M-payment: a threat to the fight against money laundering

H. Paul Leyva, JD, C.AM.C.

1 October 2008

Strategy International Narcotics Control Report (INCSR), March 2008:

"… Already indications that money launderers and those who finance terrorism will make use of m-payment systems. "

NEW YORK Britain has produced a tax return to report income of $ 200,000.00 + a prostitute in Paris. To continue to hide their illegal proceeds and application of the IRS of law, Britain added a feature to the payments from their mobile phones and PDAs. With the role of m-payments, she now lives with virtually no cash. For example, Britain is asking its customers' e, the street slang "(mobile e-payment e-Pay). "E" is a transfer a text message, as the funds of a client-mm mobile phone account in the account referred to in the UK phone. After hours, Blackberry Britain now works like a debit card for all their spending needs: shopping at Nordstrom to buy that designer handbag, sending a car payment of your new Mercedes-Benz text message, and clubs all night with friends. Today Britain has received $ 800 for their services. Before the m-payment, he had no choice but to make deposits suspicious cash in their bank accounts daily. With the arrival of m-payment, do not worry, no one tracing its banking business. By As a precaution, Britain destroyed the SIM card memory of your phone and PDA at the end of each week and replace them with new ones. Therefore, if you are ever arrested for his activities, there is digital evidence of their occupation, income, or lifestyle remains.

Logan Square, Chicago, IL-Alex, an accountant by day and the drug user night, use your PC to transfer $ 400 of his personal checking account in the name of your mobile phone m-payments. Alex needs a distributor of ecstasy. For your choice permanent, the buyer and the supplier to respond to the coffee shop on the corner of California Avenue and Logan Square Boulevard. As always, the dealership has cleverly hidden ecstasy in an empty coffee cup, and Alex moved the "e" by SMS on mobile phone provider. When the transaction is complete, Alex escapes plan of the night.

As the merchant you enjoy your coffee, use your mobile phone with text money to a bank in the Cayman Islands, where the deposit easily get lost in the multitude of other small value transfers. After the transaction, the supplier with a sigh of relief because he knows hiccups it is safe. If a member of a rival gang tries to steal the money, he finds no sign of money. By the same token, if the police tried to apprehend him, pressing history "Operation to remove" function on your cell phone clear evidence that the software is downloaded from the network all the incriminating evidence has disappeared. In the absence of evidence of his crime, the authorities would be forced to stop going to the dealer.

KENYA-Press: August 7 Nairobi International. On the anniversary of the suicide bomb which killed over two hundred people at the U.S. embassy in Nairobi, another suicide bomber killed fifty-eight people rebuilt near U.S. Embassy in Kenya. At this stage, the authorities are unable to determine the identity of a terrorist group or this attack, but many believe is the work of al Qaeda. The agent FBI office and senior security officials in Kenya acknowledge that they have found the remains of an m-payment prepaid mobile phone in the rubble, but As these devices are not registered, the phone can be purchased anywhere, by anyone. In Kenya, as well as in other parts of Africa, the use of mobile pay phones and mobile devices such as miniature coin bank common. Critics have stressed that the m-payment, it is easier for terrorists to send and receive fund transfers via text messaging.

These scenarios show the warnings in March 2008 International Narcotics Control Report Drug Strategy (INCSR), entitled "Mobile Payments: A Growing Threat," which describes the potential use of the m-payments by money launderers criminals and terrorists.

What to pay? How it works It already has in other countries? How can money launderers, criminals and terrorists to exploit this technology to conceal their illegal activities? More importantly, what steps can the United States and other countries take to limit the abuse potential of m-payment?

"Some of the most innovative electronic payment products, including mobile payment m-payments … Driven by a remarkable convergence of telecommunications and global growth sectors Quick financial demands particular attention m-payments. M-payments can take many ways, but often the point of sale through the payment of a mobile device like a mobile phone, smartphone or personal digital assistant (PDA). "

-INCSR, March 2008

The wallet

M-payment (mobile payment) is synonymous with the term m-commerce, m-accounts m-wallet, m-banking, e-money, or digital cash. For purposes of this section, the most widely accepted term "mobile payment" will be used. The best way to see this technology may be exciting to imagine a time in your mobile phone or PDA will act as a portfolio. It will also be a portfolio that not only lets you withdraw money to pay for goods and services but also allows you to make money, which makes this device the currency more flexible and more useful a credit card. The widespread adoption of m-payments could eliminate the need for cash, visit an ATM, please send a transfer bank, or even use a credit card.

There are two platforms that facilitate the use of m-payments. The first allows your phone to access m-accounts as your bank account, credit cards, online payment service, or other financial institution. The second allows mobile phone companies to act as banks and allows customers to deposit and withdraw funds using their mobile accounts. Although this service is not currently available in the U.S., for payments already accepted and enjoyed a success in countries like Japan, Korea and the Philippines. M-payment technology is also beginning to develop in South Africa, Democratic Republic the Congo and Kenya.

Currently no special hardware is required to use for payments. A subscriber can surf the Internet Web service on the basis m-payment and then download the necessary software on almost any existing mobile phone. software uses technology from M-existing payment text messaging to send and receive funds, confirm payments and checks and balances of appropriations.

The virtual ATM

Imagine you go to a McDonalds (or almost all retailers) to buy lunch and then applied to the fund an additional 50 (or more) in cash. For a small fee, the McDonalds cashier is not only responsible for a hamburger-m customer account, sodas and chips, but also to call $ 50 in cash that he or she requested. Similar to debit cards, it is necessary to locate an ATM or to pay high bank charges.

