Forensics Journal - Stevenson University 2015 | Page 45

FORENSICS JOURNAL

The FinCEN and the United States Department of the Treasury
are the regulating authorities of the Bank Secrecy Act (BSA) of
1970. The BSA requires financial institutions to notify U.S.
government agencies of any cash deposits over $10,000 (Federal
Financial Institutions Examination Council, n.d.). Financial
institutions report these transactions using Currency Transaction
Reports (CTRs). The purpose of the BSA is to create an audit trail
by which the government, law enforcement agencies, and forensic
accountants can detect, investigate, and prevent illicit funding
activities such as money laundering. Fraudsters attempt to evade
reporting by transferring amounts just under the relevant threshold.

Bitcoin addresses before starting electronic transactions (“Bitcoin
for Individuals,” 2014). Bitcoins may also be used to make legitimate
purchases through online retailers such as Overstock.com.
The Federal Deposit Insurance Corporation (FDIC) does not
regulate or offer “standard deposit protections for Bitcoin
transactions” (“Bitcoin for Individuals,” 2014). Essentially, this
represents a high risk for consumers conducting virtual currency
business due to the lack of regulatory oversight. Using Bitcoins to
buy illegal goods and services from unlawful online trading services
such as Silk Road is one example of high-risk consumerism. In order
to obtain anonymity on Silk Road, users accessed a “Tor network (a
software protocol that reroutes traffic through hundreds of computer
servers to conceal identities)” (Check, 2013). Consumers then
anonymously purchased illegal drugs, weapons, fake passports, and
the services of computer hackers and hit men using Bitcoins. This
virtual shroud of obscurity makes illegal activities difficult to follow;
however, the FBI was able to successfully locate and shut down Silk
Road in October 2013 because of the sale of “illegal drugs, computer
hacking tools and other illicit goods and services” (Smith, 2013).

Money laundering takes place in three stages: placement, layering, and
integration. In the placement stage, the cash proceeds from criminal
activity enter into the financial system by deposit. During the layering
stage, the funds transfer into other accounts, usually offshore financial
institutions, thus creating greater distance between the source and
origins of the funds and its current location. Legitimate purchases
help funnel the money back into the economy during the integration
stage, the final stage.
All financial institutions conducting business in the United States
are required to know the identity of their clients. The placement stage
represents the first and best opportunity to train employees to identify
the red flags associated with money laundering. By establishing a
customer relationship, both the employee and law enforcement can
detect suspicious activity in a timely manner, promote adherence
to state and federal laws, and minimize illegal money laundering in
financial institutions (A Money Services, n.d.). Financial institutions
should maintain professional skepticism of their clientele. When
financial institutions complete a Suspicious Activity Report (SAR),
they give law enforcement agencies another tool for investigating
and preventing financial crimes. Law enforcement agencies use
SARs to build cases against known or suspected persons of interest.
Unfortunately, terrorists are circumventing regulatory oversights
meant to monitor suspicious activity and searching out new covert
ways to transfer funds from illicit activities across national and
international borders.

Ross Ulbricht, the website administrator of Silk Road, was charged
by a New York Grand Jury “for participation in a narcotics trafficking
conspiracy, a continuing criminal enterprise, a computer hacking
conspiracy, and a money laundering conspiracy” (United States of
America v. Ross William Ulbricht, 2014).