Published by: GSM Association

Mobile money services are currently being deployed in many markets across the world. There is strong evidence that these services can improve access to formal financial services in developing countries.
However, their rise has prompted concerns that mobile money services will be used for money laundering and terrorist financing (ML/TF). Whilst to date there has been no evidence of ML/TF, mobile money systems could be used for these purposes in the future (as other formal financial services are targeted today).

We believe that now is the right time to discuss how risks can be assessed and mitigated most effectively. Mobile operators offering these new services may not be familiar with the risks of money laundering and terrorist financing. Also the relevant regulators (Central Banks and Financial Intelligence Units) are not often familiar with mobile money services and what money laundering (ML) and terrorist financing (TF) risks they pose.

The aim of this discussion paper is to propose a risk assessment methodology based on the principles of the existing framework of the Financial Action Task Force (FATF) recommendations1. Our risk-assessment methodology is intended to provide regulators and industry alike with a flexible and consistent means of assessing and mitigating the risk of ML/TF for mobile money services.
Regulation should be risk-based and technologically neutral, i.e., ‘same risk – same regulation’ for everybody (banks, mobile operators and any other payment providers). Whilst we talk about mobile money services in this paper, we believe that the same methodology should be valid for other services and players.

• When assessing the risk and its mitigation, it is critical that the unique ’domino effect‘ of mobile money is allowed to increase the degree of financial inclusion. Expanding the formal financial sector and shrinking the informal economy directly lowers overall ML/TF risks.

• The digital and traceable nature of mobile money makes it a lower ML/TF risk than cash.

• Financial inclusion and AML/CFT are complementary and support each other.

• Mobile money services should be a regulated activity under the supervision of the financial regulator or other financial regulatory authority.

• Proportionate AML/CFT regulation should emerge from close cooperation between financial regulators and industry. Whilst using the existing FATF framework, proportionate AML/CFT measures should emerge from a collaborative ‘test and learn’ approach.

The proposed risk-assessment methodology comprises 5 steps, which we believe help mobile operators and those regulators imposing AML/CFT compliance rules to prevent ML and TF proportionately and effectively. In the first step, the given services, their usage and environment have to be understood. In the second step the vulnerabilities of these services to ML/TF have to be analysed before, in the third step, regulators and industry can develop an understanding of how criminals and terrorist could exploit these vulnerabilities. This will provide an initial risk profile before any controls are put in place.