Money-Laundering Concerns Said Sometimes Secondary to Need for Services for Unbanked
Misuse of mobile payment systems is a growing threat, the European Police Office said in its latest report on organized crime trends in the EU. Mobile banking offers ample opportunities for money laundering, and Europol is starting to see suspicious transaction reports related to mobile money transfers, it said. But some, including the intergovernmental Financial Action Task Force, said there’s little evidence that m-payments are a problem, and that regulation of such activities must take into account their enormous societal benefits.
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Europol wouldn’t give specific details about the alleged suspicious activities involving mobile payments. However, “it’s clear that cybercriminals will have their eyes on the increased use of mobile applications and payments,” spokesman Soren Pedersen said.
As m-payments become more frequent, one would expect to see signs of attempted financial crime, said Thaer Sabri, managing director of London-based Flawless Money, a consultancy focused on financial regulation of e-money and other payments. There’s little evidence of any significant vulnerabilities, he said. That Europol is receiving suspicious transaction reports demonstrates vigilance, and would only be of concern if there’s a spike in reports arising from mobile payments, he said in an interview. Most m-payments are lower in value, so money-launderers would be forced to carry out multiple transactions, which would make them visible to the payment service providers, Sabri said. Mobile payments are unlikely to be the first choice for criminals, but providers shouldn’t be complacent, he said.
There’s no need at this point for more European regulation of mobile payments, Sabri said. They're already governed by financial services and anti-money laundering (AML) laws, he said. Outside Europe, the situation varies from country to country, with some restricting money remittance to banks and others imposing AML rules but not financial services regulations, he said. He said the extent of compliance and enforcement can differ, so practices will vary.
New payment means (NPM) will always create opportunities for financial crime, Sabri said. Payment services providers are aware of this and are active in mitigating the risks, and financial regulators work to ensure they're addressed, he said. An adviser on secure electronic transactions said he’s skeptical whether the concern over organized crime in m-payments is “a real issue or a moral panic.” Mobile payments are a key tool for financial and social inclusion, Consult Hyperion Director Dave Birch said in an interview. The harder it becomes for people to enter the financial system, the less inclusive society becomes, he said.
Mobile payment systems are often treated with a lighter regulatory touch than mobile banking, to reach as many users as possible, Birch said. The need to integrate the “unbanked” into society should “tip the value” toward less regulation of low-value transactions, he said. For large payments, however, the balance should tilt in favor of law enforcement, he said. If governments really want to make it tougher on organized crime, they should stop printing large bills such as 500-euro notes, he said. If there’s evidence the current m-payment regulatory environment is too lax, let’s do something, Birch said. If there’s a choice between letting criminals use cash or sending money by phone, the latter is preferable because it can be traced, he said.
An October 2010 report on money laundering using NPM by the intergovernmental Financial Action Task Force analyzed 33 case studies, only three of which involved mobile payment systems. While the study confirmed that “to a certain degree NPM are vulnerable to abuse for money laundering and terrorist financing purposes, the dimension of the threat is difficult to assess,” it said. To gauge the risks and vulnerabilities of m-payment services, it’s necessary to differentiate between “mobile payments” based on individual bank accounts, which are subject to financial services regulation, and services offered separately from those accounts, FATF said. It examined payment services that allow non-bank and non-security account holders to make payments over mobile phones as well as situations where subscribers use phone credits or airtime to make payments.
Mobile payment services are regulated in most of the 15 countries where they exist, FATF said. In some places they're offered by unregulated entities such as telecom companies which have no AML obligations, it said. Payment services providers often use agents, who are not subject to regulation, to distribute their services, open new customer accounts and receive and pay out cash, it said. Current FATF standards don’t adequately address situations where NPM services are provided jointly with third parties such as agents and digital currency providers, and more clarification is needed, the report said.