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  • Hass Associates Accounting Financial Fraud In 25 Years: A Virtual Madoff At Lightning Speed 0 comments
    Jun 10, 2014 11:33 PM

    From the very moment that people started using money, perhaps, some have uncovered ways of stealing it. And so, as sure as there will still be money after 25 years - or in some other form - corporate fraudsters will still be plying their trade. But innovative technologies could produce an environment where, as one retired law-enforcement official warns, "There will be no boundaries in relation to what fraud can be perpetrated."

    Crime investigators state that the crimes per se do not completely change. From our common frauds and Ponzi schemes to intricate security breaches, tax avoidance and money laundering, there are still various ways a criminal can make a dirty buck. When CNBC began in 1989, junk bond king Michael Milken was being accused of securities fraud charges in a sensational investigation. After 25 years, a new Wall Street insider-trading investigation - this time centering on hedge funds - has victimized 79 people, perhaps, more.

    Imagine a world where an inside-trader can obtain his information not from an insider who works in a firm but from a hacker working outside and stealing data from the organization's data systems in the cloud. He shares the data to others through a bunch of intricately encrypted, untraceable instant messages. The unlawful act is done in nanoseconds. The money is disbursed through virtual currency. And the criminals thrive happily plying their trade and stealing from other victims any new day.

    And imagine a Ponzi schemer - a future-generation Bernie Madoff - except that he is not human at all but a poser for a rogue nation with the ability to rob you, spend your money and stash it away in a split second.

    Enter the world of white-collar crime, 2039.

    "Simply use your imagination as to the form of fraud you wish to perpetrate," said Thomas G.A. Brown, who assisted in launching cyber investigations in the U.S. Attorney's Complex Frauds Unit in Manhattan.

    Brown, presently a senior managing director at FTI Consulting, said the future white-collar criminal will be quicker and more highly invisible than before - allowing the possibility for "nearly the perfect crime."

    In truth, cybercriminals can already perform some of those heists today.

    "Crime in cyberspace is not merely the coming trend of the future; it is here with us now," said E. Danya Perry, also a former senior deputy in the Manhattan U.S. Attorney's office, now practicing privately. "I believe we will be seeing more of how this chameleon will evolve into a raging dragon."

    Cyberspace crimes already cost the U.S. economy about $120 billion yearly and the entire globe about $1 trillion, as revealed by a study published in 2013 by McAfee and the Center for Strategic and International Studies. And all that in a crime onslaught that is comparatively only new.

    Prosecutors obtained a view of what the future will look like from last year's taking down of Silk Road - a clandestine website which officials authorities claimed was "the most advanced and widespread illegal marketplace online."

    Although Silk Road specialized on the lucrative prohibited drug trafficking, Brown of FTI Consulting reported that agents uncovered methods that could "skyrocket financial crime's spread."

    Virtual stash

    The primary technique among several promising tools is the new virtual currency called bitcoin, which is already changing the face of the global payment structure.

    "Bitcoin is so hard to manage," Brown said.

    In the Silk Road case, which Brown built with others, the federal government has captured an amount of over $33 million bitcoin money from the computers of the site's accused founder, Ross William Ulbricht. However, that amount is a small part the $1.2 billion in sales the system allegedly generated within less than three years of operation. And detecting where the rest of the money is located is almost impossible.

    "Imagine every bitcoin as being a gold bar," Brown said. No one knows where that gold bar originated, and anyone can readily sell it for cash. "Anyone can steal it and run away with it."

    Even if agents can locate bitcoin in a certain account, that clue will not mean the owner can be traced. "No one is required to register a bitcoin account in a genuine name," Brown said.

    There exist other virtual currencies aside from Bitcoin. Back in 2013 as well, a federal grand jury in New York charged Liberty Reserve for trafficking in the currency referred to as LR. Officials captured five Internet domains and charged 35 currency-trading websites in what was billed by Manhattan U.S. Attorney Preet Bharara as one of the biggest global money-laundering cases in legal history.

    The implications of the virtual money revolution on white-collar crime are vast. At the bottom, Brown said, the virtual cash could make tax avoidance become easier than before.

    "I can enter into any kind of deal I want to derive income without paying taxes since no one is aware of what I'm doing," Brown said.

    "The financial rewards are going to be very compelling for any person to want to trespass the law ," Perry said.

    Exactly how regulators and law enforcers will clamp down on those tempting baits - and what government agencies will head the move - remains unresolved.

    In March, the Internal Revenue Service released its first advisory on virtual currencies such as LR and bitcoin.

    "Virtual money is considered as property for U.S. federal tax purposes," the IRS stated in a March 25 announcement. "A disbursement with virtual cash is covered by information reporting within the same limitations imposed upon any other disbursement made in property," the announcement stated.

    Yet, in our world where financial crimes are perpetrated by faceless people, where do we point an accusing finger?

    Fraudsters anonymous

    "Locating people in an environment of uncertain identities is a difficult task," said Perry. "When you have a place where you can make deals incognito, this sort of problem will keep going."

    In the Silk Road investigation, officials say numerous drug dealers and over 100,000 of their customers covered their identities by utilizing what are called tumblers, which jumbled their personal identity information to produce anonymous transactions.

    Cybercriminals now also often use a technology called Tor - formerly the acronym for The Onion Router, for its multi-layered complexity - to hide their online tracks.

    Tor software, which is free online, lets the user to hide his PC's IP address - its virtual fingerprint - as well as every server's IP address to which the PC connects.

    "Imagine a gigantic pinball machine," Brown said, where your PC is the silver ball bouncing around. Each time the ball touches a bumper, its identity - or IP address - changes and so with the bumper, making it "functionally impossible" to trace the traffic.

    Aside from making illegal deals and underground websites invisible, Tor provides criminals -whether the financial kind or otherwise - a means to interact and pass on data more easily than before.

    "Traditionally, you have to identify 'Harry from Bensonhurst' or 'Johnny from the block' to round up a robbery group," Brown said.

    Today, with their virtual masks covering their faces using all the new technology, white-collar criminals, hackers and identity robbers can assemble and exchange information without fear in so-called carding venues. For such bandits, chat rooms are not merely for socializing. They are sources of stolen identities, software code and even cash beyond the scope of authorities.

    "A savvy crook utilizing effective functional security is almost impossible to locate," said Brown.

    Falling prey to the schemes of tomorrow's crook, he said, are firms that are already forced to share more and more of their valuable information in the web and in the cloud so their workers and clients can readily get that information - a signal for hackers to prowl for victims.

    "Many firms concentrate on merely the collecting and using of the information instead of securing that information," Brown clarified.

    Fighting back

    The future white-collar cybercriminal may not be a single person. It could actually be a whole country. Brown is apprehensive of the coming "nation-state" in financial crime. "Much of this is not talked about extensively, if at all, due to its confidential nature," he said.

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