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Many factors come into play when you want to win a horserace. Next to the fastest horse, there’s a need for the best team, perfect daily condition, an extraordinary rider and sometimes also a big bunch of luck. Passionate trademark analyst and L2 founder Scott Galloway calling out for us the rates of Amazon, Apple, Facebook & Google.
by Megan Geuss - Oct 29 2014, 1:00pm EDT
http://arstechnica.com/gadgets/2014/10/how-mobile-payments-really-work/
It's hard to have a meaningful discussion about Apple Pay (iOS' most recent foray into mobile payments) and Google Wallet (Android's three-year-old platform that's had tepid success) without talking about how the systems actually work. And to talk about how those systems work, we have to know how credit card charges work.
We took an iPhone 6 out and found that mobile payments have grown up—a little.
It seems like a simple thing, especially in the US—swipe your card, wait a second or two for authorization, walk out of the store with your goods. But the reality is that a complicated system of different companies handles all that transaction information before your receipt ever gets printed.
If you're using a so-called “universal” card like Visa or MasterCard, there are typically four parties involved: the merchant, the payment processor, the merchant acquirer, and the issuer. Their roles are as follows:
Visa and MasterCard are considered card networks in all of this. And as umbrella organizations, card networks aren't explicitly counted in that four-party system, but they facilitate the system's operation and often have ties to other parties involved.
MasterCard SVP & Group Head for Digital Channel Engagement Sherri Haymond explained the company's role to Ars. "MasterCard sits in the middle: we have a franchise that financial institutions apply to join," she said. From MasterCard's perspective, "acquirers bring merchants into the system, and issuers bring consumers into the system. MasterCard's role is to set rules and standards, and we facilitate movement of money, in most cases from the issuer to the acquirers."
From "Merchant Acquirers and Payment Card Processors: A Look inside the Black Box" by Ramon P. DeGennaro. Economic Review. 2006.
For our purposes, we'll look at Visa- and MasterCard-like relationships, specifically. Just know that some companies—like American Express, Discover Card, and Diners Club—can play the role of the card issuer and merchant acquirer at the same time. And cards issued by companies like Macy's or Sears will likewise have a somewhat simpler system behind the transaction, because these “private label” cards are generally only accepted by one merchant.
Of course, things aren't always so straightforward in practice. According to a paper written by Ramon P. DeGennaro for the Federal Reserve Bank of Atlanta [PDF], “The payment card industry comprises many different entities that perform various tasks, and because many of them have formed alliances, the lines between them are often blurred.”
DeGennaro writes that the most important institutions in this four-party system are the merchant acquirer and the payment processor. Despite their importance, customers often never interact directly with these two entities. The functions of acquirers and processors can be performed by the same company, although many acquirers usually re-sell the services of a third-party processor.
When a transaction takes place, two major processes occur: the card gets authorized, and the transaction is then cleared.
DeGennaro describes the authorization phase best:
The terminal sends the merchant’s identification number, the card information, and the transaction amount to the card processor. The processor’s system reads the information and sends the authorization request to the specific issuing bank through the card network. The issuing bank conducts a series of checks for fraud and verifies that the cardholder’s available credit line is sufficient to cover the purchase before returning a response, either granting or denying authorization. The merchant acquirer receives the response and relays it to the merchant. Usually, this process takes no more than a few seconds.
Once the card has been authorized, the second part of the transaction is clearing it, or getting the goods to the customer and the money to the merchant's bank. The merchant sends transactions to the merchant acquirer, and the merchant acquirer sends that information along to the merchant accounting system, or MAS, that supports an individual merchant's account. DeGennaro says that the distinction between the merchant acquirer and the MAS can be muddy. "In some cases, the MAS is a part of the merchant acquirer; in others, it is a different entity." DeGennaro continues:
The MAS distributes the transactions to the appropriate network—Visa transactions to the Visa network, MasterCard transactions to the MasterCard network, and so forth. Next, the MAS deducts the appropriate merchant discount fee (to cover the costs of the merchant acquirer’s activities) from the transaction amount and generates instructions to remit the difference to the merchant’s bank for deposit into the merchant’s account. The MAS sends these instructions to the automated clearinghouse (ACH) network, which is a computer-based system used to process electronic transactions between participating depository institutions.
Merchants typically pay what is called a Discount Rate and a Transaction Fee, which are tied to what is called an Interchange Fee, which is determined by the payment card network (again, Visa or MasterCard). According to a Quora post by CEO of 1st American Card Service Brian Roemmele, republished on Forbes, 85 percent of this Interchange Fee is paid to the card's issuing bank (like Chase, or Bank of America, for example). These fees usually amount to about two percent of the purchase price on credit card purchases and are a profit driver for the issuing bank. They also help cover fraud costs and fund reward programs.
This system is complicated, and it is growing increasingly fraud-prone, especially when card information is stored on a merchant's terminal or is sent insecurely. To keep this article (relatively) short, we won't discuss Card Not Present (CNP) transactions, which usually occur online or over the phone and require a customer to input her or his card's security code (those digits on the back of the card).
In a quick note, however, because CNP transactions are much less secure than transactions where the card is present, CNP transactions usually demand higher Interchange Fees from merchants. But although NFC transactions on an Apple Pay or Google Wallet-enabled phone don't physically require a card to be present, they transmit information as if the card was present, so fees aren't higher for merchants that choose to enable NFC on their terminals.
The important thing to know about Apple Pay and Google Wallet is that neither payment platform was first to develop tap-and-pay transactions. In fact, a number of stakes holders, especially Visa and MasterCard, had been doing research and development, running pilot programs, and issuing contactless payment-capable credit cards for years by the time Google Wallet entered the scene in 2011. MasterCard, especially, with its growing PayPass platform, had been working with retailers to make RFID, and later NFC (Near-field Communication) chips—which allow two-way communication between the chip and the terminal—readable by terminals at major retailers like Macy's, Whole Foods, and McDonald's.
That said, Google Wallet was the first major deployment of a mobile phone-based NFC payments system. When it debuted, Google Wallet was only available on the Sprint Nexus S 4G, and its official partners were MasterCard and Citi Bank. You could also buy a prepaid card through Google. With its limited number of partners, Google originally stored credit card information directly on the phone's Secure Element—an isolated chip in the phone that has very limited interaction with the rest of the phone's OS. When the phone came close to an NFC reader, Google required a four-digit PIN to be entered before the chip transmitted the card information to the terminal. Since 2014, Google no longer uses a Secure Element, instead relying on Host Card Emulation, which makes it easier for third-party app developers to take advantage of Android phones' NFC capabilities. Four-digit PIN authentication is still required for payments to take place. From there, the transaction proceeds as any normal credit card interaction would. With the four-digit PIN, users are prevented from, say, accidentally buying something.
But the small number of partners made Google Wallet adoption stall. In 2012, the company tried to bring more users into the fold by issuing an update that permitted “all credit and debit cards from Visa, MasterCard, American Express, and Discover” to be uploaded to Google Wallet's cloud-based app. That didn't mean that Google developed partnerships with these companies necessarily (American Express notably balked at the announcement), but Google's new scheme opened the payments system up to greater mobile payments adoption than ever before. That scheme, which remains intact as per Google Wallet's Terms of Service (TOS), last updated in July 2014, is facilitated by issuing the customer a Google Wallet Virtual Card. This Virtual Card is issued by Bancorp Bank through Google, and it essentially acts as an intermediary between the customer's preferred card and the merchant.
