Fraudsters blur divisions between art, property and digital assets in the online age
Around 330 million people are victims of online crime every year, a number so significant that the amount spent on fraud detection is expected to jump to $129 billion around the world this year.
The rise of cryptocurrencies has exacerbated this problem, and last year crypto criminals stole a record $3.2 billion — a fivefold rise from the year before. This rise in crime has put law enforcement under pressure to cope with innovative new fraudulent schemes. Despite this, criminals’ use of physical assets as stores of wealth for the proceeds of crime has grown alarmingly.
At an annual Fraud, Asset tracing conference held in Geneva recently, leading figures from the field were brought together. A who’s who of senior figures from fraud litigation, asset tracing, dispute resolution and insolvency shared techniques to pursue and catch these increasingly resourceful criminals.
During the second year of the pandemic, in 2021, as law enforcement agencies struggled under strained resources, criminals laundered a staggering $8.6bn through cryptocurrency, up by 30 percent from the previous year. Though cryptocurrencies themselves act as a valuable store of wealth, criminals are aware of the relative ease of tracing these assets and so have returned to storing their wealth in physical assets.
The anonymity traditionally offered by the art market continues to entice criminals who want to hide their ill-gotten gains. Once only a select few wealthy collectors played the art market — today art is traded like a commodity and is an increasingly significant conduit for money laundering. Mathilde Heaton, general counsel at auction house Phillips, warned the conference about rising examples of art-related fraud given the increased digitization of the industry.
Where criminal forgers were limited in their criminality by the speed at which they were able to paint, today’s non-fungible token fraudsters can simply copy and sell the work of an artist online without the author’s knowledge nor consent. In March, a pair of 20-year-olds, Ethan Vinh Nguyen and Andre Marcus Quiddaoen Llacuna, in the US were charged by New York prosecutors in connection with an alleged $1.1 million NFT scam, to defraud investors, highlighting the ease with which art fraud can now be engaged.
As art-related fraud and money laundering rises, the administrative and accounting obfuscation in which criminals traditionally engage is also on the rise. Jonathan Addo, a partner at law firm Harneys, told the conference he lamented the access to international banking and financial services that fraudsters now have with the growth of online banking and international travel.
During the second year of the pandemic, in 2021, as law enforcement agencies struggled under strained resources, criminals laundered a staggering $8.6bn through cryptocurrency.
Zaid M. Belbagi
While some criminals choose to launder the proceeds of crime through cryptocurrencies, offshore structures offered by certain overseas territories continue to be a home for criminals. According to one estimate, up to $50 billion from the sale of narcotics, out of an annual world total of $500 billion, is laundered through the Caribbean. By depositing the money into offshore financial institutions where no questions are asked, and the origin of the money is hidden.
Offshore structures which are not overtly linked to their owners remain only one of the ingenious ways in which criminals launder cash. The conflict in Ukraine has highlighted illicit funds linked to Russia, most significantly in the UK, where wealthy individuals and firms from Russia and around the world invest legitimately in the property market.
These bricks and mortar investments are identified by not-for-profit body Transparency International to be worth as much as £1.5 billion. These properties owned by Russians accused of financial crime, or with links to the Kremlin, are in addition to what the British Home Office has said is wider spending on luxury property, cars and donations to cultural institutions, which allow individuals to launder their reputation.
In 2018, the UK government introduced unexplained wealth orders to limit the potential for criminal funds to purchase property in the country. But as Keith Oliver, head of international fraud at UK law firm Peters & Peters, said at the conference, of the nine times these have been used only one has resulted in property being surrendered so far.
On top of the growth of physical purchases of property and art by criminals, a rise in fraud and counterfeiting among products is also staggering. In a booming watch market, where the prices are rising by as much as $90 a day, director of Christie’s Dubai Remy Julia, said the industry has been identified as susceptible to counterfeit copies, with up to 400 million fakes produced a year, at an estimated value of $1 billion.
Criminal gangs also profit from counterfeit household items. Around two-thirds of olive oil on supermarket shelves is believed to be counterfeit. The estimated turnover of fake Parmesan cheese worldwide is over $2 billion a year — more than 15 times the amount of genuine Parmigiano-Reggiano. With increased demand for consumer goods outstripping production, today’s criminals fill the gap with impunity, supplying fake and often untaxed goods.
Rising instances of online crime has not replaced traditional criminal practices, but has rather created another area where fraud can be committed and proceeds stored. The scale of financial crime has become so great that this has led to an increase in the use of physical assets being used by fraudsters. As ever, the best way to fight these practices is prevention, however, law enforcement must also invest greater resources to rein in this worrying trend.
- Zaid M. Belbagi is a political commentator and an adviser to private clients between London and the Gulf Cooperation Council.