The darker side of P2P

legal-1143114_1280Thanks to peer-to-peer payment, fondly abbreviated to P2P, it’s now possible to split tabs at restaurants and reimburse friends for odd expenses without having to handle currency. And, much to my kids’ joy, extended family members can send birthday cash faster than ever, without resorting to checks and envelopes.

But lunch buddies, friends, and grateful nieces / nephews / grandchildren aren’t the only ones singing P2P’s praises. PYMTS.com recently reported:

Peer-to-peer (P2P) payments continue to gain popularity among consumers, with two of the biggest providers, Zelle and Venmo, reporting ongoing and significant gains. But amid that growth is a fresh trend that could present challenges for law enforcement—the use of such payment methods for illicit transactions, including drug deals.

PYMTS.com references a LendEDU poll of over 1,000 millennials, which found that nearly 32.5 millennials admitted to having used Venmo for illicit drug purchases. Examples include Schedule II controlled substances (Adderall®, for instance), marijuana, and cocaine. And in a follow-up poll last year, 21 percent said they’d used Venmo for illegal gambling.

It’s reasonable to suspect that the real numbers are higher. Even in anonymous surveys, people tend to overstate their virtues, understate their vices, and simply recall incorrectly. Moreover, much has changed since the surveys were conducted in 2017 and 2018, respectively. The use of P2P for individual drug and gambling transactions has no doubt increased overall, tracking with societal tolerance. And since the surveys were taken, Zelle has become an increasingly significant player in and has likely expanded the P2P market. 

Not to be overlooked is the fact that the studies focused on millennials. Granted, millennials are P2P’s most-frequent users, but there’s no reason to think that other demographics lack sufficient smarts to figure how to use P2P for the verboten. 

Verboten via P2P 

Reimbursing a friend for a quarter-gram of weed is one thing. The larger problem is the increase in P2P payments for more serious, more harmful activities, such as human trafficking.

If you think it might be risky to pay for the illicit via a P2P app, you would be right. Most P2P providers have strict policies against and enforce penalties for certain types of transactions. Besides shutting down accounts and freezing funds, they may share, as Zelle discloses, “… information collected or accessed from you and about you with … law enforcement, government agencies, and other authorized third parties …”

I need hardly point out that P2P transactions leave an electronic trail. By overlaying data, it’s possible to identify drug trafficking operators, including Dark Web operators using onion routers like Tor, and even including, to an extent, deals paid in cryptocurrency. 

The United States government in particular is cracking down, as evidenced by the Treasury Department’s newly released, 12-page “Advisory on Illicit Activity Involving Convertible Virtual Currency.” The document’s purpose is …

“… to assist financial institutions in identifying and reporting suspicious activity concerning how criminals and other bad actors exploit convertible virtual currencies (CVCs) for money laundering, sanctions evasion, and other illicit financing purposes, particularly involving darknet marketplaces, peer-to- peer (P2P) exchangers, foreign-located Money Service Businesses (MSBs), and CVC kiosks.”

The Treasury Department Advisory lists 30 “Red Flag Indicators of the Abuse of Virtual Currencies.” Here’s a sampling:

• A customer receives multiple cash deposits or wires from disparate jurisdictions, branches of a financial institution, or persons and shortly thereafter uses such funds to acquire virtual currency.

• A customer receives a series of deposits from disparate sources that, in aggregate, amount to nearly identical aggregate funds transfers to a known virtual currency exchange platform within a short period of time.

• A customer’s transactions are initiated from non-trusted IP addresses, IP addresses from sanctioned jurisdictions, or IP addresses previously flagged as suspicious.

The type of criminal activity the Treasury Department looks to intercept is on the level of money laundering, human trafficking, and terrorist financing. The occasional, casual transaction may—may—be harder to detect. Paying a neighborhood weed dealer might be indistinguishable from repaying a loan between friends.

But with the volume of data generated daily, and with AI’s increasing ability to sort and correlate, I wouldn’t count on it.

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