Google Wallet users may not know that they're actually using a Virtual Card to make transactions.
“To enable your use of the Google Mobile Wallet Service via your NFC mobile device, GPC [Google Payment Corporation] has arranged for Bancorp to provide you with access to a MasterCard®-branded virtual prepaid debit payment card product, the Google Wallet Virtual Card, which is stored on your mobile device,” Google writes in its TOS. “By requesting the Google Mobile Wallet Service on your NFC enabled mobile device, you are requesting the issuance of the Google Wallet Virtual Card in order to facilitate your use of the Service.”
This setup naturally makes the four-party payments system more complicated. Instead of having your Chase-issued Visa card information sent from the merchant's terminal to the merchant acquirer, the Google Wallet Virtual Card requests the funds from your preferred card, and the Virtual Card information is then sent to the merchant, who subsequently sends it on to the payments processor. From there, that information is processed as a traditional card's information would be.
As Google describes a transaction: “When you place your mobile device near the merchant's NFC reader, your Google Wallet Virtual Card information will be transferred from your NFC mobile device to the merchant for use in processing the Payment Transaction. The Google Wallet Virtual Card is a prepaid debit card that can be used to make purchases when you use the Google Wallet Mobile Service at a merchant location that accepts contactless payments, even if the issuer of your registered debit or credit card is not a Google Wallet partner for NFC transactions. The Google Wallet Virtual Card is different from your debit or credit card registered in Google Wallet. The merchant will not receive your registered debit or credit card information.”
This setup is good for the customer, but it's a little less positive for Google. On the one hand, using a virtual card is considered a card fraud mitigation technique that has been around for quite a while—using pseudo-fake data to separate your real card information from the transaction process is a good idea. It also hands more power to Google and its customers, who now have more choice when it comes to supported cards. “Google sits in the middle of its Wallet transactions, rather than just passing through plastic credentials to an NFC enabled smartphone,” American Banker writes.
This setup also removes credit card information from the phone itself, although your real credit card information is still stored on Google's servers. As the company writes in its FAQs: "Your actual credit card number is not stored. Only the virtual prepaid card is stored and Android's native access policies prevent malicious applications from obtaining the data. In the unlikely event that the data is compromised, Wallet also uses dynamically rotating credentials that change with each transaction and are usable for a single payment only. Finally, all transactions are monitored in real-time with Google’s risk and fraud detection systems."
Google also offers a robust fraud protection program that "covers 100 percent of verified unauthorized Google Wallet transactions reported within 120 days of the transaction date," the company says.
On the other hand, this setup makes transactions more complex, requiring Google to shoulder part of the burden in securing those card numbers stored on its servers. It might even be costing Google a bit of money. UniBul Credit Card Blog noted that Google's Virtual Wallet system involves two issuers—the customer's preferred card issuer and the virtual card issuer (Bancorp Bank). Recall that when a payment is made, the card issuer collects an Interchange Fee that's usually around two percent. But with a "real" card and a virtual card involved in the interaction, interchange fees will be charged for both issuers. “From the merchant’s stand point, the transaction is completed using the virtual card,” UniBul writes. “After all, that is the only card the merchant sees. So the interchange will be paid by the merchant, through its acquirer, and collected by the virtual card’s issuer—The Bancorp Bank, Google Wallet’s partnering bank. However, right after this transaction is completed, Google will transfer the sales amount from the card that was actually selected by the user to the virtual card. And now the issuer of the ultimate payment source will also have to collect its interchange fee. This time Google will have to pay for it, and it doesn’t seem like the search giant can offload the interchange to anyone else.”
When the movement to virtual cards occurred in 2012, American Banker wrote that “some analysts believe that, while Google's intentions are unknown, it's unlikely that they'd want to start collecting interchange [from merchants that support Google Wallet]—at least until the search engine company first [starts] to profit from advertising revenue associated with a person's use of Wallet.” It's unclear whether Google has turned a profit from Wallet, but it does seem apparent that Google's goal in its mobile payments endeavor is the same as with the rest of its free services—to collect as much data as possible from its customers.
Although much of Apple's integration into the card payment system is obfuscated by secret deals the company has with the various players, three different sources told Bloomberg recently that Apple would actually be collecting a percentage of every transaction made on Apple Pay from certain issuing banks.
In other words, Apple was reportedly able to convince JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., and others that it deserves a cut of each purchase made on the iPhone 6 or 6 Plus, because customers will spend more using the phone than they would with a regular credit card. According to Bloomberg, “Under deals reached with banks individually, Cupertino, California-based Apple will collect a fee for each transaction, said one of the people, who requested anonymity because terms aren’t public."
Apple also may have been able to convince the banks that its platform could reduce fraud and thus reduce the associated costs to the issuing bank (allowing the bank to keep more of that Interchange Fee).
Like with Google Wallet, making a contactless payment using Apple's phone requires the user to verify the payment on the phone before it can go through. Whereas Google Wallet uses a four-digit PIN, Apple Pay requires the customer to verify using TouchID, which reads the user's fingerprint.
On top of that, Apple has introduced tokenization into its payment system. Like Google Wallet's Virtual Card, this obfuscates the user's actual credit card number, but it does so using a security standard developed by various standards groups and big-name card networks like Visa. It all happens without having to go through another bank as an intermediary supplier of a virtual card. While many card networks and banks have experimented with ways to implement tokenization security, Apple's method goes to lengths to keep a user's card data out of Apple's hands and off its servers, except during setup.
You can snap a photo of your credit card to avoid having to key-in all 16 digits. The photo is not stored on your phone.
When you first set up Apple Pay, you can either manually input your card details or take a photo of the front of the card. If you choose to snap a photo, the photo isn't stored on your phone. All the information is, according to Apple, encrypted and sent to the company's servers, where they decrypt the data and determine the card network or card issuer. Apple then “re-encrypts the data with a key that only your payment network can unlock,” as the Apple Pay support page details. Apple next “sends the encrypted data, along with other information about your iTunes account activity and device (such as the name of your device, its current location, or if you have a long history of transactions within iTunes) to your bank. Using this information, your bank will determine whether to approve adding your card to Apple Pay.” In a sense, this setup process is like the initial authorization in a traditional credit card payment. In a simple credit card transaction, card details are sent to the bank for authorization, and an approval comes back to the merchant that lets the transaction go through.
The Apple Pay setup, however, appears to be the first and only time your real credit card information is passed around between Apple and an issuer. Once the information gets to the card network, it's decrypted, and the card network issues a token called a Device Account Number (DAN). The DAN is device-specific. The card network sends this DAN to Apple along with other information “such as the key used to generate dynamic security codes unique to each transaction,” according to Apple's support page.
The blog Bank Innovation explains this “dynamic security code” scheme a bit, noting that in EMV transactions (and Apple Pay does use the soon-to-be-adopted-in-the-US EMV standard), the chip in the phone (or in the card, in a traditional EMV transaction) interacts with the merchant's terminal to “generate a cryptogram—the transaction’s security key—and attach it to the consumer’s personal account number (PAN). The cryptogram is generated, in part, by the chip on the card, which was previously given to the consumer by the issuer. The cryptogram is then sent back to the issuing bank, which processes the transaction. Because the issuer—in other words, the banks that work with the card networks—gave the consumer his card, the issuer is responsible for the quality and security of the cryptogram.”
