virtual currency, and also for precious metals, and vice versa. In general, service providers the exchange accepts various types of payments, including cash payments money, wire transfers, credit cards and other virtual currencies, and may be affiliated with administrators, not affiliated with administrators or third party providers. Service providers on the exchange can act as an exchange or as an exchange item. Individuals usually use the services of providers to depositing and withdrawing money from accounts in virtual currency.

Administrator (Administrator) - natural or legal person, engaged in issue commercial activities (putting into circulation) a centralized currency, the definition and introduction of rules for its use, maintaining a centralized register payments and having the right to redeem (withdraw from circulation) virtual currency.

User - natural or legal person, which purchases virtual currency and uses it to buy real or virtual goods / services or send private transfers to another person (for personal use), or that holds virtual currency as a (personal) investment. Users can receive virtual currency in several ways. For example, they can (1) purchase virtual currency for real money (from an exchange service provider, or in exchange for a certain centralized virtual currency directly from the administrator / issuer); (2) participate in certain activities, pay for which is carried out in virtual currency (for example, by participating in promotions, surveys / questionnaires, providing real or virtual goods or services); (3) in the case of some decentralized virtual currencies (e.g. Bitcoin) independently generate currency units by "mining" (see the definition of "miner" below) and receive it as a gift, reward or as part of free distribution.

Miner - natural or legal person, participating in the functioning of the decentralized network virtual currency through the use of special software software for solving complex algorithms in a distributed system "Proof-of-work" ("proof of work") or other a distributed confirmation system used to verify and confirmation of the correctness of operations in the virtual currency system. "Miners" can be users if they themselves generate convertible virtual currency exclusively in own personal purposes, for example, as an investment or for payment for current obligations, or for the purchase of goods and services. Miners can also participate in the virtual currency as providers of exchange services by creating virtual currency in the framework of commercial activities for its sale in exchange for fiat currency or other virtual currencies.

Virtual currency wallet - means (software application or other mechanism / medium) for depositing, storing and transferring bitcoins or other virtual currency.

Wallet provider - is the person who provides the virtual currency wallet (i.e. the tool (software application or other mechanism / medium) for escrow, storage and transfer bitcoins or other virtual currency). The wallet contains personal (private) keys of the user, allowing him to spend virtual currency fixed at the virtual currency address in the chain blocks. The wallet provider facilitates participation in the virtual currencies, providing users, exchange service providers and merchants an easier and more convenient opportunity to conduct transactions with virtual currency. The wallet provider maintains the balance of the virtual currency customer, as well as generally ensures the safety of storage and operations with virtual currency. For example, in addition to providing a bitcoin address, wallet services may include encryption, signature protection with using multiple keys, backup / cold storage and "Mixers". All bitcoin wallets can be linked together. Wallets can be stored both online ("hot storage") or and offline ("cold storage"). Examples: Coinbase, Multibit, Bitcoin Wallet.

In addition, other other entities may be participants in the virtual currency system and can join exchange service providers and / or administrators, or be independent. This category includes network administration providers (also called web administrators) ; third party payment processors , which ensure the acceptance of payment in retail outlets; software developers software ; and software providers (some of “others persons "listed in this paragraph may already fall into one of the categories above). Application and software development can be done in for legitimate purposes, for example, to facilitate the acceptance of means of payment and customer payments or to respond to a legitimate concern regarding the protection of private data. Simultaneously, applications and software may also be developed for illegal purposes, for example, the developer / operator of the "mixer" may work in the interests of illegal users, using products specifically designed to avoid checks by regulatory and law enforcement agencies.

It should be emphasized that the above list of participants is not comprehensive. Moreover, given the rapid development of technology virtual currency and business models, in such systems can additional participants emerge, posing potential risks in the field of AML / CFT.

