Self-destructing messages are the latest tool for white collar criminals.
The Federal Bureau of Investigation is growing concerned that Wall Street traders are turning to encrypted apps to hide illicit communications from internal compliance programmes and regulators.
Encryption is “a growing problem overall,” John Casale, an assistant special agent in charge of complex financial crimes in the Manhattan field office told the FT. “New technology comes out and you know it’s going to be applied and it could be applied in a way to engage in fraud, money laundering, and insider trading.”
The first indication that applications, such as WhatsApp, Signal or Telegram that allow for secure end-to-end communications, are being used by white collar offenders inside big banks came to light late Wednesday in a largely unnoticed insider trading case.
A former IT employee with Bank of America pleaded guilty to a wide-ranging insider trading scheme that netted over $5m in proceeds, according to civil and criminal charges brought by the Securities and Exchange Commission and US attorney’s office in Manhattan.
Daniel Rivas, the former bank employee, used a phone messaging app to pass encrypted, self-destructing messages to three friends about confidential corporate takeovers, according to the SEC complaint.
FBI agents say white collar criminals are adapting, whether it’s moving from group communications on Bloomberg chat rooms to social media pages like Facebook that fall outside of traditional business communications platforms, or touting stocks on popular platforms like Instagram.
Encrypted devices and phone apps have been an obstacle for agents tracking terrorists who “go dark” to evade surveillance — an issue that has raised concerns about civil liberties and privacy and resulted in a showdown with technology companies.
The shift to new technologies is not unexpected. Pre-paid cell phones, known as burner phones, were used in the insider trading case involving sports bettor Billy Walters and Tom Davis, the former chairman of Dean Foods. Encrypted text messages were used in a 2016 stock promoting case.
In March, the UK’s Financial Conduct Authority fined a Jefferies banker £37,198 for sharing confidential information on WhatsApp — the first action of its kind.
Marten den Haring, chief product officer of Digital Reasoning, an artificial intelligence-based computing platform that some financial institutions are using for surveillance, says, “People are starting to get creative and using some of those communication channels that are harder for law enforcement and internal teams to lay their hands on.”
The evolution is reflected in Digital Reasoning’s own history. It was adopted early on by the US Department of Defence to track suspected terrorists. Beginning in 2012, its analytics started to attract Wall Street firms’ interest. Goldman Sachs became an investor and client.
Mr den Haring says its software can use behavioural patterns to detect when people want to change communication channels so even if their communication goes offline it leaves “breadcrumbs” behind.
“All these breadcrumbs when put in proper order and context can give you clues to act on. That’s the race that everybody’s in. My only worry is: can the government adapt fast enough?”