So using this method, Apple not only uses a token as a proxy for a real credit card number that is device-specific and ideally should not be able to be replicated across another device, but it also offloads responsibility for the security of the token and the cryptogram to the card issuer. The token and the cryptogram are both encrypted with the card network/issuer and are then sent back to Apple. The company claims it cannot decrypt this information, and it simply adds it to the Secure Element on your device. As Apple claims, on the Secure Element your token and its accompanying cryptogram are “isolated from iOS, never stored on Apple Pay servers, and never backed up to iCloud. Because this number is unique and different from usual credit or debit card numbers, your bank can prevent its use on a magnetic stripe card, over the phone, or on websites.”
So when you go to make a payment with Apple Pay, you bring the phone up to an NFC-enabled terminal (which will only read devices that are a matter of inches away) and the phone will ask you to authenticate the payment with TouchID. That authentication signals to the phone that it can transmit the Device Account Number and its accompanying “transaction specific dynamic security code” to the merchant's terminal, and the transaction then proceeds as a normal credit card transaction would. The only difference is the bank network or issuer verifies that your payment information is coming from the correct device and has not been duplicated.
All in all, it seems like a good deal for Apple. The company is not carrying a lot of sensitive information on its servers, and, at the same time, it reportedly receives a cut of the Interchange Fees that banks make on each purchase. Apple itself has promised not to charge customers or merchants for using or supporting Apple Pay, although it's still unclear whether costs might be passed down to users in another way. As MasterCard's Sherri Haymond described, "What Apple's role is here is they're the technology platform provider, they're interacting with the consumer, but they're not in the middle of the payment flow at all. All they're doing is facilitating their assets to be transferred."
As stories of rampant fraud being discovered at giant retail chains like Target, Home Depot, Michael's, Neiman Marcus, and more continue, it's clear that the magnetic stripe-based payments system in the US is pretty vulnerable. And although fraud detection efforts made by issuing banks can be helpful, sometimes those same techniques are very, very unhelpful. Both Google Wallet and Apple Pay are steps forward because they require secondary authentication (either through the entering of a PIN or verification through TouchID) before initiating a transaction. And Apple Pay has taken some pretty impressive steps to minimize the amount of user data Apple holds while implementing security schemes that are on the forefront of what's possible today.
That's not to say Apple Pay and Google Wallet are fraud-proof. Where there's a will there's a way, and the creativity of malicious actors knows no bounds when money is available for the taking.
Wed, Sep 10, 2014 at 2:09 PM
Federal raids on downtown Los Angeles Fashion District businesses and related bank accounts turned up a whopping $65 million, much of it in cash, that authorities say was drug money headed to the Sinaloa drug cartel in Mexico, the U.S. Attorney's Office in L.A. announced today.
The whopping seizure of bank funds and currency, the latter of which was put on display for the press, was part of three cases against various fashion businesses, including lingerie and maternity concerns, that investigators say took drug money and exchanged it for imported goods so that the money would seem legit as it traveled south to the narco lords of Sinaloa.
In one case, feds allege, a business laundered $140,000 paid for the to release a man held hostage because 100 kilos of cocaine he was supposed to distribute were intercepted by authorities in the United States.
The U.S. Attorney's Office says the American was taken to a ranch in Culiacan, Sinaloa and "beaten, shot, electrocuted and waterboarded" before the dirty cash set him free.
Authorities say the Fashion District schemes to funnel south millions of dollars paid on this side of the border for drug shipments eliminated the risk of backpacking bills back across the border.
Here's how the "black-market peso exchange" scheme was described in a statement:
In a BMPE scheme, a peso broker works with an individual engaged in illegal activity, such as a drug trafficker, who has currency in the United States that he needs to bring to a foreign country, such as Mexico, and convert into pesos. The peso broker finds business owners in the foreign country who buy goods from vendors in the United States and who need dollars to pay for those goods. The peso broker arranges for the illegally obtained dollars to be delivered to the United States-based vendors, such as the stores in the Fashion District, and these illegally obtained dollars are used to pay for the goods purchased by the foreign customers. Once the goods are shipped to the foreign country and sold by the foreign-based business owner in exchange for pesos, the pesos are turned over to the peso broker, who then pays the drug trafficker in the local currency of the foreign country, thus completing the laundering of the illegally obtained dollars.
Nine suspects were arrested as cash was seized and bank accounts were taken over in raids that involved 1,000 law enforcement agents and dozens of search warrants today, feds said.
One of three cases wrapped into today's announcement involved the kidnapping.
According to authorities, downtown's QT Fashion, Inc., doing business as QT Maternity and Andres Fashion, worked with Maria Ferre S.A. de C.V. in Mexico in order to funnel ransom money through 17 other Fashion District businesses.
Suspects connected to QT—56-year-old Andrew Jong Hack Park (a.k.a Andres Park) of La Canada-Flintridge, 36-year-old Sang Jun Park of La Crescenta, and 49-year-old Jose Isabel Gomez Arreoloa (a.k.a. Chabelo) of downtown—were arrested in today's raids.
They have been charged with suspicion of conspiracy to launder, conspiracy to operate an unlicensed money-transmitting business, and operating an unlicensed money-transmitting business, according to the U.S. Attorney's office.
Three suspects on the Mexican side of the scheme were still outstanding, feds said.
A second case involved members of a Temple City family—55-year-old father Xilin Chen, 24-year-old son Chuang Feng Chen (a.k.a. "Tom"), and 28-year-old daughter Aixia Chen, authorities said.
They face charges connected to suspicion of conspiring to launder monetary instruments, money laundering, and "various immigration offenses," according to the U.S. Attorney's statement.
Father and son were arrested in today's raids, but Aixia Chen remained on-the-loose, authorities said. An indictment alleges the trio's businesses, Yili Underwear and Gayima Underwear, laundered "bulk cash" for the cartel.
The third case involves four suspects connected to Pacific Eurotex, Corp.—55-year-old CFO Hersel Neman of Beverly Hills, 54-year-old brother and CEO Morad Neman of the Westwood, 45-year-old brother-in-law Mehran Khalili of Beverly Hills, and 52-year-old Alma Villalobos of Arleta, feds said
They have been charged with suspicion of "conspiracy to launder money, conspiring to illegally structure currency transactions to avoid a currency transaction reporting requirement, structuring currency transactions to avoid currency transaction reporting requirements, and failing to file reports of currency transactions over $10,000,"the U.S. Attorney's office stated.
Officials said the four accepted hundreds of thousands of dollars in bulk cash delivered by an undercover agent.
Most of the defendants in all three cases face decades behind bars if they're successfully prosecuted.
Robert E. Dugdale, an Assistant U.S. Attorney, said:
Los Angeles has become the epicenter of narco-dollar money laundering with couriers regularly bringing duffel bags and suitcases full of cash to many businesses. Because Los Angeles is at the forefront of this money laundering activity, law enforcement in Los Angeles is now at the forefront of combatting this issue.
Send feedback and tips to the author. Follow Dennis Romero on Twitter at @dennisjromero. Follow LA Weekly News on Twitter at @laweeklynews.
http://m.laweekly.com/informer/2014/09/10/los-angeles-has-become-the-epicenter-of-narco-dollar-money-laundering-fed-says
By Patrick M. Sheridan @CNNMoney August 15, 2014: 5:06 PM ET
Influential Harvard professor Ken Rogoff thinks so.
