WASHINGTON, D.C. – There is a new, unregulated, unbanked, largely anonymous, Internet-based financial system emerging in the world. Today, media giant Thomson Reuters together with the International Centre for Missing & Exploited Children hosted a conference, “The Virtual Economy: Potential, Perplexities and Promise” to discuss the potential of this new virtual economy and the dangers of a “Virtual Shadow Economy” that has also developed in parallel.
Representatives of web services, privacy groups, government officials, law enforcement, financial industry leaders and others participated in the conference. One issue of particular concern is the growing use of hidden marketplaces, alternative payments systems and digital currencies for the production and sale of commercial child pornography, human trafficking and child exploitation.
The issue is complex. The global payments market continues to evolve. Technology is changing the very nature of money and has prompted the creation of a new Internet-based financial system. Alternative payment methods and digital currencies are being widely used today. Most of those who use this new financial system are not criminals.
However, this new system is unregulated and has become a preferred venue for the sale of illicit drugs, weapons, and for those who are involved in commercial child sexual exploitation. This virtual economy includes anonymous payment systems, digital currencies, and bulletproof hosting service providers which enable users with the ability to upload, store, and distribute content with little risk.
Hidden marketplaces combined with digital currencies have found a special niche, making it difficult to track transactions between users and making it virtually impossible to determine what is lawful and what is not. In fact, it is very difficult to differentiate what is legal and what is not as we seek to address the migration of illicit commercial enterprises to the unregulated virtual shadow economy.
“A new generation of hidden marketplaces, anonymizing tools and encrypted currencies have revolutionized the online environment and severely blurred the distinction between legality and illegality,” said Steve Rubley, Managing Director, Government Segment, Thomson Reuters and President and CEO Thomson Reuters Special Services, LLC. “Indeed, seductive experiments in technology, anonymity, crime, law, personal freedom, and community are stymieing law enforcement the world over. The recent indictment of a Central American online payments company accused of laundering $6 billion from illicit enterprises through payments systems illustrates the potential size and scope of this problem”.
This situation poses particular challenges for law enforcement and for organizations like the International Centre for Missing & Exploited Children who are trying to prevent the exploitation and victimization of the world’s children.
An estimated two million people will be victims of commercial exploitation this year. “Great progress has been made to eliminate the use of credit cards and the mainstream payments systems surrounding the production and sale of commercial child pornography,” said Ernie Allen, President and CEO of the International Centre for Missing & Exploited Children. “However, there are clear indications that child pornography and child sexual exploitation have moved to the “Virtual Shadow Economy” because it provides access to highly anonymous services for communications and payment such as allowing users to visit Internet websites anonymously and users to publish hidden services.”
In a recent report the FBI indicated that “decentralized, peer-to-peer network-based virtual currencies provide a venue for individuals to generate, transfer, launder and steal illicit funds with some anonymity,” creating “unique complexities for investigators” because there is no regulation and no central bank or authority.
Many child pornography producers today use free software that provides anonymity for domain names, web services, and the users who access them. This software allows users the ability to create a website without revealing the underlying IP address. With no public, knowable IP address, a person can run a hidden service from behind a firewall, providing their users with anonymity in buying illicit services and commodities, and then use digital currencies to collect payment.
In an increasingly interconnected global economy how do we embrace emerging Internet-based technology for legitimate use and prevent the use of these technologies to operate illegal enterprises, such as the trade and selling of children and child pornography under a veil of secrecy and anonymity? That is the challenge.