M-payments could take money laundering to new levels


In my previous post, I talked to John Cassara, a former U.S. Intelligence Officer and Treasury Special Agent, about growing concerns over trade-based money laundering. I followed up with him about the growing threat of mobile payments and how mobile phones can potentially be used to launder illicit funds globally. Here are the highlights from our conversation:

You've been a consultant for SAS for the last four years, and I find it interesting that almost from the time we met you've been talking about m-payments.  First of all, describe what mobile payments or m-payments are.
John:  Certainly. Global commerce is witnessing a variety of new-high tech money and value transfer systems. The Financial Action Task Force calls them “new payment methods” or NPMs. They're also sometimes called “e-money” or “digital cash.” Examples include internet payment services, cyber currencies, stored value cards, prepaid calling and credit cards, digital precious metals, and mobile payments or m-payments. While m-payments is an umbrella term, the commonly accepted usage refers to the use of cell phones to credit, send, receive and transfer money and digital value.

Okay, but why are you so alarmed?
John:  Well, I’ve been concerned about money laundering and its corollary to terrorist finance for over 25 years. I’ve done a lot of transnational investigations and international travel. I’ve seen how criminal organizations are always attracted to the weakest link. Concurrently, I’ve witnessed the exponential growth of mobile phones – particularly in the developing world. By 2020, some experts predict there will be approximately 50 billion connected devices, and m-payments are most likely to be the most popular form of banking in much of Africa, Asia, and Latin America.

But isn’t that a good development?
John:  It is! M-payments are enabling some countries to leapfrog right into 21st century communications and banking services. The problem is that this positive development will certainly be abused. I first wrote a report for the State Department in 2008 which I called “The Growing Threat of M-Payments.” Nothing has happened in the last seven years to make me change my mind.

Can you give me some examples?
John:  Sure. In Uganda only about 4 million people out of a total population of 35 million, have deposits in the formal banking sector, with the rest of the populace relying on cash transactions or informal alternative forms of banking, including m-payments. In Tanzania, only 12 percent of the population is engaged in the formal financial sector. But m-payments are expanding rapidly. The Central Bank estimates that the equivalent of $650 million is transferred each month through mobile transfers. These transfers can easily be used to launder illicit funds – both domestically and internationally. There are few safeguards. It is the same in the developed world.

So what should we do?
John:  Industry, law enforcement, and regulators must sit down together and discuss what should be done. It is certainly possible to engineer defenses and create regulatory standards to guard against abuses. Data and analytics will be integral.   I would like to see SAS play a role.

I’ll pass on the message!
John:  Please do!

Stay tuned for my next interview with John Cassara on another financial crimes topic. In the meantime, you can watch this short video clip of John discussing m-payments. Or you can learn more about how analytics can help combat the growing threat of m-payments in the free SAS white paper, Mobile Payment Fraud and Abuse: How Can Analytics Address Fraud as M-Payments Extend Into Unbanked Rural Communities.


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LaVerne Durham

LaVerne Durham is Global Industry Marketing Manager for Federal Civilian Government

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