Rogoff ought to know. He was also once the chief economist at the International Monetary Fund.
Nearly 80% of the $1.3 trillion currency in circulation is in the form of $100 bills, Rogoff wrote in a paper earlier this year. The sheer number is far more than anything that can be traced to legal use in the U.S. economy. In other words, the U.S. "Benjamin" is a favorite of criminals.
Law enforcement agents agree. Criminals tend to prefer $100 bills because its easier to carry more money in less space, said Stuart Tryon, deputy special agent in charge of the criminal investigative division of the U.S. Secret Service.
"Internationally, the $100 is the most commonly counterfeited note there is," said Tryon.
Earlier this week, the Secret Service broke up a ring believed responsible for bringing in $77 million in sophisticated counterfeit $100 bills into the U.S. from Israel over the past 15 years.
Related: Flawed new $100 bill, $110 billion Fed headache
The counterfeiters had even started producing high quality bills at a new plant in New Jersey.
Criminals would pay about 40% of the face value of the bills for a "10 stack," or $10,000 worth of the bills, and then use the notes at local CVS (CVS) drugstores, car washes or Lowe's (LOW) home improvement stores. Most of the bills were circulated along the Interstate-95 corridor in the East.
The $100 bill also caused the U.S. government headaches because of a rash of printing problems that occurred when a brand new version was introduced a few years back. At the time, $110 billion in new $100 bills had to be isolated and kept out of circulation because of small blank spaces on the notes.
In an effort to make the bills hard to counterfeit, the new bill included new technological improvements, like 3-D security ribbons. However, tricky criminals are always cracking these codes and figuring out ways to thwart even the best efforts of Uncle Sam.
First Published: August 15, 2014: 12:31 PM ET
http://money.cnn.com/2014/08/15/news/economy/100-bill/index.html?hpt=hp_bn6&iid=obnetwork
FinCEN Releases First Issue of SAR Stats, Successor Publication to By the Numbers
The first issue of SAR Stats, the successor publication to By the Numbers, is available on www.FinCEN.gov. FinCEN anticipates issuing more frequent, periodic updates to SAR data beginning this fall. SAR Stats, Issue 1 can be viewed at http://www.fincen.gov/news_room/rp/sar_by_number.html.
PREPARED REMARKS OF JENNIFER SHASKY CALVERY
DIRECTOR
FINANCIAL CRIMES ENFORCEMENT NETWORK
2014 BANK SECRECY ACT CONFERENCE
LAS VEGAS, NV
JUNE 12, 2014
http://www.fincen.gov/news_room/speech/html/20140612.html
Good morning. It is a pleasure to be joining all of you today for this event. I would first like to thank the State Bar of Nevada’s Gaming Law Section, the American Gaming Association, and UNLV’s International Gaming Institute, for sponsoring today’s event.
The fact that today’s conference is sold out tells me there is a clear need for more programs like this one. It also tells me that the casino industry has a strong interest in developing a deeper understanding about these issues. And I am very glad I could be here to be a part of the discussion.
Let me start by recognizing the obvious: Casinos, like other financial institutions, are increasingly spending time and money to comply with the Bank Secrecy Act. And we are committed to working with you to maximize our ability to be effective partners.
As you likely already know, the Bank Secrecy Act, or “BSA,” is the common name for a series of statutes and regulations that form this country’s anti-money laundering and countering the financing of terrorism laws. Nearly every country around the world has similar laws in place at this point. These laws are meant to protect the integrity of the financial system by leveraging the assistance of financial institutions to make it more transparent and resilient to crime and security threats, and by providing information useful to law enforcement and others to combat such threats.
Indeed, the threats that we face in the United States are quite serious and provide the context for why we must work effectively together. The information that casinos and other financial institutions provide is used to confront terrorist organizations, rogue nations, WMD proliferators, foreign grand corruption, and increasingly serious cyber threats, as well as transnational criminal organizations, including those involved in drug trafficking, and massive fraud schemes targeting the U.S. government, our businesses, and our people.
With this backdrop, I want to focus my remarks today on the importance of the casino industry understanding and embracing a risk-based approach to anti-money laundering (AML) efforts. I will also discuss trends in the casino industry that are of concern to us at FinCEN, revisit the importance of a strong culture of compliance within the casino industry, and discuss our ongoing efforts to further strengthen our partnerships in this industry and with law enforcement and federal regulators.
First, let’s discuss why a risk-based approach is so important, and why I think casinos are uniquely positioned to make effective use of this approach. Casinos are no stranger to the concept of risk. You calculate the risk of losing money as part of your business operations. You safeguard yourselves from cheating and theft. You look out for those who attempt to game the system. Illicit actors are also looking to game the system so that they can move or hide funds among the many cash and non-cash transactions you conduct daily. In this way, casinos are well suited to, and should, employ this same concept of risk to their AML programs.
We often hear the refrain “just tell us what to do” when we explain why a risk-based approach to AML is needed. I can appreciate that a prescriptive yes-or-no/check-the-box exercise may seem easier. I can also appreciate that a risk-based approach can create some uncertainty. Unfortunately, there is no one-size-fits-all approach to AML. Every financial institution – from its products, to its customers, to its internal procedures – is different. So every financial institution needs to consider its own products and practices and assess its own risks, to develop a program that works best for that financial institution to mitigate its particular risks. FinCEN’s mission is to safeguard the financial system from illicit use. The most effective way the financial industry can help us is to understand and address the unique risks faced by their industry.
I recognize that casinos offer far more than financial services. Understandably, the entertainment component is a significant driving force behind the decisions your casino makes as a business.
But casinos are not simple cash intensive businesses. They are not arcades. They are complex financial institutions with intricate operations that extend credit, and that conduct millions of dollars of transactions every day. They cater to millions of customers with their bets, markers, and redemptions. And casinos must continue their progress in thinking more like other financial institutions to identify AML risks. Not only is this thinking necessary to safeguard your corner of the financial sector, but it is also something that should be good for your individual business too.
Think about what happens each time a customer enters your casino. Often, the first thing a customer does is conduct a financial transaction – they buy chips. And the last action a customer takes is usually also a financial transaction – they cash out those chips. And while the vast majority of these transactions are purely for entertainment purposes, casinos can serve as the vehicle for the use, movement, and concealment of ill-gotten gains. This is a risk inherent in all financial institutions.
Casinos have the same responsibility as more traditional financial institutions to file reports about certain financial transactions. For example, casinos need to report currency transactions by any person of more than $10,000 in cash each day. In addition, casinos are required to report suspicious activity when they know or have reason to suspect that a financial transaction, or attempted transaction:
(i) involves funds derived from illegal activity or is an attempt to disguise funds derived from illegal activity;
(ii) is designed to evade regulations promulgated under the BSA, or
(iii) lacks a business or apparent lawful purpose.
This is where the substantial investment in technology that casinos have made can be extremely helpful. Casinos invest heavily in sophisticated monitoring tools to track a wide range of customer activities and to understand their customers’ preferences. These same kinds of monitoring and customer service capabilities can and should be leveraged for AML purposes. I would ask those of you here today to think about the systems you already have in place and how you can adapt these systems so that you can use all available information to assess risk more effectively and improve monitoring on the AML side.
