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Crowdfunding or Crimefunding? Fraudsters Kickstart Money Laundering Campaigns


Crooks have found all kinds of ways to launder money with crowdfunding scams. CSA-Archive/JoosMind/GettyImages  (c) 2015 HowStuffWorks
Crooks have found all kinds of ways to launder money with crowdfunding scams. CSA-Archive/JoosMind/GettyImages (c) 2015 HowStuffWorks

It's a good time to be a crook. If you want to steal hundreds, thousands or even millions of dollars, you don't have to snatch an old lady's purse on the street or stick up a bank. Today's tech-savvy criminal can skim credit card numbers from gas pumps or send phishing emails posing as a bank to steal account numbers. All from the comfort of their computer.

One of the latest cybercrime trends, according to a report from the United States Financial Crimes Enforcement Network (FinCEN), is the use of crowdfunding websites like Kickstarter, Indiegogo and GoFundMe to drain stolen credit cards, launder money and even fund terrorists.

Not Your Typical ‘Scampaign'

Crowdfunding websites are already fertile territory for suspicious activity. Some so-called “scampaigns” start out legit, but then go south quickly. The Federal Trade Commission recently went after a guy who raised $122,000 on Kickstarter to fund a new board game, but ended up canceling the project and using the cash to move and start a new business.

Other crowdfunding scams are straight-up depressing. An Iowa woman bilked her small-town neighbors out of thousands of dollars by claiming that her 5-year-old daughter had cancer. The girl was perfectly healthy, but that didn't stop mom from setting up a GoFundMe page with heart-wrenching pleas and pics of the young girl hugging stuffed animals. Ugh.

Organized Cybercrime

But those simple crowdfunding scams are child's play compared to the sophisticated methods used by international criminal syndicates and terrorist organizations. Over the past five years, cybercriminals have used crowdfunding websites to launder nearly $28 million. And those are just the cases that have come to the attention of the Financial Crimes Enforcement Network (FinCEN). Millions more dollars stolen in cyber schemes have likely gone undetected. 

When a U.S. bank or other financial institution flags a transaction as fishy, it is required by law to issue a Suspicious Activity Report (SAR) to FinCEN. According to FinCEN, there was a 171 percent increase from 2013 to 2015 in SARs that included crowdfunding as part of the alleged criminal scheme.

Tricks of the Trade

“Money laundering” tops the list of Suspicious Activity Reports tied to crowdfunding websites.

Stolen credit cards numbers, for example, are only useful if you can convert all of that credit into cash. Crowdfunding websites, it turns out, provide the perfect laundering platform. The criminal launches a phony crowdfunding campaign and then makes donations to himself using the stolen credit card numbers. Moving quickly to avoid detection, the crook can cash in the crowdfunding account before anyone catches wind of the scam.

A twist on this method is to launch a whole bunch of small crowdfunding campaigns simultaneously using false names and phony IP addresses. Again, the campaigns are funded with stolen credit cards, but the individual amounts are low enough to avoid close scrutiny.

In highly sophisticated operations, crowdfunding fraud is also combined with lots of other diversionary tactics to “layer” or “structure” financial transactions in ways that avoid detection.

In one case, FinCEN caught wind of a foreign entity that was collecting fund through multi-state cash deposits, foreign checks, and deposits from crowdfunding sites to wire large amounts of money to a “high risk country,” possibly to fund terrorists.

Who Polices Crowdfunding Sites?

With its prosecution of the Kickstarter board game huckster, the FTC is announcing its intention to pursue individual cases of crowdfunding fraud. The larger problem, says financial crime lawyer Christine Duhaime, is that crowdfunding websites aren't under the same regulatory obligation to report suspicious activity like a broker or a bank.

“So it's a wide-open risky area where we don't know what types of people are funding these campaigns, or more importantly, for what purposes,” says Duhaime in a phone interview from her Vancouver office. “That's where there's room for abuse and where there are some consumer protection issues that really need to be addressed going forward.”

For now, think twice before investing $100 to fund a Kickstarter campaign to fabricate the world's largest jockstrap. Technically it's legal, but it's a criminal waste of money.

  



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