AML/CFT in m-payments: Cash still rules for the bad-guys Over 180 countries are engaged with FATF to take action to minimize threats of money laundering/terrorist financing (ML/TF).   The Strategic Surveillance Initiative and its survey work across these countries most recently resulted in the July 2010 GTA report in which the primary techniques for moving funds illicitly are 1) physical cash, 2)wire transfers, and 3) alternative remittance systems.Cash is still the number one source for either ML or TF as it provides a maximum of flexibility and such a limited audit trail as to be superior for avoiding detection.  In particular in cash intensive economies, it can easily pass undetected and is the leading result of narcotics derived funds.  The 2009 FATF Strategic Survey noted that “wire transfers involving cash deposits and withdrawals as a primary technique for moving terrorist funds.”Once money enters the formal banking system it can more easily take on an appearance of legitimacy.  Increasingly banking system weaknesses are being exploited through identity fraud to take advantage of this.   Weaker AML/CFT regimes become the target locations for creating these illegal scenarios.“Cuckoo smurfing” may sound innocent, but is a now well known form of ML and to some extent possibly TF.  In this method an alternative remittance system is used whereby the crime proceeds are transferred to the accounts of innocent people who happen to be expecting incoming transfers.  They remain unaware of their role in the scheme and the crime proceeds have been enabled for use in the origin country.The recommendations of the FATF report for limiting ML/TF risks with e-payment systems are: Limits on value funded, stored, or spent Account monitoring with reporting of suspicious behavior Limits on cross-border access Maintenance of transaction records with payer and recipient sides Discussion and planning in the product development cycle to “design out” vulnerabilitiesMany MVT implementations have the capabilities, features and functions to meet these recommendations.   But the report further cautions that the chain of value transfer is only as strong as the weakest link and so directs us to the “low capacity countries” or LCCs as those where risk is higher based on being cash intensive economies; tax havens, major financial centers or offshore banking locations; conflict zones; or corrupt jurisdictions.   International best practices are therefore continually updated based on changes in global conditions.One further boost to the m-payments sector with regard to ML/TF risk is that they offer perhaps unparalleled transparency.  It is relatively easy to trace even the smallest payments as to from whom and to whom they have been made.  This is particularly true with postpaid mobile accounts, linkages to credit or bank accounts, or in worst case with KYC procedures at a cash-in point.  From a monitoring perspective, we can often know, if not to whom at least, “for what,” payments are made via MVT, providing a much more detailed audit trail than traditional cash out remittance. All in all, the information and advice put forth by FATF in this report seems to provide helpful input to almost any MVT implementation we have seen to date in its work to ensure security and stability and remaining on the “right” side of international AML/CFT regulations. Cambodian MVT Opportunities – Keeping it close to home Mobile Telecommunication Sector in CambodiaNine mobile network operators compete in this country of about 15 million people, with mobile phone penetration of 29%.  Despite the seemingly high level of competition in the mobile telecommunications market, Mobitel has 55%[[1]]market share.  The need to keep existing customers (in Mobitel’s case) and to attract new ones (the remaining MNOs) is apparent in this market and thus MVT roll out would be a good strategy for any MNO there to investigate further. Banking SectorOnly 20% of the population in Cambodia reside in urban areas, where bank branches and ATMs have the highest concentration; and the low level of access to financial services (20%) is therefore not surprising.  There are only 2 bank branches per 1,000 km2, which is a fifth of the level in neighboring Thailand.  About 4 branches per 100,000 adults is one tenth of the level in the USA and a third of Thailand’s.  The relative number of ATMs is even smaller; 1.5 ATMs per 1,000km2and 2.7 per 1,000 adults is miniscule compared to 77.2/1,000 km2and 75/1,000 adults for Thailand and, of course, even greater levels in the US.  The opportunity exists to improve access to financial services through MVT offerings.   Indicator (2009) Cambodia Thailand USA   Spain     South Africa Number of commercial bank branches per 1,000 km2 2.1 11.5 9.58   30.05 2.25   Number of commercial branches per 100,000 adults 3.8 11.2 36.27   38.59   8.10   Number of ATMs per 1,000 km2 1.5 77.2 46.39   120.52   14.55   Number of ATMs per 100,000 adults 2.7 75.0 175.69   154.80   52.41    RegulationsThere are no mobile payments regulations to specifically support MVT in Cambodia.  However, the regulator, the National Bank of Cambodia, has been very open to mobile payments, and in the case of WING, for example, it “participated in workshops on risk management, technology and the business model before they provided authorization to proceed”.[[2]]  Thus, in Cambodia, the regulation appears to be on a case-by-case basis. Emigration and Remittances Cambodian emigration is relatively small due to low income levels and the fact that the majority of the population lives in rural areas, making leaving country difficult.  Most emigrants live in neighboring Thailand, North America or the closer developed countries of Australia, New Zealand and Japan.  Because of limited emigration, remittance volumes are rather low:  3.4% of GDP, or USD$22 per person, compared to USD$620 per person in Thailand, for example. Existing MVTDespite its development challenges there are already two active MVT deployments in the country.  WING is a service, supported by ANZ bank that targets the urban population who send money to rural areas.  The other service is Unity mobile phone banking offered by the financial services company Acleda Bank, which allows its customers to use their handset to perform their banking transactions. Further domestic MVT should find success in Cambodia, as the need is huge and the conditions favorable.  Urban to rural P2P payments are likely to be a top offering, as well as bill and utility payments.  However, the options for international MVT are quite limited unless, for example, Cambodia were part of a larger regional grouping to take advantage of scale and other synergies involved in the effort. [[1]][[2]]

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