Building upon the importance of a risk-based approach, I would like to clarify the obligations casinos have concerning the source of funds. I believe there may have been some confusion caused by recent press reports on this issue.
For example, one article stated, in part, that existing rules do not require casinos to “vet” the source of funds, and that rulemaking would be forthcoming to address this issue. That, however, is not entirely accurate. Casinos are required to be aware of a customer’s source of funds under current AML requirements.
Specifically, under existing regulations, a casino is required to develop and maintain a robust risk-based anti-money laundering program. In fact, the regulations explicitly state that casinos must implement reasonably-designed procedures for “using all available information to determine… the occurrence of any transactions or patterns of transactions required to be reported as suspicious.”
Among the various reporting and recordkeeping obligations imposed on casinos is the obligation to identify and report suspicious activity. Meeting this obligation relies largely upon the casino’s ability to understand with whom it is doing business. FinCEN expects that casinos, like other financial institutions, inquire about source of funds as appropriate under a risk-based approach.
Significant amounts of money coming in from jurisdictions reported to have high crime or corruption present greater risks to you. Under a risk-based approach, these situations represent times when you may need to learn more about your customer and his or her source of wealth to identify suspicious activity.
Think about what it means when you are dealing with money that comes to you from overseas. This happens, for example, when you are affiliated with or have relations with a casino in an overseas jurisdiction, such as Macau, or when you are receiving patrons through overseas junket operators. In these situations, you need to be concerned about potentially illicit sources of funds issues and the strength of AML controls in the originating overseas jurisdiction. In particular, you should be paying attention to:
In addition, with respect to junkets, casinos are reminded that they are required to implement risk-based procedures for ensuring compliance with the requirement to report suspicious transactions. A casino is required to implement procedures for identifying the junket representative and each member of the junket, obtaining other information on these individuals, and conducting due diligence, for front money accounts. (This is spelled out in one of the Frequently Asked Questions guidance documents FinCEN put on its website two years ago.)
I want now to revisit the importance of a culture of compliance, which is an issue we raised when I spoke here in Las Vegas last September. A strong culture of compliance within any institution is key to its ability to comply with the BSA. From purely a business side, you understandably want to be the casino that has the best reputation for catering to your guests. You pride yourself in knowing what kind of wine a high-roller drinks, or his or her favorite music. Your intelligence operations and the knowledge of your hosts, when it comes to pleasing your guests, are second to none.
You have a culture of hospitality and entertainment that enables you to grant every request a customer makes. To be sure, proper business etiquette suggests that the customer is always right – although that might be true in many things, it certainly isn’t true in everything. You could jeopardize your reputation and run afoul of the law in an effort to please your customer. A casino’s capability for knowing its customers’ preferences and credit information, combined with your security technology, can and should be leveraged to piece together relevant information to understand your customers’ source of funds.
Another aspect of the culture of compliance relates to information sharing. As in other financial sectors, for a casino’s compliance culture to be truly strong and effective, it should promote appropriate information sharing to help achieve AML goals. Casinos should think about the information that they have on an enterprise-wide basis and how to ensure it gets to the right people in their compliance unit. In addition, FinCEN will continue to work with industry to find opportunities to increase the amount of information sharing that can occur within the industry among financial institutions and between casinos and the government.
On that point, I’d like to emphasize the need for information sharing across financial institutions. Just like other FinCEN-regulated financial institutions, casinos have the ability to share information with one another and with other regulated financial institutions, such as banks, when they suspect that the information may relate to the proceeds of unlawful activities, and thus be relevant to money laundering or terrorist activity.
The 314(b) safe harbor provisions permit financial institutions to share information under the 314(b) program as it relates to transactions involving proceeds of foreign corruption offenses and other specified unlawful activities (SUAs), the predicate offenses for money laundering, if the financial institution suspects there is a nexus between the suspected foreign corruption, or other SUA, and possible money laundering or terrorist financing activity. And I can tell you as a former money laundering prosecutor, anytime you have funds that you suspect are related to foreign corruption or another SUA in or moving through your casino, you should also be suspicious that transactions made with those funds may involve money laundering.
FinCEN’s website has details on how to take advantage of this program and the benefits of doing so. While section 314(b) information sharing is a voluntary program, FinCEN strongly encourages all financial institutions, including casinos, to participate.
To address concerns the casino industry may have about the potential disadvantages of sharing such information directly with competitors, the industry may consider the utility of 314(b) sharing through a third-party association that may register with FinCEN, which has been done in other financial sectors.
FinCEN also has another information sharing process called the 314(a) program. Under this program, FinCEN, of its own accord – or at the request of law enforcement – regularly asks industry to identify any accounts to help law enforcement locate financial assets and recent transactions involving subjects that may be involved in terrorism or money laundering activity. Presently, we send requests out to roughly 43,000 contacts primarily in the banking and securities sectors, but we have branched out to certain institutions in other industries as well. We have been discussing the utility of a similar approach for such requests to the casino industry. I can’t overstate the importance of this program – based on feedback we received from law enforcement, we estimate that approximately 95% of 314(a) requests have contributed to arrests or indictments.
Finally, at the request of the casino industry, FinCEN is working on guidance that will enable casinos filing SARs to share such reports within their domestic corporate structures, similar to guidance that we have already issued with respect to the banking and securities sectors.
One very simple aspect of a culture of compliance is to make sure that your institution and your industry take the requirements very seriously. Violating the BSA can result in FinCEN imposing civil penalties against the casino itself, as well as its employees, partners, officers, and directors. It can also result in the U.S. Department of Justice imposing criminal penalties. So I would encourage you to make sure that the business side of your casinos takes AML controls just as seriously as it treats its high-rollers.
That being said, I am very encouraged by the very productive discussions FinCEN has engaged in over these past many months with the American Gaming Association (AGA). We have met with representatives to discuss a variety of issues and we look forward to continuing the active dialogue. Our participation in today’s conference is an example of how we are reaching out to industry to provide more information about the BSA and regulatory expectations.
In addition to working with industry, FinCEN regularly works alongside IRS BSA examiners, who serve as FinCEN’s examiners for casinos and card clubs (as well as other entities, such as money services businesses). We speak with one voice on these issues. Your IRS BSA examiner is an important source of information on whether your AML program is on the right track. FinCEN also coordinates and maintains an open line of communication with the Nevada Gaming Control Board who we have found to be a valuable partner over the years. Moreover, FinCEN conducts investigations alongside criminal law enforcement partners, including IRS - Criminal Investigations (CI), FBI, U.S. Attorneys’ Offices, state authorities, and other regulatory and law enforcement partners. These civil investigations run parallel to criminal investigations with such agencies. In fact, I understand that at the end of today’s program IRS-CI will be discussing some of the trends they are seeing on the exploitation of the casino industry by bad actors. I encourage all of you to stay and listen to their feedback.
An active and open dialogue among everyone – industry, law enforcement, and regulators – is important. For example, one issue we have been discussing with the IRS BSA examiners, as well as the AGA, is chip walking. Chip walking in and of itself may not be suspicious. We know there can be legitimate reasons why a patron would leave a casino and take chips with him or her, but there may also be less innocent reasons. A customer who walks out of your casino with a large amount of chips, or stores them on-site in a lock box for an extended period of time, may be trying to hide their funds or structure. This might be the kind of activity that you should report. Again, this speaks to the need for casinos to have procedures in place to monitor for this kind of activity to help mitigate risk. It also speaks for the need of government to understand from you the particulars of your business models and the precise areas of risk. That comes through continuing engagement.
