LONDON — The Web site for the European Union Bank, the world's first offshore bank on the Internet, offered potential depositors a tantalizing feast: "total privacy" and "strict confidentiality" along with an "internationally attractive interest rate offered in the milieu of a tax-free jurisdiction."
Attractive, indeed: The 3-year-old institution, incorporated on the Caribbean island of Antigua, offered rates up to 10 times higher than those at other banks. Millions of dollars poured in from hundreds of depositors around the world, undeterred by a warning from the Bank of England that the whole thing might be too good to be true.
Alas, London's stodgy central bank turned out to be right. But depositors, blinded by dollar signs, continued investing right up until the two Russian-born owners disappeared last August and the European Union Bank went into receivership. Depositors who had pumped more than $10 million into the bank were left high and dry.
British authorities cite the European Union Bank as a prime example of the dangers that lie in wait for the unwary--and the greedy--who use the Internet for financial transactions. Bank scams are only one manifestation of crime on the World Wide Web.
Computer hackers regularly attack the information systems of large corporations and government agencies to commit commercial espionage, a crime that costs an estimated $100 billion a year in the U.S. alone. Drug cartels use international banking systems to launder millions of dollars in illegal profits, wiring the money in and out of legitimate businesses faster than law enforcement agencies can track it. Unscrupulous investment services reap millions of dollars in profits from the promotion of worthless stocks.
Crafty cyber-thieves have found that they can steal a lot of money with very little risk. FBI and bank security sources say that the average electronic bank theft in the United States nets about $250,000 and that only about 2% of the thieves are being caught.
Daniel Geer, an engineer for Open Market, a Cambridge, Mass., company that provides secure business access to the Internet, told a subcommittee of the U.S. House of Representatives earlier this year that stealing money by computer is far safer than holding up a bank with a gun.
About 80% of the robbers with guns wind up in prison, he said, and their average take is only about $7,500. By contrast, he cited the case of Russian computer thieves who stole $10 million from Citibank.
Hackers are typically caught only if they become too greedy, Geer said. "They start out stealing $1,000 a day and figure they can get away with $2,000 a day, and they hit some figure which sets off alarm bells."
While the Internet is widely viewed as a key to expanding the global economy, neither governments nor private institutions have found an effective strategy for preventing an increasingly serious crime wave.
Rosalind Wright, director of the Serious Fraud Office of the London Metropolitan Police, calls the Antigua case part of "a great army of Internet banking services, linked with offshore banking with their layers of secrecy through which drug money, bribes, proceeds of other major crime and untaxed millions can be moved with ease away from the prying eyes of the authorities."
Wright, speaking at a symposium on globalized crime at Cambridge University that attracted more than 900 delegates from 94 countries, warned of a sharp increase in various types of crime on the Internet.
At the same symposium, Raymond W. Kelly, undersecretary for enforcement at the U.S. Treasury Department, said computer criminals in cities as diverse as Palermo, Moscow, Hong Kong, Lagos, Bogota, London and New York "view crime as a true investment and export commodity and increasingly are moving back and forth between legal and illegal activity."
U.S. Had Early Lead in Exploiting Internet
The United States seized a substantial early lead in exploiting commercial opportunities offered by the Internet. But Europe is fast becoming more competitive, and the 15-nation European Union predicts a sharp boost from the introduction of a single European currency in 1999.
Europe's largest telecommunications firms are already increasing their Internet access services. Datamonitor, a research firm, reports that major phone companies in Belgium, Britain, Finland, France, Germany, Italy, the Netherlands, Spain and Sweden control 34% of global Internet access. Eight of nine telecommunications companies surveyed offered some kind of online services, and all nine planned to expand their services.
Dataquest, a U.S. market research group, reported recently that an estimated 82 million computers worldwide will be linked to the Internet by the end of this year--up an astounding 71% in just one year. It predicts that the figure will triple to 268 million in the next four years.
Cyber-Dilemma: Protection vs. Privacy
