The Effect of E-commerce on the Iranian Money laundering and Offering Appropriate Solutions Marjan Fakhri Moghaddam 1, Seyyed Mohammad Miri Chimeh 2 Abstract The present study considered the effect of e-commerce on the Iranian money laundering and offering appropriate solutions. It was a casual and scientific research. The study population consisted of policy makers and enforcers of E-commerce, the individuals and companies and legislators and law enforcers involved in money laundering such as the members of Parliament, Central Bank, Ministry of Commerce, Ministry of Economy and Finance, Chamber of Commerce, and etc. So, some elites were selected via convenient sampling method from each group. By using the results of interview and test, a questionnaire was made based on the concerns of Iran s society and the world. This questionnaire (n=170) was distributed among the subjects. The probabilitystratified sampling method was used. The conventional statistical methods such as structural equation modeling were used for analyzing the results of the present study. In all of the trades are done in cyberspace including the purchase and sale of goods and services as well as financial transactions, the identity of persons and goods should be identified and decrypting should be done. The findings showed the establishment of high security international structures on the Internet and the support of all countries in cyberspace are considerably important. The exact implementation of such measures makes insecure the space for money-launderers and financial criminals; so, they will not have the opportunity for doing criminal activities in cyberspace-ecommerce. Keywords: Money laundering, E-commerce 1 Master of Business Administration and E-Business, Industrial Management Institute ( IMI), Iran 2 Master of Business Administration and E-Business, Industrial Management Institute ( IMI), Iran 53
1. Introduction The money laundering and tax evasion are the most important criminal acts are nowadays considered in most legal systems. These crimes are committed by criminal organizations and traders to get profit in competitive markets. These activities may lead to some financial crisis in the economic system of countries; for example, the crisis caused by several million dollars that were obtained from organized crime in Japan or the Asian financial crisis in 1997 (Migz, 1990). Some countries possess advanced information technology and instead do have little capacity to combat with the crimes related to information and communication technology; these countries are paradise for organized crimes such as money laundering. Today, America has the most powerful anti-money laundering system. Despite intensive efforts to combat with money laundering, this country has still the highest ratio of this phenomenon in the world. The cyberspace and virtual networks have created a secure environment for offenders to commit some crime in the virtual environment; and they are a good safety margin for money launderer (Migz, 1990). According to the above, it can be said that money laundering includes four operations: To help others to protect the interests of crime To acquire, occupy and use the criminal interests To hide or transfer the interests to avoid prosecution or confiscation judgment Do not disclose a criminal offense or suspected money laundering Given the above, it can be said that money laundering is another aspect of offenders activities and criminal processes by which the revenues from criminal and illegal activities will be laundered by legal channels (Sheroder, 2003). The information technology is one of the important modern tools of trade. With the development of information technology, it provides solutions for economical and powerful planning and execution of market s everyday activities. Today, technology can no longer be separated from the set of planning and organizational development. In fact, information technology has brought many changes to economic, social, cultural and political areas; it has challenged many organizations for achieving the proper position and has created modern economies. The information and communication technology focuses on the prominent position of information, storage systems, information processing, transmission systems, and access to information. In addition to the 54
telecommunication systems, obviously, radio and television will be in the list of communicationpublishing and distribution channel- means. In the first place, the infrastructure of information and communication technology requires an information infrastructure which includes all communication devices such as telecommunications equipment, radio and television. The Information infrastructure has been discussed as a foundation of Information and communication technology infrastructure and has provided the opportunity of providing high quality information services (Turban, Mclean & Wetherbe, 2002). The concept of digital economy emphasizes that the current global economy has been significantly affected by information technology. Information technology has created new production methods, new tools and different ways to communicate, new products and services, and new communities. The economy has been structurally changed by the effect of globalization and ICT revolution. In the 1990s, two revolutions were occurred followed by fundamental outcomes: globalization and information and communications technology revolution. Consequently, a phenomenon was appeared; it was called New Economy. The information and communications technology revolution provided the opportunity for firms and industries to have higher efficiency. The digital economy has not been created suddenly; it has been shaped in an evolutionary process. The information technology changes the economy. The search for achieving more efficient ways to do business has led to another revolution in the business arena. This revolution is called e- commerce. The E-Business and e-commerce terms are often used interchangeably. In fact, these terms describe the trade, customer service and business tasks performed through digital exchanges. The electronic business includes any business in the web and is broader than e-commerce. In most cases, e-commerce is interpreted as the simple sales of goods or services over the Internet and online. These transactions include the trade of physical and nonphysical goods by wholesalers and retailers -such as a car or computer software-, providing various services to customers such as legal consultation-, and other commercial matters such as the exchange of goods with the goods and setting the bids and proposals (Kalakota & Whinston, 1996). The e-commerce is one of the important phenomena derived from information and communication technology and have created very dramatic changes in the volume and practices of trade and business. The countries should take advantage of this exceptional opportunity for a quick access to world markets for selling their manufactured goods and products; otherwise, they will be doomed to failure and will eventually be removed from business world (Clarck, 2003). 55
