How is e-commerce used for money laundering?

E-commerce, short for electronic commerce, refers to the exchange of all types of goods, services, funds, or data over an electronic network, usually the internet. This type of business transaction can take place between businesses (B2B), businesses to consumers (B2C) and consumers to other consumers (C2C).


The e-commerce market is forecasted to achieve a revenue of US$4.00 trillion in 2023, and it is anticipated to experience a compound annual growth rate of 11.34% between 2023 and 2027, leading to an estimated market size of US$6.15 trillion by 2027.

In this article, we will explore the world of e-commerce, examining its benefits and drawbacks, and providing insights into how businesses and consumers can navigate this complex landscape.

What are the advantages and disadvantages of e-commerce?

There are many advantages to conducting business on an online platform . Understanding how e-commerce works can help individuals and businesses leverage these benefits to their advantage. Some of the benefits that E-commerce offers are a large market with a lower cost to start your business. You also have the possibility to respond quickly to any new trends. E-commerce is not limited to physical space.


E-commerce businesses and customers must also be vigilant about credit card fraud and IT security issues. If an online business operates across multiple territories and sells to customers in different regions, it must comply with the laws and regulations in each jurisdiction. This can create a host of complexities in areas such as compliance.

What are crimes related to e-commerce?

E-commerce has revolutionized the way we shop and do business, making it easier and more convenient for consumers and companies to connect and transact. However, as with any technology-driven platform, e-commerce has also created new opportunities for criminal activity. Cybercriminals have found ways to exploit vulnerabilities in online transactions and leverage the anonymity and global reach of the internet to perpetrate a wide range of crimes, from (tax)fraud to money laundering.

Transaction laundering is a type of electronic money laundering that enables illicit merchants to hide their transactions by processing sales through the payment credentials of a legitimate vendor. This fraudulent practice allows illegal businesses to bypass security measures and carry out financial activities that would otherwise be prohibited. By exploiting legitimate payment channels, transaction launderers can evade detection and continue to engage in criminal activities, which can have serious consequences for businesses, consumers, and the financial system.



E-commerce has given rise to a variety of frauds that can have a significant impact on both consumers and businesses. Refund fraud is a common tactic used by fraudsters who are unable to receive goods or cash out using stolen credit cards. Another type of fraud is interception, where the fraudster places an order using a valid billing and shipping address, but then attempts to intercept the goods for themselves.

These and other types of e-commerce fraud underscore the importance of vigilance and caution when engaging in online transactions. E-commerce is also being used as a tool for tax evasion. Several factors have led to e-commerce being recognized as a means for tax evasion. Among these factors is the challenge faced by tax authorities in tracking and monitoring e-commerce transactions, particularly those involving cross-border sales.

What is the compliance legislation related to e-commerce?

In the USA, the Bank Secrecy Act (BSA) requires U.S. financial institutions to assist U.S. government agencies to detect and prevent money laundering. Under the BSA, e-commerce platforms that meet certain criteria are considered "money services businesses" (MSBs) and are subject to AML program requirements.





In addition, EU member states are required to automatically exchange this information. The rules set out in the Fifth Anti-Money Laundering Directive (AMLD5) also apply to e-commerce businesses under the umbrella of obliged entities. Online businesses are now required to follow KYC procedures and EDD procedures.

Internationally, there is the the Payment Card Industry Data Security Standard (PCI DSS). This standard applies to any business that accepts credit card payments. It outlines the security requirements for the processing, storage, and transmission of credit card information. The PCI DSS was created by American Express, Discover Financial Services, JCB International, Mastercard, and Visa in December 2004.

PCI DSS has been updated on 22 March 2022. The objective of the update is to address the changing security requirements of the payment industry, emphasize the importance of ongoing security measures, provide greater flexibility, and enhance procedures for organizations utilizing diverse methods to attain their security objectives.

What are red flags related to e-commerce?

In the world of e-commerce, there are red flags that may help you become aware of any criminal activity on an online platform. The list of red flags needs to be updated as criminals are becoming more creative and smarter.

As a merchant, you have to be aware of the following red flags concerning your customers:

• 1

  Address inconsistencies

• 2

  Rush or overnight shipping

• 3

  Fake or suspicious contact information

As a customer, the following red flags should raise questions:

• 1

  Prices are very low

• 2

  You spot spelling errors in the URL

• 3

  New website without much information

As an AML analyst, you have to be aware of the following red flags:

• 1

  Customers or merchants residing in countries who don’t take high regard of AML regulations

• 2

  Individuals involved in economic or commercial endeavors or industries that are considered vulnerable to money laundering

• 3

  Account transactions or other actions that do not align with the information and records gathered through due diligence

What is the future of e-commerce compliance?

The future of legal regulations concerning e-commerce is likely to involve increased attention and scrutiny of lawmakers and regulatory bodies. As e-commerce continues to grow and play an increasingly significant role in the global economy, there is a growing recognition that the legal framework governing online transactions needs to be updated and expanded.



One area of focus is likely to be data privacy and security, as concerns about online security and the protection of personal information continue to mount. E-commerce businesses will need to be diligent in their efforts to protect customer data and ensure compliance with emerging data privacy laws and regulations.

Another area of focus is likely to be international trade and taxation as e-commerce blurs the lines between national boundaries and makes it easier for businesses to operate across borders. As a result, there will be a growing need for legal frameworks that can effectively regulate cross-border transactions and prevent abuses of the system.