By Maysan Alobaid
This blog post was submitted as a contribution to the Tabula project, an international and comparative research collaboration carried out over the summer of 2021.
Money laundering has been omnipresent throughout the decades of human greed and ill intentions. However, with the current intense reliance on e-commerce along with the role that social media influencers have been playing in cyberspace–transcending small screens to affect daily life choices–an easier existence for money laundering has arisen. This phenomenon has presented a need for immediate regulation of e-commerce/influencer activities in many Gulf Cooperation Council (GCC) countries.
The importance of regulating “cyberlaundering” activities in the GCC stems from the interwoven social structure of these countries, a structure in which many residents follow the latest trends and race to buy whatever hot new thing an influencer has promoted on a given day without thought to what underlies their purchase click. This escalated and became a big issue in the region in 2020, following Kuwait’s e-commerce site “Boutiqaat” scandal. The site allows influencers to set up their own virtual shops in which they promote products they use and recommend; the site is then responsible for providing said products. A year-long “sold out” sign kept increasing revenue for the website, which was seen by many as a marketing strategy, yet a few economists and lawmakers flagged the matter as a potential money-laundering issue, using influencers as a façade for the operation, especially since the sudden burst of wealth the influencers acquired was without an obvious source (e.g., an inheritance or a standing successful business). Kuwait has led an investigation that encompassed the site and many influencers whose activities been integral to it, but it has not reached a transparent or clear conclusion.
Money laundering is known internationally as a derivative crime that follows the act or attempted act of concealing the identity of illegally obtained proceeds, making it appear as if it was acquired legitimately. This act or attempted act is entangled not only with possessing money illegally, but also with fraud, embezzlement, corruption, and terrorism funding. Additionally, money laundering through e-commerce and influencers expands the list of traditional crimes to encompass cybercrimes. However, GCC countries UAE, Saudi Arabia, and Kuwait have stated that money laundering is an independent crime that requires punishment regardless of the original activity in which the money was accumulated, notwithstanding that knowledge of the crime and intent to proceed with it must be present. Nonetheless, in both traditional and cyber cases, money laundering becomes extremely easy as the need to cover the illegality with fake business diminishes; an influencer flaunting their wealth and a consumer ready to follow is all this scheme needs to thrive.
Nevertheless, after accumulating the illegally concealed money, GCC countries have followed international guidelines in which money laundering follows three stages: (1) placement of the illicit funds in financial institutions, (2) layering the money to disconnect it from the originating activity by concealing its source via multiple transactions, and (3) integration, where a legitimate transaction is used to regenerate the money, making it look as if it is coming from a legitimate source. In the first stage, banks, as the dominant financial institutions, are responsible for checking the sources of incoming funds when they exceed a certain amount; that amount varies based on the country. For banks to uphold their responsibility, the placer of the money must adhere to compliance rules by reporting the source of income, the invoice, and the names of the parties of the business transaction. In the second and third stages, influencers’ show of wealth is used by buying real estate, cars, and boats, to then reuse them–to rent them out, among other things. A blurring of legitimate and illegitimate assets then enters the scene.
In using influencers, looser inspection is put into place, since e-commerce sites, or any other businesses that want to advocate for their products through influencers, can set whatever prices they want without it pointing to illicit activity and with a guarantee of fast money. For that reason, Saudi Arabia has enacted rules with which social media influencers must comply when agreeing to a promotion of any sort. These rules can be summed up in four requirements: the product must be identified as part of a paid ad in promotional segment; the ad must not include any deceptive or false statements that can mislead consumers; it must reveal the name of the owner and all of their contact information; and it must only accept promotions for products from the legal owners of the products.
The neighboring United Arab Emirates have enacted a rule under which a social media influencer must obtain a media license in order to be paid for advocating products, thus increasing their responsibility. This approach is effective because any cooperation with a promotion without a thorough investigation of the situation would affect the promoter’s ability to maintain their license, and in some cases the influencer would be subject to monetary fines, creating stricter accountability. Nevertheless, any transaction that enters a bank account must be supported by a legal contract along with any other evidence the bank needs to deem the transaction clean of illegal laundering–in all cases, the judgment and discretion of the bank officer who overlooks the account is paramount.
Money laundering is a complicated issue that has become a greater threat in the age of influencer culture. The ease with which transactions are made, and the need to protect the economic wealth of influencers, make balancing their activities and investigating them trickier for authorities. Although GCC countries have enacted several policies regarding social media promotions through influencers, its practice in combating money laundry remains ineffective. A strong regional effort not only between authorities, but also among financial institutions, should be in effect for a robust and active resolution.