Threats Of Electronic Money Transfer - Research Paper Example

Threats Of Electronic Money Transfer Introduction The emergence of Internet has changed the financial world to its every aspect of the commercial activity. From the sale to purchase, marketing to finance, every aspect of the commercial activity is being carried out using the facility of the Internet. Continuous innovation in the field of financial services, and at the same time rapidly growing number of online transactions and the introduction of electronic payment means have considerably modified the characteristics of the traditional payment system. The use of the Internet definitely facilitates electronic communication between and among customers, suppliers and financial service providers. And at the same time, the Internet brings new avenues of channels of distribution, creating novel business models that do not allow the traditional means to be of any relevance in future (Walters, 2008). And, at the same time, the Internet is sufficiently effective means of communication in overcoming the challenges of great distances and time zones of different parts of the world (Darley, 2001). The implementation of the Internet in the business world presents a significant change in the global competition; besides it is becoming a highly critical factor helping companies to succeed (Sultan and Rohm, 2004). Additionally, the linked instruments facilitating the entire operations of the traditional payment system have brought a new set of consequences for both consumers and financial institutions. on the one hand, these technological changes have greatly introduced efficiency in the globally operating different financial markets. On the other hand, the illicit use of the Internet is being used to transfer funds for illicit purposes. As a result, this critical factor- the Internet- is not a problem proof device. Despite it has changed the entire scenario of the commercial world, the illegal use of the Internet cannot be wished away. Among the leading challenges, the use of electronic means to fund illegal and terror purposes have raised more concerns than ever; and such concerns have deeper impacts after the terror attacks on the United States of America in 2001. Terrorist is putting their possible efforts to get their inhumane objectives achieved. For that purpose, they can go to any extent. To attain their objectives, terrorist require financial resources and easy fund transfer transactions to carry out their acts of terror. In this regard, terrorist has found the Internet the most convenient way for the purpose of communication and coordination with their partners locating in other parts of the world; additionally, they send and receive their funds via using electronic means. This challenge can be minimized to a considerable extent but it can never be wished away totally. In this regard, the role of Central Banks is of critical importance. In the subsequent part of this paper, first, electronic money transfer is defined and is followed by a threat of misuse of this channel by terrorist and international criminal groups. Before conclusion, some suggestions are accounted for to minimize this illegal use of the Internet. An electronic payment system involves the services of many elements. A payment system is identified as the interactions between various subjects and is made of numerous elements. Among these various elements, system participants, the infrastructure of the system, and the instruments facilitating the transfer of monetary value between different users are the significant elements(Merlonghi, 2010). Traditionally, we had two parties facilitating fund transfer from one place to another- sender and receiver. Most of the time, funds were transferred with the use of non-electronic means. For that purpose, paper-based money transfer transactions were common from one financial to another financial institution. Besides, in paper-based transaction time and cost were comparatively more than the costs involved via using electronic way of fund transfer. Due to these facts, the entire system of money transfer was less capital intensive and more labor intensive. For expanding business transactions in the global environment, the use of Internet has become the main driver of globalization (Yip and Dempster, 2005). And, this force of globalization has made the innovative contribution in payment instruments and payment transfer as well. Consequently, various advantages have changed the entire system of the financial world. First, conversion to the non-traditional means and using the latest technological means has introduced a sufficient amount of improvements in the condition and level of the services served to the customers. In this regard, Merlonghi, (2010) contends that innovative payment instruments in comparison with cash and other paper-based means, are less prone to risks of theft, forgery, loss and their diffusion brings an aggregate reduction of transaction costs. Besides favorably augmenting the transactions in the business segments such as e-commerce, e-finance, and e-banking, the use of the Internet has allowed customers to observe and avail significant benefits such as sending and receiving money in the borderless world of the Internet. Simultaneously, people reserving money for transactional purposes are changing their this concept of money stocking and preferring to invest in different sectors beyond the traditional and physical boundaries with the help of the Internet. For commercial organizations, the use of technological means and fund transfer has considerably changed the way they do their business transactions. Previously, many commercial businesses used to be labor-intensive rather capital or technology intensive. Within the context of labor-intensive businesses, businesses were facing the problems such as overstaffing and ever-increasing rising payroll costs. Additionally, businesses were required to provide regular intakes of training and development sessions to their