From 1990s onwards, the investments of United States on E-commerce have annually grown 300 percent; more than 50 percent of private sector investments have been on e-commerce related research and industry (Andres & Thrum, 1999). This study aims to investigate the money laundering issue in e-commerce: whether e-commerce - with all its structures including infrastructure, application, business performance, and mediator items- can positively affect the decrease in money laundering? 2. Methodology This study is a casual and scientific research. The study population consists of three parts: 1. The first part includes the policy makers and enforcers of e-commerce in the country such as the managers of banks and financial institutions. 2. The second part consists of the individuals and companies that contribute in the writing of software and provide network infrastructures for e-business. 3. The third part consists of legislators and law enforcers involved in money laundering such as the members of Parliament, Central Bank, Ministry of Commerce, Ministry of Economy and Finance, Chamber of Commerce, and etc. The access to all members of the research population was not possible; so, some elites were selected via convenient sampling method from each group. By using the results of interview and test, a questionnaire was made based on the concerns of Iran s society and the world. This questionnaire (n=170) was distributed among the subjects. The probability-stratified sampling method was used. The conventional statistical methods such as structural equation modeling were used for analyzing the results of the present study. 3. Findings The structural equation modeling (SEM) The conceptual model of this study is as follows: 56
In the following figure, the structural equation modeling is specified by regression coefficients. The numbers are on the beta coefficients lines; they are the results of regression equation among the factors that are known as path coefficients. In the following figure, all factors have a significant and positive relationship with one another.. 57
The real question here is: what is the amount of goodness of fit which is obtained by dividing the chi-square by degrees of freedom. Here, the corresponding value equals 2.93; given that it is less than 3, it is confirmed. The RMSEA index equals 0.057 which is less than 0.07; so, it indicates the model s goodness of fit. Other indices such as GFI, AGFI, NNFI, NFI, and CFI are equal to 0.99, 0.96, 0.97, 0.99 and 0.99, respectively. All of them are confirmed. 58
The parameters of figure are significant when the values are greater than 1.96 and less than -1.96. In the present model, all parameters are significant. 4. Discussion, Conclusions And Recommendations In the analyzing of the data were collected through questionnaire, three groups of factors affecting electronic commerce were examined: infrastructure, application and mediating factors. The results obtained by LISREL software showed that all presented factors influence the money laundering. Based on the structural equation model, however, the practical factors have the greatest effect in the first place. Then, the mediating and infrastructure factors are very important, 59
respectively. After creating structural equation model, the Friedman test was done based on the collected data. All of the factors were assessed and ranked on the basis of importance and effectiveness. The results showed that in the first place, you should precisely focus on seller and buyer, provide the necessary Infrastructure and tools, and closely monitor its implementation. However, the required standards for the security of e-commerce should be implemented. The security in the electronic commerce is the security of data related to financial transactions and all the information in cyberspace. In all of the trades are done in cyberspace including the purchase and sale of goods and services as well as financial transactions, the identity of persons and goods should be identified and decrypting should be done. Along with above mentioned factors, the establishment of high security international structures on the Internet and the support of all countries in cyberspace are considerably important. The exact implementation of such measures makes insecure the space for money-launderers and financial criminals; so, they will not have the opportunity for doing criminal activities in cyberspace-ecommerce. 5. Recommendations 1. All financial transactions should be done in electronic form via the Internet. 2. After the authentication of individuals, all transactions should be done by high security decryption and digital signature. 3. An anti-money laundering center should be established for accurate and continuous monitoring of all activities related to financial institutions and controlling their quality. 4. The mentioned center should oblige all of the exchangers, financial institutions, insurance companies, investment and retirement companies, and any center associated with money to authenticate all customers, perform their financial operations by electronic signatures which receive from a public credit institution, and report immediately these operations to the antimoney laundering center. 5. All the web sites related to e-commerce should be equipped with active financial system. So, any of the financial transactions in the virtual space will require the confirmation of financial transactions by anti-money laundering center. 6. The minimum and maximum allowable transactions should be determined by electronic signature and ID card of individuals. 60
7. Heavy penalties including imprisonment and confiscation of property should be determined for individuals who do money laundering or allow the money launderers to access to their account for obtaining more illicit profits. 8. Only one bank account should be opened for each person in the central bank or banks connected to central bank. All financial operations and cash transfers should be done by that account across the country with special electronic signature and password. 9. The financial and commercial activists should be ranked and their minimum and maximum allowable level of transferring money by the day, month and year should be determined according to their good reputation and legitimate activities. 10. Over time and under any circumstances, the dirty money should be traceable and prosecutable. As soon as its nature was appeared, the registration authorities should record it and prosecute and to punish the owner of the dirty money and its potential mediators. 11. The opening of account by false identification should be prevented in any circumstances. 12. The comminuting of money to hide money passage should be prevented. References Andres, G. And S. Thrum (1999)."The Rochet Under The Technology Boom: Heavy Spending By Basic Industries". Wall Street Journal, March 30. Clarck, A. (2003). "Management Electronic Commerce". Boston, Massachusetts: Warren, Gorham And Lamont. Kalakota, R. & A. Whinston (1996). "Frontiers Of Electronic Commerce". Reading, Ma: Addison Wesley. Migz. B. (1990). The Effect Of The Internet On International Trade. Jornal Of International Economics. Vol 62. Pp 169-171. Sheroder, S. (2003). The Economics Of Electronic Commerce, Macmillan Technical Publishing, United States. Turban, E. E. Mclean, & J. Wetherbe (2002). "Information Technology For Management". 3rd Edition, New York: John Wiley & Sons. 61