Classification of virtual currencies

Classification of virtual currencies

LEGITIME USE

As with other new payment methods, virtual currency has their legitimate users, and well-known venture capital firms invest to startups in the virtual currency sector. Virtual currency has potential opportunity to improve the efficiency of payments and reduce costs of payments and money transfers. For example, Bitcoin functions as a global currency, where exchange fees (currently for processing transactions lower commissions are charged compared to traditional credit and debit cards) and which could potentially benefit existing online payment systems such as PayPal ¹⁶ . Virtual currency can also help micro-payments, allowing commercial companies monetize inexpensive goods or services sold over the Internet, such as one-off games or downloading music. For practical considerations, now such goods and services cannot be sold at an adequately low price due to the high processing costs of each credit or debit card transactions. Virtual currency also can stimulate international money transfers and facilitate expanding access to financial services as new products and services are being developed based on virtual currencies, that could potentially be used to serve individuals who do not have access or have limited access to bank accounts and services. In addition, virtual currency, especially Bitcoin, can be purchased and stored as investment. However, the potential benefits and benefits should be carefully analyzed. In particular, you need to understand whether whether the declared low costs of distributing regulatory requirements for virtual currencies, and / or whether fees for exchange when cashing out virtual currencies (withdrawing cash fiat of money). It is also necessary to consider whether factors such as volatility, consumer protection, etc. ¹⁷ potential opportunities for virtual currencies to facilitate increased access to financial services.

ПPOTENTIAL RISKS

Convertible virtual currencies that can be exchanged for real money or other virtual currencies are potentially vulnerable to point of view of their illegal use for money laundering and terrorist financing for many of the reasons stated in the Guide on NPMU from 2013. First, they can provide higher the degree of anonymity in comparison with traditional cashless methods payments. Virtual currency systems that can be traded through The Internet is generally characterized by a lack of direct interaction with clients and can allow anonymous financing (cash financing or third party financing through virtual exchange offices where the funding source is not properly identified). They can also provide the possibility of making anonymous transfers, if individuals the sender and recipient are not properly set.

Decentralized systems are particularly vulnerable in terms of risk anonymity. For example, Bitcoin addresses that function as accounts, inherently do not contain names or other identification information about clients, and the system itself does not have a central server or a service provider. Bitcoin protocol neither requires nor provides identification and verification of the identities of participants or the formation and maintenance of data on transactions for the past period, which are certainly linked to the personalities of the participants in the real world. Also missing a central supervisory authority, and there is currently no software for AML purposes, using which could be monitored and identified schemes of suspicious operations. Law enforcement agencies fail to identify one central place or person (administrator) for the investigations or seizure of assets (although the relevant authorities may identify individual exchange service providers to receive from them information about customers that they can collect). So everything this provides a level of potential anonymity that simply not possible in the case of credit and debit cards or older traditional online payment systems such as PayPal.

The widespread adoption of virtual currency also increases the potential risks in the area of ​​AML / CFT, which it represents. Virtual currencies are available via the Internet (including from mobile phones) and can be used to make cross-border payments and money transfers. Also, virtual currencies like usually operate within a complex infrastructure that includes a number of individuals, often located in several different countries, providing money transfers and payments. Such segmentation services means that it may not be entirely clear and understandable who exactly is responsible for ensuring compliance with AML / CFT requirements and implementing supervision / implementation of enforcement measures. Moreover, the data and records of transactions and customers can be kept and stored by different persons, often located in different jurisdictions, which further complicates their availability to law enforcement and regulatory authorities. This problem compounded by a rapidly changing and evolving nature technologies and business models of decentralized virtual currencies, including number and types / functions of participants who provide services within payment systems using virtual currency. It is also important to consider the fact that the various elements of the system virtual currency may be located in jurisdictions in which there are no adequate AML / CFT controls. System participants centralized virtual currencies may be involved in money laundering money and deliberately seek out jurisdictions with a weak AML / CFT regime. Decentralized, convertible virtual currencies allowing carry out anonymous transactions between persons, may exist in digital space, which is completely inaccessible to any a separate state.

LAW ENFORCEMENT ACTIVITIES RELATED TO VIRTUAL CURRENCY

Cases come to the attention of law enforcement agencies illegal use of virtual currency for the purpose of laundering of money. Below are some examples.