workforce. Thanks to the inception of the latest technological means and the Internet, not only payroll costs are considerably decreasing but also at the same time, businesses are converting their infrastructure to the capital and technology intensive. However, there are certain authors on the topic, who do not agree with the notion that the technology and the use of the Internet have reduced the cost of businesses; rather they argue that the use of technology has shifted their payroll costs towards the maintenance of technology related software and databases that can be used to carry out their normal routine business transactions. The use of the Internet for transferring funds for terror cannot be avoided. After the events of 9/11 terror attacks on the United States of America, the world entered into a new phase of human history, where a new but elusive enemy threaten to use every possible means to destroy the peace of the world. They do not avoid using any means to kill and increase the fear of terror not only in the United States of America but throughout the sovereign states of the world. The terrorists do not base at one particular state or region, rather they have units and subunits operating in different parts of the world. In order to carry out their deadly attacks, they have financiers who finance their terror activities. As the technology has become available almost in every state of the world, the terrorists use electronic means to send and receive funds throughout the world. Most of the time, they do not use their legal names and bank accounts rather they use un-registered or third-party name to carry out their money transfer. In this regard, the terrorist organizations have become well equipped and have technologically trained associates around the world, who are fully capable to support these organizations. If they do not find any IT expert, they try to hire them either through a third party or use threat of violence if he or she does not cooperate with them for sending or receiving electronic fund transfer. Additionally, terrorists use hackers for this purpose. They recruit and offer them a huge sum of money. The main purpose of hiring hackers to attack the official websites, containing sensitive information about different money transfer operating systems of various financial institutions and security agencies. By accessing to such sensitive information areas on the land of the Internet, terrorist organizations not only try to raise funds for their terrorist activities but also want to use sensitive information to carry out their attacks on the different nations of the world, particularly Western nations. As these terrorist organizations are brainwashed by a particular outdated religious beliefs, and they find it reasonable to carry out their attack against the innocent people; as a result, they can go to any extent as financing is their backbone in this regard. Without having a sufficient availability of funds and the particular set of information, they cannot carry out their jihadi suicide missions. In this regard, the Internet is the only easy way where most of the global information and financial transactions are carried out as most of the economies of the developed world have switched their paper-based economies to knowledge-based economies with an aid of the Internet. And, consequently, every piece of information finds its presence in the land of the Internet. And, most of the terrorist organizations are considerably aware of this fact as well. The central banks and the related security agencies have a central role to stop electronic money transfer for terror purposes. In the year of 2008, US Department of Justice highlighted that international criminal groups and terror organizations use high-tech and cyberspace schemes to steal hundreds of millions of dollars at a cost to the US economy and consumers as well. As a result, these innovative high-tech schemes endanger the security of personal information, the business stability and the government infrastructure; and at the same time jeopardizing the solvency and the integrity of financial markets. Here, in the United States of America, the regulatory institutions such as Federal Reserve and Securities and Exchange Commission (SEC) have a significant responsibility for communicating and coordinating between and among the related financial institutions and securities agencies. For that communication, there must be a strategy for a code of conduct. In which all the related stakeholders, financial institutions, banks, regulatory authorities and securities agencies must have a joint platform. And this platform must be used to discuss, share and inform such pieces of information where the electronic money transfer are used to fund terror or terrorist activities. The establishment of such platform is a key towards minimizing or mitigating the misuse of the Internet and electronic money transfer. After establishing such platform, the related stakeholders must ensure a comprehensive coordination strategy. Under which they must communicate if any such electronic money transfer is being carried out for the terror purposes. In this regard, the role of Federal Reserve cannot be underestimated. It must have a leading role facilitating communication and coordination among the financial institution and the related security agencies. Additionally, the Fed must ensure surveillance over the electronic payment system and at the same time, it must define certain electronic money transfer related rules. Even in the case of surveillance, the Fed requires the support of the financial institutions. They must ensure the total implementation of certain regulatory controls, such as if a person who sends funds via using electronic fund transfer facility, it must be ensured that that person must have fulfilled related regulatory and compliance requirements. The necessity of implementation of such regulatory becomes more relevant and significant when Executive Office of the President (2000) publicized the information that international organized criminals transfer billions of dollars of illegal funds annually via using the financial system of the United States of America. Interestingly, these criminals have shown an extraordinary ability to bypass the stringent anti-money laundering controls (Ott, 2010). And, in this regard, Lacey and George (2003) contend that to continue their sort of practice, these groups seek to corrupt financial intermediaries and financial insiders. Within this context, the financial institutions must have an effective strategy to monitor the activities of their own staff members as well. They must ensure effective controls that do not allow any illicit insider communication and coordination between the employees of the financial institutions and the terrorist and other criminal organizations seeking to use the services of insiders to transfer their funds via using the latest means such as wire transfer. Furthermore, in the United States of America, the National Cyber-Forensics and Training Alliance (NCFTA) is an exemplary alliance which serves as an intelligence fusion center (Ott, 2010). This alliance has members from local, state, and federal law enforcement, academic institutions and businesses to communicate and coordinate against the spread of cybercrime issues including the electronic money transfer. The NCFTA facilitates a neutral venue where confidential information about cyber-related incidents can be shared; and additionally, the relevant resources can be shared among academia, law enforcement agencies and businesses as well. Similarly, Immigration and Customs Enforcement (ICE) has launched its “Cornerstone” economic security initiative (Ott, 2010). The fundamental objective of this initiative is to highlight and point out vulnerabilities within the financial system of the United States of America that could be misused by criminals and terrorists. In this regard, the Cornerstone adopts a systemic strategy to identifying and investigating the methods used by the criminal and terrorist organizations earn, transfer, and deposit illicit proceeds (Ott, 2010). In its quest to hunt down such illegal activities, the Cornerstone has implemented an outreach program that includes participation in the events of financial sectors and publication of a quarterly newsletter (ICE Cornerstone Reports, 2009). Conclusion The Internet has changed the business world globally. This change has brought numerous technological innovations in the business world. Previously, the business world was more labor intensive and labor dependent. Mostly the business transactions were carried out manually. And much time was consumed in processing a single financial transaction. Besides, the businesses were required to maintain a huge number of employees and at the same time bearing and maintaining large ledgers of staff payroll. And there was a less use of technological means in transactions. Thanks to the introduction of the Internet which has pushed the business world from labor intensiveness to the heights of the capital and technology intensiveness. Nowadays, most of the transactions, which were previously done manually, are being done with a single click of the mouse or keyboard. At the same time, a multiple sets of transactions is being carried out in a minimum amount of time in comparison with the time consumed prior to the Internet. Additionally, geographic and physical distances have become irrelevant as the Internet has facilitated to communicate, coordinate with anyone within a matter of seconds rather than minutes. Previously, money transfer was mostly done on paper, involving a huge amount of time and risk factor as well. Aggregately, the transaction cost in terms of time and money was huge. But, with the use of the Internet and the latest means of the technology, electronic money transfer have become much easier, faster and safer as well. However, the illegal use of the Internet cannot be wished away. The events of 9/11 totally changed the world and brought a new threat of terrorism. This new breed of terrorism is merciless and inhumane in its beliefs and actions as well. They do not differentiate between an enemy and innocent human beings. Additionally, they are not located in one particular part of the world rather spread all over the world. And, in this quest, the criminal elements have also played their role as well. In order to carry out their terror attacks, terrorist and criminals groups use electronic fund transfer methods to send and receive money from one location to another location. In order to control and prevent the misuse of electronic money transfer, the Federal Reserve has a significant role to play. Besides introducing and implementing certain regulatory requirements, the Fed is required to communicate and coordinate among different related stakeholders. For example, communication and coordination between the financial institutions, law enforcement agencies are of a paramount importance. Additionally, the criminals and terrorist organizations have insiders in the financial institutions who facilitate them to carry an illicit electronic fund transfer. Very importantly, the financial institutions in coordination with the security agencies and with the Fed, need to ensure identification of such elements supporting and providing information to the criminals and terrorist. In this regard, the role of the NCFTA and the ICE’s Cornerstone is a step forward toward stopping the misuse of electronic fund transfer and use of technology for money laundering purposes. The former alliance coordinates among local, state and federal level business, security agencies, academia against cyber crimes, besides providing the avenue for communication and coordination among these different stakeholders. And the latter is involved to point out vulnerabilities in the financial system of the United States of America that can be used by criminals and terrorist groups. 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