Hong Kong Phooey: Virtual Money Laundering Syndicate Foiled

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Image Credit: Quinn Hue

A crime syndicate based in Hong Kong(HK) paid ‘digital mules’ up to $1,000 each to have them open virtual bank accounts in their names, and then give access to those accounts to the gang, which then used those accounts to launder illicit funds. These mules were a mix of restaurant employees, housewives, transport workers, the underemployed and the unemployed; people living paycheck to paycheck and therefore easy marks.

Prior to 17 of the syndicate’s crew of digital mules being (unfairly?!) arrested last week for conspiracy to launder money, they had effectively laundered just over $12 million(USD) for the syndicate in just 16 weeks. They were indeed prolific, in spite of being overexposed.

“We discovered that some of the accounts had 1,000 transactions involving more than HK$100,000 in a single day,” Senior Inspector Tuen Yuk-hang of the Kowloon East regional crime unit reported to the South China Morning Post. “The investigation suggests the money involved was crime proceeds generated from illegal gambling, loan-shark activities, and online shopping scams.”

Here’s the kicker for the gang and what makes my head spin because it is also why they got caught— they laundered their illicit, fiat money in exchange for fiat, instead of fiat for cryptocurrency and then back to fiat after a quick tumble in a Tornado Mixer. Duh. It is such a proven process that the Feds in the US want to put an immediate clamp on crypto, while China has already banned the use of crypto outright. Doesn’t everyone know that crypto is where it’s at these days for money laundering? Bitcoin, Ethereum, et al, and crypto’s associated products like NFTs have, in fact, brought about what I have labeled the golden age of money laundering.

The HK syndicate made a critical error by only employing virtual banks. The mules were a creative addition to what could have been an almost undetectable cash washing system. It is no wonder this operation got popped so easily, along with a sister operation, also based in HK, in which four operatives were arrested and accused of laundering over $76 million (USD) through over 750 different mule-driven, virtual accounts. Don’t these crooks read the news?

What Could Have Been is Coming Very Soon

What skill do most criminals own that keeps the authorities on their toes? The ability to adapt. They are like Chameleons. Savvy crooks, especially those who need to launder large amounts of illicit cash, pay attention to the news and to the market, and to the techniques and tactics being implemented by their competitors. In this case, you can bet the use of digital mules ala the Hong Kong syndicate is already in consideration, but likely in a more refined manner.

Perhaps the most concerning potential use of these mules is in the funneling of cash through the mule’s digital wallet, instead of through their virtual bank account. The virtual bank account represents the last mile in the transaction if it’s necessary, along with perhaps a crypto ATM. By funneling illicit funds through a purchase of crypto via a mule’s virtual wallet, the criminals can then direct the mule to employ the Tornado mixer method I mentioned above, which makes those funds virtually untraceable. Then all they have to do is cash out and leave their payment for the mule behind in his or her e-wallet.

How well do these crypto mixers mix funds and enable the money laundering process? I wrote an article about crypto mixers last month that not only highlighted their efficiencies for crooks, but also questioned why they are still legal. They simply work too well for nefarious purposes and are currently the major thorn in the side for regulators and investigators because they are hard to regulate. The feds are paying attention, having served sanctions today on a crypto mixer, Blender.io, in relation to a cryptocurrency money laundering investigation involving North Korea.

For the crooks in the Hong Kong case, hiring mules to carry the digital money laundering burden was an ideal set up, until it wasn’t. The same could be said for the scammers who prey on dating apps and sites in order to develop Love Mules, even if they are isolated cases. They all seem to get caught eventually. Now, had these crooks employed the services of cryptocurrencies and crypto mixers, there’s a chance they might still be in operation.

Regardless and most importantly, innocent people are being used against their will, or ability to understand the consequences. The potential mules typically end up taking the fall for the crooks, and as a result their lives get turned upside down legally, socially and financially. Ultimately, the current and future employment of groups of disadvantaged citizens as digital mules, as the crime syndicates did in HK, in order to commit crimes using the mule’s identity, is a form of human rights abuse.

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