LIBERTY RESERVE

This is the largest case in history to date. online money laundering. In May 2013, the Ministry of Justice The United States has indicted Liberty Reserve (representing is an electronic transfer system based in Costa Rica) and seven of its managers and employees. They were accused of exercising unregistered commercial activities for the provision of services remittances and money laundering by facilitating the movement of over US $ 6 billion in illegal income. IN as a result of the coordinated actions taken, the Ministry US Treasury has designated Liberty Reserve as a financial institution the greatest money laundering concern in Section 311 of the United States Counter Terrorism Act (Patriot Act), and completely deprived her of access to the financial system of the United States of America.

The Liberty Reserve system was created in 2006 specifically for to avoid scrutiny by regulatory and law enforcement organs and assist criminals in the distribution, storage and laundering of proceeds of crime related to credit card fraud, investment fraud, computer hacking, drug trafficking and child pornography. She allowed criminal elements to carry out anonymous transactions that could not be traced. This system, functioning on a colossal scale, totaled a million users worldwide, including more than 200,000 users in USA. Within its framework, about 55 million operations were carried out, almost all of which were illegal. The system used own virtual currency "Liberty Dollars" ("Liberty Dollars" or "LD"), but at the same time, at the source and funds were converted and stored in fiat currency (in dollars USA).

To use Liberty Dollars, the user opened an account, using the Liberty Reserve website. Although the Liberty Reserve ”, it seemed, it was required to provide the main identification information, verification and confirmation of identities were not carried out. Users constantly opened accounts under false names, using, among other things, demonstratively criminal names (“Russian hackers "," Hacker account "," Joe Bogus ") and obviously fictitious addresses (“New York, completely fictional city, fictitious main street, house 123 "). To increase the level of anonymity in the "Liberty Reserve" system from users were required to make deposits and withdraw money funds through recommended third party exchange service providers. Thus, deposits and withdrawals were carried out, as a rule, through unlicensed money transfer service providers in Russia and a number of other countries in which at that time there was no proper state control and regulation in the field of AML, such as Malaysia, Nigeria and Vietnam. Not accepting or providing directly funds, the company "Liberty Reserve" evaded collecting information about users on the basis of their banking operations and other activities that could leave behind documentary evidence. After creating an account, the user could carry out transactions with other users of the "Liberty Reserve" system, transferring "liberty dollars" from your account other users, including dummy "merchants" who accepted "liberty dollars" as a means of payment. Behind additional "fees charged for the protection of private information" (75 US cents per transaction), users could hide their account numbers in the "Liberty Reserve" system when transferring funds that completely eliminated the possibility of tracking transfers. After it became known that US law enforcement agencies are investigation into Liberty Reserve, this company pretended to that it completely stopped its business in Costa Rica. However, the system continued to work through a number of shell companies, providing moving millions through their accounts in Australia, Cyprus, China, Hong Kong, Morocco, Russia, Spain and other countries ¹⁸ .

SILK ROAD

In September 2013, the US Department of Justice announced the initiation of criminal case against the alleged owner and operator The Silk Road - a hidden website through which its users could anonymously buy and sell drugs, weapons, stolen personal identification data and other illegal goods and services beyond the reach of law enforcement. Were presented accusations of conspiracy to drug trafficking, computer hacking and money laundering. In addition, the Ministry Justice seized the website and approximately 173,991 bitcoins held on seized computer equipment, the cost of which at the time the arrest amounted to over US $ 33.6 million. Specified person was arrested in October in San Francisco, and in February 2014 was formally charged. Currently under investigation continues.

The Silk Road was launched in January 2011 and operated in as a global virtual black market. Through him anonymous criminal operations were carried out, it was used by several thousand drug dealers and other illegal sellers for the sale of prohibited goods and services to hundreds of thousands of buyers, a third of which is believed to be in the United States. It is assumed that the total revenue from sales through this website was in the order of 1.2 billion US dollars (over 9.5 million bitcoins) and approximately 80 million US dollars (over 600,000 bitcoins) was raised as commissions for Silk ways ". Through these illegal operations, hundreds of millions of dollars (based on the cost of bitcoin at the date of arrest). Commission fees ranged from 8 to 15 percent of the total sales price.