In closing, I want to thank each of you for being here today to be a part of these discussions. The public has entrusted you with providing an entertainment service in an area where we know that there are certain risks. We are counting on you to control for those risks.
I have also learned a great deal during my time here this week. For me, building these partnerships – and learning from each of you – is truly the most rewarding and inspiring part of my job. Being here today, where we can all learn how to better work together, is so important. Keeping this dialogue going will benefit all of us.
I found this an interesting approach while I am not too comfortable with another government tracking device. While I do not believe a truly cashless society will ever happen (will everyone begin trading gold coins again?), there is an economic issue at hand. Is the tax burden borne by all people or do many sidestep taxes by using cash? Infamously Mitt Romney stated that 47% of the U.S. citizenship do not pay any Federal taxes. Is using cash any different? Unethical, yes. Immoral, I am not so sure. TW
Israel Eyes Becoming a Cashless Society
A special committee headed by Prime Minister Benjamin Netanyahu’s chief of staff, Harel Locker, has recommended a three-phase plan to all but do away with cash transactions in Israel.
The motivation for examining a cash-less economy is combatting money laundering and other tax-evasion tactics, thereby maximizing potential tax collection and greatly expanding the tax base. This is important considering the enormous strain put on Israel’s national budget by the army, healthcare system and other public services.
The committee estimated that the black market represents over 20 percent of Israel’s GDP, and cash is the facilitating factor. Cash enables tax evasion, money laundering and even financing terrorism.
“According to estimates by the Tax Authority, about one-fifth of economic activity in Israel is not reported, i.e. it is a black market,” said Locker. “As a result of this black market, Israel loses tax revenues in the neighborhood of 40–50 billion shekels ($11-$14 billion) annually. This is an amount equal to the individual annual budgets of the Ministry of Defense, the Ministry of Health and the Ministry of Education.”
What the committee would like to see happen, pending government approval, is greater restriction on the use of cash, limiting the use of checks as a means of payment and exchange for cash, and promotion of the use of electronic (and therefore verifiable) means of payment.
The following guidelines were set out by the committee for the short-term:
In conjunction with these new restrictions, Israeli banks would be required to provide all account holders with debit cards to further promote electronic payments.
The committee found that Israelis are already prone to choose electronic payments methods, and so hopes the shift to a cashless society would be a good fit for the Israeli economy.
http://www.israeltoday.co.il/NewsItem/tabid/178/nid/24635/Default.aspx?menu=footer
{DIG} Another study that targets the demise of cash. Cash was the ultimate budgeting mechanism for my parents’ generation and just recently I was told that a colleague was over $23,000 deep in credit card debt. Makes you wonder. What’s in your wallet? TW
Cash's Cachet
In yet another sign that cash's cachet may be waning, a new Bankrate survey found that 2 out of 5 consumers carry less than $20 in cash on a daily basis. Bankrate's May Financial Security Index suggests that the good old greenback -- the traditional currency for many consumers -- no longer dominates like it used to. The pockets of many Americans are now crammed with a bevy of alternatives such as debit cards, credit cards and smartphones with electronic payment apps. While cash isn't going away anytime soon, experts say, the role it plays in the marketplace may change in an increasingly wired world.
The electronic payments industry "is doing a good job shifting people away from cash," says George Peabody, a payments strategist at Glenbrook Partners, a payments research firm in Menlo Park, California. But, he adds, "Cash is going to be remarkably resilient. I'm not expecting cash to disappear anytime soon."
Consumers who opened their wallets to Bankrate's review weren't carrying much in the way of paper money. The survey found:
Highlights:
It's unclear why there's a gender discrepancy in how much cash people tend to carry. Greg McBride, CFA, Bankrate's chief financial analyst, suggests that some women "may prefer to carry less cash than men so as to reduce the risk of being a target for criminal activity."
Hannah Cushman, a 22-year-old college student at the University of Missouri, is one of the people who tend to carry less than $20 in cash. For her, it's a way to control her spending. "Cash for me is so much easier for me to spend," Cushman says. "If I have a lot in my wallet, I'm immediately going to spend it." Cushman adds that "$20 is enough to go out on the weekend or get lunch between classes, but not enough to go buy something crazy." Cushman works at an ice cream shop, Sparky's, and once pocketed $50 in tips instead of depositing the extra cash into her bank account. She says having that cash in her wallet made her feel more flush, like she had more money. She says she ended up spending more money that week, not only in cash but also on her debit card. "It's a weird kind of wealth effect," she says.
Joydeep Srivastava, a professor of marketing at the University of Maryland, says that feeling is common. "If you're carrying more, maybe you feel you have more, and you feel you spend more easily," says Srivastava, who has studied consumers' psychological behaviors when it comes to money and spending. Srivastava says many consumers consider the cash in their wallet as petty cash. People take that $20 out of the ATM, he says, and then mentally write it off as petty cash that's OK to be used for a latte or other small items. "As soon as you draw it from the ATM, it's like you've already spent it," Srivastava says. "You don't feel that pang of guilt of spending it anymore."
Many consumers also are relegating cash to the back of the wallet as they find reasons to rely on noncash payments instead. Jason Oxman, CEO of the Electronics Transactions Association, says there are a lot of reasons why consumers have embraced noncash payments. One important reason is security, he says. If a $20 bill gets stolen from your wallet, you're out $20. In contrast, if someone fraudulently charges $20 to your credit account, you often don't have any liability. Terrence Casey, 27, of Havertown, Pennsylvania, says he once lost a wallet that had about $150 in birthday money. Since then, he's tried to carry around less than $100 at any time. He says he tries to use cards to pay for most things. Oxman says electronic payments can also be more convenient than cash because a credit or debit card is always in your wallet, whereas, with cash, a consumer may have to run to the ATM. Plus, he says, electronic payments have worked hard to make themselves attractive to consumers for all kinds of transactions.
Credit cards have developed extensive rewards programs for buying anything from organic apples to airline tickets. Money transfer programs like PayPal and Google Wallet make person-to-person payments easier. Even Starbucks has entered the noncash market: The coffee giant allows customers to buy their morning java (and even tip the barista) with a scan of its smartphone app.
"Consumers are taking advantage of the fact that, with the exception of a few small-dollar transactions, electronic payments are so easy and ubiquitous that (consumers) are carrying little cash around," Oxman says.
Despite this, the demise of cash is not coming anytime soon. "My sense is that cash will remain king, at least for a while," says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling. An April report from the Federal Reserve looked at consumer spending habits in October 2012 and found that cash is used more frequently than any other payment tool, although cash accounts for a relatively small share of the value of those transactions.
The report found that cash is the dominant payment form for low-value purchases, particularly for transactions worth less than $10. It's the most common form of payment for gifts and other transfers to people, as well as for food and personal care supplies. The study also found that cash plays an important role as a backup payment option when someone who tends to use a credit card, debit card or a check can't use that option to pay.
"Cash still plays a very significant role in the consumer payments landscape," the report notes.
