FBI says insider trading is working with encrypted app

8 years ago - Published in Commodities, Finance

The sharing of sensitive information has been at the root of many of the scandals facing the financial services industry recently, for example the LIBOR and FX rigging episodes. However, the US’ Federal Bureau of Investigation (FBI) has now marked Wall Street traders as a potential area of focus, given the use of encrypted apps to hide illicit communications.

According to reports emerging in the Financial Times, the FBI is becoming increasingly concerned that Wall Street traders have found a way to turn encryption to their advantage when it comes to illegally exchanging insider information.

Encryption, according to John Casale, an assistant special agent in charge of complex financial crimes in the FBI’s Manhattan field office, is “a growing problem overall.” In his remarks to the Financial Times he noted:
“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.”

WhatsApp, Signal and Telegram are a few of the encrypted chat apps that allow financial professionals access to totally secure end-to-end communications.

Encryption, according to reports, represents a massive hurdle for law enforcement, whose agents see that encrypted “public” services make it easy for criminals to suddenly go dark from a surveillance point of view.

However, it should be noted that those who want to break insider trading laws find ways to do so — Facebook chats, Instagram posts, burner cell phones — and what is happening now is something like the latest tech upgrade for the forward-thinking white collar criminal.

The FBI says they are actively looking to recruit from Wall Street to enhance their intelligence gathering from trading floors and investment banks, and to have agents who are able to speak traders’ lingo, understand complex trading tactics, and leverage personal connections so eventually they can flip witnesses to co-operate.

This is hardly a US phenomenon – earlier this year, the UK’s Financial Conduct Authority (FCA) fined former investment banker Christoper Niehaus over £37,000 for improperly sharing confidential client information over WhatsApp. This constituted the FCA’s first action surrounding the messaging app to date.