Silk Road ensured anonymity due to the fact that operated on the hidden Tor network, and as a means of payment accepted only bitcoins. Using bitcoins as the only currency on the Silk Road website allowed sellers and buyers additionally hide their identities, because identification information about senders and recipients of peer-to-peer (P2P) Bitcoin transactions were limited only to anonymous bitcoin addresses / accounts. In addition, users could receive unlimited bitcoin addresses and use different accounts during each operation, thereby further hiding the "traces" illegal income. Users could also use additional "anonymizers", in addition to the "mixing" (tumbler) service, embedded in operations carried out through the Silk Way website (see description below).

The payment system on the Silk Way website operated in as an internal Bitcoin bank in which each user had to have an account to carry out transactions on the site. Every a Silk Road user had at least one (probably a thousand) Silk Road Bitcoin addresses linked to a user's account site stored in wallets on servers controlled by Shelkov the way ". To make a purchase, the user purchased bitcoins (as usually through a bitcoin exchange service provider) and sent them to Bitcoin address linked to his account on the Silk Road website for account replenishment. After making a purchase, the user's bitcoins were transferred within the framework of the "Silk Way" system to an escrow account until the completion of the operation, after which the user's bitcoins / the buyer was transferred from the escrow account to the Bitcoin address the seller of the "Silk Road". In addition, in the implementation of each shopping on the Silk Way website used a tumbler, which, as explained on the website, “directs all payments through complex series of quasi-arbitrary fictitious transactions ... practically eliminating the possibility of linking your payment to any bitcoins sent from the site " ¹⁹ .

WESTERN EXPRESS INTERNATIONAL

The result of an eight-year investigation into cybercrime group operating on the Internet - "Western Express Cybercrime Group ”became convictions or plea of ​​guilt by 16 participants in this groups for participation in the global scheme of identity theft / cyber fraud. Members of this cybercriminal group interacted and communicated mainly through the so-called sites Of "carders" on the Internet who carried out illegal trade stolen credit cards and personal identification data, and used false identities, systems anonymous instant messaging, anonymous email systems and anonymous virtual currency accounts. This was done to hide the fact existence and goals of the criminal community, as well as in order to avoid attention from law enforcement and regulatory authorities and maintain your anonymity.

This criminal gang consisted of sellers, buyers, cybercrime service providers and movers money located in various countries from Ukraine and Eastern Europe to the United States of America. Sellers sold almost 100,000 stolen credit card numbers and other personal identification data via the Internet, accepting as a means of payment the main image of e-Gold and WebMoney units. Buyers used stolen credentials for counterfeiting credit cards and purchases expensive goods that they bought (including using re-shipment schemes), thus making additional crimes such as theft of property, illegal possession of stolen property and fraud. As a result of this fraudulent credit card activities have been received criminal proceeds in the amount of about 5 million US dollars. Providers cybercrime services have promoted, facilitated and assisted buy, sell and fraudulently use numbers stolen credit cards and other personally identifiable information by providing computer services to sellers and buyers. The persons involved in the movement of money laundered the illegal proceeds of this cybercriminal group using for these purposes, various high-tech methods and methods. Through they transferred over 35 million US dollars to various accounts.

The center of all criminal activity was Western Express International Inc. ", a company incorporated in New York with office in Manhattan, which functioned as a service provider for exchange of virtual currency and unregistered service provider remittances to coordinate and facilitate implementation online payments made in the context of criminal activities, and money laundering of the group's income. Being one of the largest providers services for the exchange of virtual currency in the United States of America, Western Express International exchanged a total of 15 million units of Web money (WebMoney) and 20 million units of electronic gold (e-Gold) for a cybercriminal group. The company also used banks and traditional money transfer service providers to move large amounts of money. In addition, she provided information and assistance through its websites on the Internet (including Dengiforum.com and Paycard2000.com) for anonymous money transfer and evasion of obligations to provide reporting.

In February 2013, in New York State, Western Express International " and its owner / operator, a citizen of Ukraine, pleaded guilty to money laundering, fraud and collusion. (In February 2006 the company Western Express International was also charged with the provision of illegal check / electronic cashing services translations). After the trial against three other defendants in this case were convicted of June 2013, and several more people pleaded guilty to August 2009. Two people indicted are on the run. The investigation was conducted jointly by the Secret by the United States Service and the District Attorney's Office of Manhattan (New York District) and was successfully brought to trial, where the Manhattan District Attorney's Office spoke as a prosecutor.