By Allison Ross• Bankrate.com
FIN-2014-R008 Issued: April 29, 2014
Subject: Whether a Company that Provides an Armored Car Coin and Currency Exchange Service is a Money Transmitter and Whether the Armored Car Service Exemption Would Apply to the Service.
Dear [ ]:
This responds to your letter of December 4, 2012, seeking an administrative ruling from the Financial Crimes Enforcement Network (“FinCEN”) on behalf of your client, [the Company], regarding whether your client is a money services business (“MSB”) under FinCEN’s regulations. Specifically, you ask (a) whether [the Company]’s new armored car coin and currency exchange service (the “Service”) would make [the Company] a money transmitter for purposes of the Bank Secrecy Act (“BSA”); and (b) if falling under the definition of money transmission, whether the armored car service exemption would apply to the Service.
In your letter, you represent that the purpose of the Service is to provide retailers with change (smaller or higher denominations of cash or coins) to meet their operational needs. A retail customer or similar establishment (the “customer”) places a change order with [the Company]. [The Company] then prepares a sealed bag containing the change, drawing from [the Company]’s-owned cash inventory, and delivers the bag to the customer through an armored car on regularly scheduled stops. In return for the change bag, the customer delivers to the armored car driver a payment bag containing currency and/or coin in the exact amount of the change order.1 When the payment bag from the customer reaches [the Company], [the Company] examines the currency, verifies the total, and collects or pays out any discrepancy (e.g., payment shortages or overages) through a debit or credit to the customer’s bank account via Automated Clearing House or credit card.
On July 21, 2011, FinCEN published a Final Rule amending definitions and other regulations relating to MSBs (the “Rule”).2 The amended regulations define an MSB as “a person wherever located doing business, whether or not on a regular basis or as an
1 While your letter does not specifically state that the currency and/or coin delivered and received correspond to the same country, it is clear from the context that the service does not involve exchanging currency and/or coin from one country into currency and/or coin of another.
2 76 FR 43585 (July 21, 2011) Bank Secrecy Act Regulations – Definitions and Other Regulations Relating to Money Services Businesses.
organized or licensed business concern, wholly or in substantial part within the United States, in one or more of the capacities listed in paragraphs (ff)(1) through (ff)(6) of this section. This includes but is not limited to maintenance of any agent, agency, branch, or office within the United States.”3
BSA regulations, as amended, define the term “money transmitter” to include a person that provides money transmission services, or any other person engaged in the transfer of funds. The term “money transmission services” means the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means.4 The regulations also stipulate that whether a person is a money transmitter is a matter of facts and circumstances and enumerates business models where a person’s activities would not make such person a money transmitter.
31 CFR § 1010.100(ff)(5)(ii)(D) provides a specific exemption from money transmitter status for persons that are primarily engaged in the business of physically transporting currency, other monetary instruments, other commercial paper, or other value that substitutes for currency, from one person to the same person at another location, or to an account belonging to the same person at a financial institution, provided that the person engaged in physical transportation has no more than a custodial interest in these items at any point during the transportation (the “armored car exemption”).
FinCEN interprets all of the above referenced exemptions strictly. For example, an activity that does not conform fully to the elements of an exempted transaction or that contains additional features not contemplated in the description of the exempted transaction, is not covered by such exemption. Therefore, a common carrier of currency, other monetary instruments, other commercial paper, or other value that substitutes for currency that goes beyond the basic activity described in the armored car exemption might be a money transmitter under FinCEN’s regulations. Based on the description contained in your letter, we note that the armored car exemption does not apply to [the Company]’s new Service, as the Service is not limited to the physical transportation of currency and/or coin as described in 31 CFR § 1010.100(ff)(5)(ii)(D), but consists of the additional activity of changing larger denominations of currency for smaller denominations of currency for customers.
However, in considering the elements of the Service in the context of the definition of “money transmission services,” we also note that the Service does not involve the “acceptance and transmission of currency, funds, or other value that substitutes for currency to another location or person.” As described in your letter, [the Company]’s armored cars effectively act as remote teller counters for its Service. Rather than offering the Service at its own headquarter, and making the customer incur the expense and risk of transporting the value in its original denomination to [the Company] and transporting the change back, [the Company] leverages its core activity as a common carrier of valuables to conduct the transaction at the customer’s own location. After the original request from the customer, [the Company] transports low-denomination currency (which, until the exchange is concluded, is [the Company]’s own property) to the customer’s location, completes the exchange with the customer, and transports the equivalent amount in large-denomination currency (which, after the exchange, is also [the Company]’s own property) back to headquarters.5 Accordingly, the transportation of currency and/or coin of certain denominations from [the Company]’s vault to the customer’s location and the return transportation of currency and/or coin in the exact amount of the change provided to [the Company]’s own vault does not constitute the acceptance of value from one person and the transportation of such value to another person or location and, therefore, it does not make [the Company] a money transmitter under FinCEN’s regulation.
This ruling is provided in accordance with the procedures set forth at 31 CFR
§ 1010.711. In arriving at the conclusions in this administrative ruling, we have relied upon the accuracy and completeness of the representations you made in your communications with us. Nothing precludes FinCEN from arriving at a different conclusion or from taking other action should circumstances change or should any of the information you have provided prove inaccurate or incomplete. We reserve the right, after redacting your name and address, and similar identifying information for your clients, to publish this letter as guidance to financial institutions in accordance with our regulations.6 You have fourteen days from the date of this letter to identify any other information you believe should be redacted and the legal basis for redaction.
If you have questions about this ruling, please contact FinCEN's regulatory helpline at (703) 905-3591.
{DIG} The dreaded “supernote” term is used and it usually involves a government-supported illicit operation...but, currency remains a low fraud payments mechanism given the efforts of the Secret Service. TW
'Partially Privatized' Criminality Flourishes in North Korea
Kim Jong Un's regime is allowing private companies to produce and smuggle illegal products to raise cash for activities such as North Korea's nuclear program and missile tests, according to a report released Tuesday. For decades, Pyongyang has propped up its beleaguered economy by being involved in the trade in narcotics and endangered animal products as well as making some of the world's highest-quality counterfeit currency.
But the Washington-based Committee for Human Rights in North Korea (HRNK) said a fledgling free-market economy has now emerged with firms taking over some of these activities from the state. Kim's regime reaps the benefits of the arrangement -- taking up to 70 percent of the profits. Authored by Dr. Sheena Chestnut Greitens of the Center for East Asia Policy Studies at the Brookings Institution, the report said: "Much of the illicit activity in North Korea has become decentralized and partially privatized, operating in a hybrid space between public and private."
Greitens added that "politically powerful people protect and benefit from the activities of those involved in illicit trade and vice versa." Five men were extradited from Thailand to the U.S. in November 2013, suspected of being part of a ring smuggling methamphetamine from North Korea. The 115-page report was compiled using interviews with North Korean defectors. It said the illicit activity has provided as much as 30 percent of the country's trade, and with it "a lifeline for a regime long said to be on the brink of collapse."
Between 20 percent and 30 percent of the North Korean economy is thought to be spent on defense. And the report said the U.S. and other members of the international community need to better understand how its economy is evolving so it can tailor sanctions aimed at halting Pyongyang's nuclear program and stopping human rights abuses.
