Westpac mess highlights broader tech struggle
Financial cops and financial services companies must work closely together as it has never been easier to use the internet and cryptocurrencies to send money anonymously.
Paul SmithTechnology editor
Dec 3, 2019 – 12.00am
The repercussions of Westpac's failure to plug holes in the reporting of questionable overseas payments are now obvious to boards and executives around the country.
Clearly Westpac as an organisation erred unacceptably and spectacularly by repeatedly failing to revisit an issue with anti-money laundering compliance that could have been fixed, but the mess has also shone a light on the broader battle to keep control of the flow of money around the world.
It has never been harder for authorities to know who is sending money and to whom, or for them to be sure that they are even looking in the right places, as criminal transactions are like a needle in a haystack of an unfathomable number of legitimate payments made daily.
The Australian Financial Review reported on Saturday that authorities are chasing their tails plugging gaps in tried and tested real world money laundering scams, but the problems become arguably even more difficult when the issue moves into the digital realm.
Many options
The internet isn't the Wild West it once was, but there are so many avenues out there to transfer money or items of value, and a huge number of options available for those that want to obscure their identity.
The most obvious example is cryptocurrency, with Bitcoin having the status as the currency of choice for crooks ranging from ransomware scammers to drug and arms dealers on the dark web.
While bitcoin is underpinned by the blockchain, which means all transactions are recorded, that doesn't do much in terms of proving who is making payments and to whom.
It is the closest to good old untraceable used bank notes in the online world, and authorities are chasing shadows.
"AUSTRAC is staying ahead of the game with new and emerging technologies," a spokesperson for the law enforcement agency said at the end of last week. And to be fair in many ways it is doing all it can.
Since last April, it has had regulatory oversight for any businesses operating in Australia that facilitates the exchange of money to digital currency. But it is powerless to stop the relatively simple options people have open to them to realise the value of digital money in the real world anonymously.
Safer than cash
"No Westpac schadenfreude from me; money as it is used today was not designed to be monitored to this extent and it is a byproduct of current times," says Asher Tan, the founder of AUSTRAC-regulated digital currency platform CoinJar.
He says digital currencies are ultimately safer than cash, but there are questions to answer about how much government oversight is needed in payments.
Asher Tan, the now London-based CEO of Aussie bitcoin exchange CoinJar says digital exchanges are now well regulated. Supplied
"Monitoring every transaction end-to-end is difficult with non-digitally native money ... Despite being relatively small-scale, crypto exchanges being natively digital enterprises have had access to some advanced compliance tools," Tan says.
AUSTRAC has been attempting to keep track of made up currencies in online games since the emergence of Linden Dollars in long-forgotten virtual world Second Life over ten years ago, and the battle hasn't got any easier.
Figures released by US-based crypto-intelligence firm CipherTrace last week showed that two thirds of the world's top 120 digital currency exchanges have weak Know Your Customer policies, and that so far in 2019 $US4.4 billion ($6.5 billion) has been attributed to cryptocurrency related frauds and thefts.
'A bit of a paradox'
Australian cyber security expert Troy Hunt runs the Have I Been Pwned website, where citizens can check if their email address has been compromised in data breaches. He says it is notoriously easy for crooks to remain anonymous when they cash out their bitcoinss.
"It is a bit of a paradox, because on the one hand the whole value proposition of cryptocurrency is that there is a public ledger or record of everything, but on the other hand you still have the challenge of attribution in terms of who owns the digital wallet," Hunt says.
"Exchanges tend to be a little more formal in how they operate because they are dealing with real money as well, but there are plenty of other services where you can convert cryptocurrency back into cash, which don't undergo the same regulation."
Services like Helsinki-based LocalBitcoins are one way that you can turn bitcoin into cash without identifying yourself.
It has tightened up some of its procedures in recent times, but still operates as an online marketplace pairing up individuals willing to pay cash for each other's cryptocurrency.
Last year a 50 year old former stockbroker was jailed in the US in a sting when she turned up to buy bitcoin from a supposed drug dealer with $300,000 cash hidden in grocery bags.
While Westpac sits in the stocks, the ability to police criminal transactions ultimately remains a team sport between authorities and financial services companies.
There are plenty of reasons for people to legitimately want privacy in transactions online, and plenty of services offering it, so the digital needle in a haystack hunt is only going to get more complex.
Paul Smith edits the technology section and has been a leading writer on the sector for almost 20 years. He covers big tech, how businesses are using technology, fast growing start-ups, telecommunications and national innovation policy. Connect with Paul on Twitter. Email Paul at psmith@afr.com
AUSTRAC crackdown