1 The first draft of this document was prepared jointly by Australia, Canada, Russia, Great Britain and the United States of America for consideration and discussion at the FATF meetings held in February 2014 year. After that, all delegations were asked to submit your comments for approval of the final version document at the next meeting. Comments were received from 10 delegations and were taken into account when preparing this version of the document.

2 "Bitcoin" (with a capital letter) means open source software software (open source) used to create virtual currency and the resulting peer-to-peer (P2P) network; "Bitcoin" (with a small letter) means units of this virtual currency.

3 It should be noted that some observers, including Alan Greenspan, former chairman of the Board of Governors of the Federal Reserve US systems; Not Welink, former President of the Central Bank The Netherlands; Nobel laureate, economist Robert Schiller, are of the opinion that virtual currency is transitory short-term hobby or bubble, like "tulip mania" in Holland in the 17th century.

4 Virtual currency is a complex subject that does not only the area of ​​AML / CFT, but also regulatory issues, including protection consumers, prudential security, tax regulation and integrity issues and network security standards information technologies. So the suggested glossary is concerns a range of mandatory regulatory powers. Acceptance of agreed terms and common conceptual understanding virtual currency by all relevant government agencies is important to avoid duplication of effort and / or mutual misunderstanding and unnecessary work for inconsistent purposes. Moreover, this will increase the capacity of government agencies to more effectively use diverse approaches and expertise for the most effective identifying and solving problems related to virtual currency.

5 Digital representation means the representation of something in the form of digital data, i.e. automated data submitted from using discrete (discontinuous) values ​​to materialize information, as opposed to continuous or analog signals , which represent a continuous stream, or represent information as a continuous function . A physical entity such as a flash drive or bitcoin may contain a digital representation of a virtual currency, but ultimately As a result, the currency functions as such only if it use over the Internet

6 Legal tender status does not necessarily mean that a legal entity or an individual is obliged to accept payment, accomplished using a specified legal tender. For example, in in many jurisdictions, private companies, individuals or organizations are allowed develop its internal policy on the adoption or failure to accept physical currency or coins (cash) jurisdiction in as payment for goods and / or services.

7 This definition differs from the definition proposed by the European the central bank (ECB) in 2012. ECB defines virtual currency as “a kind of unregulated digital money that is issued and usually controlled by their developers and used and accepted by members specific virtual community ", ECB," Virtual currency systems " (October 2012), p. 6. On page 13 of this document, the ECB recognizes that its “definition may need to be adapted if fundamental characteristics ". It looks like now this definition is too limited, because based on mathematical principles decentralized currencies such as Bitcoin, not issued (not issued) and not controlled by the central developer, and in some jurisdictions (for example, in the USA, Sweden and Thailand), virtual currencies.

8 This classification differs from that of the ECB, which divided virtual currencies into three types: “The first type ... includes systems closed-loop virtual currencies ... used in online games. To the second type ... includes systems where exchange is possible only in one side (as a rule, the purchase of virtual currency is allowed), i.e. there is an exchange rate for purchasing virtual currency, which can ... be used to purchase virtual goods and services ... (and, in exceptional cases, also for buying ... real goods and services). The third type [includes] systems ... [with] the possibility bilateral exchange, i.e. virtual currency ... functions like any ... a convertible [real] currency having ... an exchange rate for [purchases and sales] ... [and] can ... be used to buy [like] virtual ... [and] real goods and services. " ECB, "Systems of virtual currencies", page 6. This draft document gives a simpler classification, according to which the virtual currency is divided into two types, as currently only (fully) convertible virtual currencies that can be used to transfer value to / and from the official financial sector, pose significant risks in the area of ​​AML / CFT. This is due to the fact what is required for money laundering: transformation or transfer (illegal funds); hiding or concealing the source / origin (illegal funds); or purchase / possession / use (of illegal funds).

