Mobile phones hold the potential to be a major contributor to
developing much-needed access to financial services. However, warns
the US Department of State (DoS), there are already indications
that money launderers and financers of terrorism will avail
themselves of mobile payment (m-payment) systems.
In a study, Mobile Payments – A Growing Threat, the DoS stressed
that while m-payments have numerous money laundering and terrorist
financing implications, ‘digital value smurfing’ represents “a very
clear threat”. Digital value smurfing is a term coined by the Asian
Development Bank, a multilateral development institution that has
also focused much attention on the threat posed by abuse of
m-payments.
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In essence, smurfing refers to the dividing of large amounts of
money into multiple transactions in a way that ensures each
transaction is below the value that would trigger financial
institutions’ financial transparency reporting requirements.
M-payments have made the process much easier for the digital smurfs
as proceeds of crime or contributions to terrorist organisations
can now be transferred via mobile phones.
“With such [m-payment] transfers, criminals avoid the risk of
physical cash movement, bypass financial transparency reporting
requirements, and rapidly send digital value across a country or
around the world,” said the DoS. Unfortunately, continued the DoS,
there is little financial intelligence on m-payments and most other
forms of new payment methods.
The DoS added that, worldwide, many law enforcement and
intelligence agencies currently have little expertise in m-payment
methodologies and technology. In addition, most m-payment networks
have security features that hinder law enforcement and intelligence
services in their efforts to detect suspect transactions.
Also standing in the way of law enforcement is a lack of
physical evidence in m-payments. The DoS explained that if value is
transferred electronically and the conveyor or recipient phone is
destroyed, it may be impossible to reconstruct or determine the
information that was on the phone. Further, if both a mobile phone
service and the funds used to facilitate m-payments are prepaid,
the service provider may not fully identify its customers due to
the absence of credit risk.
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By GlobalDataThe Philippines is one of the few countries proactively taking
steps to monitor and regulate m-payments, noted the DoS. It added
that Philippine m-payment service providers are regulated as money
service businesses and have worked closely with the central bank
and the financial intelligence unit to comply with anti-money
laundering laws and regulations.
The DoS explained that in the Philippines, m-payment service
providers follow know-your-customer policies that require an
authorised subscriber to register in person with the service
provider and present a valid photo identification document to
either put cash in or take cash out of the system.
There are also limits on transaction size. For example, the
maximum a subscriber can transfer at one time is PHP10,000 ($240).
There is also a monthly maximum of PHP100,000.
Surprisingly, the DoS noted that the US has few safeguards
against abuse of m-payments. M-payment service providers in the US
are classified as money service businesses and must register with
the US financial intelligence unit of US Treasury, the Financial
Crimes Enforcement Network. However, said the DoS, “most money
service businesses do not comply with registration requirements and
there is little enforcement of the regulations”.
Concluding, the DoS said: “Much work and creative thinking will
be required to maintain the advantages NPMs [new payment methods],
including m-payments, offer, while at the same time preventing
exploitation and misuse by money launderers and terrorist
financiers and simultaneously protecting user privacy and the
integrity of the global financial systems.”