North Korea's involvement in illicit exports can be traced back to the 1970s when its economy collapsed. It produced narcotics and amphetamine-type substances in state-run factories and printed what the Secret Service said were some of the best counterfeit $100 bills on the market. They were informally dubbed "supernotes" because they are so hard to detect. The report said the state focused on production of these goods, as well as fake pharmaceutical products, endangered animal products, and counterfeit cigarettes, even while as many as one million people died in the "Arduous March," a famine between 1994 and 1998. From the 1970s to the 1990s the government produced these goods and smuggled them itself, often by overseas envoys using diplomatic bags. North Korea then began outsourcing distribution to criminal gangs, such as the Chinese Triads and Japanese Yakuza, according to the report.
However, since 2005 the state has had less control, with production and sale shifting toward a free-market economy. The report said this has come with a decentralization of the economy as a whole. People are now permitted to invest and run state-run enterprises, such as restaurants, while donating between 30 percent and 70 percent of the profits back to the state, it said. HRNK co-chair Andrew Natsios said that this "criminal" economy "is feeding off the suffering and deprivation of the population."
April 15th 2014 Alexander Smith
http://www.nbcnews.com/news/world/partially-privatized-criminality-flourishes-north-korea-n80596
{DIG} No mention of replacing the $1 banknote with a coin...I wonder what nasty things are living in and on other public domains? The turnstiles at a ballpark? Or a anything at the kid’s please touch museum? Yuk!
http://www.npr.org/blogs/health/2014/04/
Dirty Money: A Microbial Jungle Thrives In Your Wallet
Even some euro bank notes may need a good scrubbing. Like dollar bills, these notes are made from cotton and they harbor an array of bacteria. You may have heard that dollar bills harbor trace amounts of drugs. But those greenbacks in your wallet are hiding far more than cocaine and the flu. They're teeming with life.
Each dollar bill carries about 3,000 types of bacteria on its surface, scientists have found. Most are harmless. But cash also has DNA from drug-resistant microbes. And your wad of dough may even have a smudge of anthrax and diphtheria.
In other words, your wallet is a portable petri dish. Made from plastic, Canadian $100 bills are resistant to liquids and tearing. But are they better than cotton-based bills at keeping dangerous bacteria at bay? And currency may be one way antibiotic-resistant genes move around cities, says biologist Jane Carlton, who's leading the Dirty Money Project at the New York University. The project offers an in-depth look at the living organisms shacking up on our cash. One goal of the work is to provide information that could help health workers catch disease outbreaks in New York City before they spread very far.
"We're not trying to be fear mongers, or suggest that everyone goes out and microwave their money," Carlton tells Shots. "But I must admit that some of the $1 bills in New York City are really nasty." So far, Carlton and her colleagues have sequenced all the DNA found on about 80 dollar bills from a Manhattan bank. Their findings aren't published yet. But she gave Shots a sneak peak of what they've found so far.
The most common microbes on the bills, by far, are ones that cause acne. The runners-up were a bunch of skin bacteria that aren't pathogenic: They simply like to hang out on people's bodies. Some of these critters may even protect the skin from harmful microbes, Carlton says. Other money dwellers included mouth microbes — because people lick their fingers when they count bills, Carlton says — and bacteria that thrive in the vagina. "People probably aren't washing their hands after the bathroom," she says.
What about the potential traces of anthrax DNA? Not a cause for alarm, Carlton says. "Anthrax is a very common bacteria in soil," Carlton says. "People who work with soil, like farmers, are often exposed to it. It's only when anthrax is weaponized and sent through the mail that it causes those issues."
And some of the DNA that looks like anthrax's could have come from a harmless relative, she notes. The DNA survey also detected genes that make bacteria impervious to penicillin and methicillin. The latter make MRSA bacteria such dangerous pathogens. "Now we know that viable bacteria are on money and could serve as a mode of transmission for antibiotic-resistant genes," Carlton says. "Money is a frequent route of contact between people in New York City."
At this point, though, scientists don't how important money is for transmitting pathogens and fueling disease outbreaks. Would changing the material for dollar bills are made from help to keep them cleaner? The jury is still out. Some countries, such as Canada, have started printing money on flexible sheets of polymer film, a fancy plastic. One study found less bacteria, in general, grew on these plastic bills than cotton-based ones, like the dollar and euro notes. But another study reported that microbes survive longer on polymer-based bills, The Wall Street Journal reported last week.
Until the ideal material gets figured out, the best protection against money's invisible inhabitants is also the simplest one: Wash your hands after handling cash.
Michaeleen Doucleff April 23, 2014
{DIG} Currency isn’t the only product that is counterfeited and it’s interesting that magnetic particles are also used in currency detection. TW
Magnetic Particles Help Fight Olive Oil Counterfeiting
Thu, 04/24/2014 - 1:46pm (Zurich)
An invisible label, developed by ETH Zürich researchers, could perform the task. The tag comprises tiny magnetic DNA particles encapsulated in a silica casing and mixed with the oil.
Just a few grams of the new substance are enough to tag the entire olive oil production of Italy. If counterfeiting were suspected, the particles added at the place of origin could be extracted from the oil and analyzed, enabling a definitive identification of the producer. “The method is equivalent to a label that cannot be removed,” says Robert Grass, lecturer in the Department of Chemistry and Applied Biosciences at ETH.
The worldwide need for anti-counterfeiting labels for food is substantial. In a joint operation in December 2013 and January 2014, Interpol and Europol confiscated more than 1,200 tons of counterfeit or substandard food and almost 430,000 liters of counterfeit beverages. The illegal trade is run by organized criminal groups that generate millions in profits, say the authorities. The confiscated goods also included more than 131,000 liters of oil and vinegar.
A forgery-proof label should not only be invisible but also safe, robust, cheap and easy to detect. To fulfil these criteria ETH researchers used nanotechnology and nature’s information storehouse, DNA. A piece of artificial genetic material is the heart of the mini-label. “With DNA, there are millions of options that can be used as codes,” says Grass. Moreover, the material has an extremely low detection limit, so tiny amounts are sufficient for labelling purposes.
Synthetic fossil
However, DNA also has some disadvantages. If the material is used as an information carrier outside a living organism, it cannot repair itself and is susceptible to light, temperature fluctuations and chemicals. Thus, the researchers used a silica coating to protect the DNA, creating a kind of synthetic fossil. The casing represents a physical barrier that protects the DNA against chemical attacks and completely isolates it from the external environment – a situation that mimics that of natural fossils, write the researchers in their paper, which has been published in the journal ACS Nano. To ensure that the particles can be fished out of the oil as quickly and simply as possible, Grass and his team employed another trick: they magnetized the tag by attaching iron oxide nanoparticles.
Experiments in the lab showed that the tiny tags dispersed well in the oil and did not result in any visual changes. They also remained stable when heated and weathered an aging trial unscathed. The magnetic iron oxide, meanwhile, made it easy to extract the particles from the oil. The DNA was recovered using a fluoride-based solution and analyzed by PCR, a standard method that can be carried out today by any medical lab at minimal expense.
“Unbelievably small quantities of particles down to a millionth of a gram per liter and a tiny volume of a thousandth of a liter were enough to carry out the authenticity tests for the oil products,” write the researchers. The method also made it possible to detect adulteration: if the concentration of nanoparticles does not match the original value, other oil – presumably substandard – must have been added. The cost of label manufacture should be approximately 0.02 cents per liter.