9 Certain convertible virtual currencies can be exchanged directly through the issuing administrator (direct exchange), while others can only be exchanged through virtual exchange service providers currencies (exchange with the participation of a third party).

10 For example, "WebMoney" (WebMoney) is a virtual currency, since "values" (assets) are transferred and stored in a non-fiat currency. Units of measurement of property rights to "values" stored the guarantor are "WebMoney Title Units" of the appropriate type.

11 For example, despite such disincentives, several providers exchange services allow you to exchange Gold from the game "World of Warcraft" (World of Warcraft Gold) on the black market.

12 A third party (third party) is an individual or legal entity that participates in a transaction, but is not the main entity participant and not associated with two other participants in the operation. Those. an outsider acts as a neutral party between major participants (for example, between the sender and the recipient, the seller and buyer) in a transaction or financial transaction. Degree of participation third party depends on the type of transaction or financial transaction. For example, an online payment portal such as PayPal acts in as a third party (third party) in a retail transaction. The seller offers a product or service; the buyer uses a credit or a debit card, the data of which is entered through the operator electronic money PayPal, and a trusted third party completes the financial transfer. Similarly, for real estate transactions, a third-party company providing depository services, acts as a neutral agent between buyer and seller, receiving documents from the seller and money from buyer that the two main parties to the transaction must exchange for completion of the operation.

13 Distributed is a professional term for an essential attribute based on mathematical principles of decentralized virtual currencies: the validity of the transaction is verified and confirmed using a distributed proof of completion system work ”(proof-of-work system). Each operation is "distributed" among network members who algorithm checks and confirms the correctness of the operation.

14 In addition to the original creation and issuance of ripple coins, Ripple functions as a decentralized virtual currency. Ripple founders created all 100 billion ripplecoins, leaving myself 20 billion. The remainder is distributed separately a legal entity - Ripple Labs. Moreover, all operations verified within a decentralized computer network with using the open Ripple protocol and are registered in general the registry, which is Ripple's constantly updated database, containing information about accounts and transactions.

15 Block reward will cease to exist in 2140, and miners will receive remuneration only in in the form of commissions for operations.

16 For example, PayPal is actively considering accepting and clearing bitcoins on the PayPal platform, and JP Morgan Chase filed a patent application in the United States for an online electronic payments using a protocol based on mathematics virtual currencies that will allow users to carry out anonymous payments without providing an account number and name. Wherein the virtual currency will be stored on the computers of JP Morgan Chase "and checked through a shared ledger, like the" blockchain "in Bitcoin system.

17 For example, it is not yet clear whether virtual currency systems will be able to ensure the provision of other financial services such as lending and insurance.

18 The Liberty Reserve investigation and arrests involved efforts to law enforcement agencies in 18 countries and jurisdictions, including Costa Rica, Netherlands, Spain, Morocco, Sweden, Switzerland, Cyprus, Australia, China, Hong Kong (PRC), Norway, Latvia, Luxembourg, UK, Russia, Canada and the United States to identify and arrest criminal proceeds, fake domain names and servers.

19 The Silk Road investigation was conducted jointly by a number of US law enforcement agencies under the leadership of New York Special Operations Division and Cybercrime Division of the Federal Bureau of Investigation (FBI) and New York Drug Enforcement Squad and organized crime of the Drug Enforcement Administration (in the detachment included agents and employees of the Drug Enforcement Administration, Federal Tax Office, City Police Department New York City, Directorate of Homeland Security Investigations Immigration and Customs Enforcement, New York State Police, Bureau of control over the circulation of alcohol, tobacco, firearms and explosives Substances, the United States Secret Service, Correctional Services and US bailiffs, the Office of Foreign Assets Control and New York tax office) with the assistance and support of the Chicago branch Directorate of Investigation of the Directorate of Homeland Security Immigration and the Customs Police, Computer Crime Departments, illegal use of intellectual property, money laundering and confiscation of property of the Department of Justice, a branch of the U.S. Attorney's Office in Southern District of New York and foreign law enforcement partners, in particular, the Reykjavik Police of the Republic of Iceland and Central departments for combating crimes related to information technology and communications, the Republic of France.