Person to Person (PTP) Transfers

Person to Person (PTP) transfers are possible. For example, friends, family and individuals involved in commercial transactions others can transfer funds via their mobile phones. Parents can send their teenage daughter through the allocation of posts text. Wages, employers can send a text message to their employees' mobile phones. After winning an eBay auction, the buyer may pay the seller text. Or, an individual wandering in a yard sale to find the ancient beauty, he sought, but no money. In addition, the seller does not accept credit cards. The solution is simple: The buyer of the text messages directly into the mobile phone provider. The possibilities are endless.

Wire Transfers via mobile phone

The World Bank estimates that global remittances (money transfers) is more than a quarter of a billion per year. Increasingly, in many areas, the m-payments on a new option for expatriates and "guest workers" who want to send part of their wages home to support their families.

In the U.S., many migrant workers from Mexico and Central America and South America to use services transfer such as Western Union or Money Gram to send money to relatives abroad. In 2005, remittances to Mexico from the U.S. amounted to over 20 million dollars. Unfortunately, these electronic systems come with high fees, some banks and the beneficiaries are also responsible for transaction costs too. Moreover, in rural areas outside many people lack access to banks. Thanks to the m-payment, a migrant worker can literally text for messages pay its parent phone, thus avoiding the exorbitant prices charged by money transfer services and banks of origin.

Traveler Virtual Check

Another striking feature of the M-payment is that it allows a mobile phone to act as a check on a virtual tour. Before going on holiday with family, a subscriber can deposit money into the account from your mobile phone m-payment, then remove the funds, as needed during the trip. Consumers no longer need to purchase traveler's checks or travel with large amounts of money.

Less, or Touch and Go, Contract Mobile-

More beyond its use for text messaging to send and receive money, mobile phones can also be placed in the "contract-less" mode. To activate this function, a special chip can be attached or inserted into the phone. It is likely that future cell phones will come with this feature already built. When consumer wants to buy, he or she can simply drag a mobile device to a cash exploration and finalize the transaction. Slip "or" touch and go "function signatures or no data entry required in the box.

Pre-paid mobile phones and M-payment

low-income consumers or those with bad credit that would not be eligible for contracts phones credit cards each month or you can use mobile phones prepaid for mobile payments. These people can go prepaid cards operate monetary denominations ($ 50, $ 100, $ 250 or more) on a mobile phone for the device to be used as a virtual wallet. As in the previous examples, friends and family can also transfer funds to the pre-payment phone text messages as well.

Move potential distributors, bank transfer and credit cards?

Since the mobile payment account holders in other parts of the world, Americans will probably also take the convenience and savings rates of the virtual wallet. With the incessant proliferation of m-payment, one can argue that mobile payment services would be effective, the death of ATMs, transfer companies electronic and high rates of interest expense of credit cards. This prediction is based when considering that the U.S. contains about 250 million mobile subscribers, a number equal to 82 percent of the population, and more than three million mobile phones are now used worldwide. Plus these facts, the Wireless Association reported in 2007 in his studio in the industry and consumers to wirelessly send nearly one billion text messages worldwide each day.

Even more compelling is the convenience offered by this service. Given this technology, customers no longer have to find an ATM to withdraw money. The use of a PC can transfer funds from their bank accounts directly from their phone bills. When a migrant worker to send money to his family in abroad, he or she can simply cut the funds directly from your mobile phone in the phone of a parent. An individual no longer be drawn from Western Union to complete the transaction. In contrast to credit cards with high interest payments to service providers offer competitive rates, discounts or other incentives to attract new customers. Finally, one concern on the part of banks and bank transfer companies is that mobile phones already contributed to the disappearance phones, cameras and music retail stores.

PayPal makes a fundamental change in M-Payment

In a report published by Juniper Research, a respected consulting group that provides testing services to the global high-tech communication, principal analyst Alan Goode concluded that the entry of PayPal payment and retail m-micro-m, "will serve to facilitate a fundamental shift in global payment services for consumers, today and in the future. "He predicted that Goode" mobile payments should increase by 10 billion dollars in total revenues by 2010. "

Other players who have already entered the market for Google G-payments include Pay Firehorn Holdings, LLC, mFoundry Inc., and Obopay, Inc. is the largest provider of PayPal over 100 million Internet accounts worldwide.

"There is no money laundering and many implications for the financing of terrorism [m-payments] smurfing but the numerical value represents a clear threat. "

-INCSR, March 2008

Smurfing

The dark side of m-payment, if the service is not yet regulated to allow money launderers, criminals and terrorists to exploit this new technology. In particular, this new technology undoubtedly smurfing.

It is common knowledge that the smart money launderers, criminals and terrorists have been always willing to keep their financial transactions under $ 1,000 per day to avoid financial reporting requirements. One way to hide money is to use multiple "Smurf" or "runners" to make deposits, purchase orders, travelers checks, or other illegal operations or "dirty" money. Smurfing can achieve the spread of drug names small payments or contributions to the causes of terrorism, through various health clubs or several bank accounts. In essence, it breaks smurfing illicit entry of small amounts that can be moved with less risk of attracting the attention of the authorities.

For example, a drug dealer or terrorist can order a dozen different soldiers, or "The Smurfs" to open ten different bank accounts, or to carry out ten different financial transactions per day. After the accounts are opened, the drug dealer or terrorist command of their Smurfs to deposit amounts under $ 999 per day for example, $ 756, one day, $ 922 a day, and so on. By ensuring that bank deposits or other financial transactions below the $ 1,000 threshold, they can avoid the suspicion and prevent the activation of financial obligations. In this example, ten different Smurfs with ten different bank accounts that average $ 850 per day may whiten 2.21 million dollars per year.

More sophisticated detection systems, surveillance and increased government harsher penalties slowed the practice of "smurfing" In recent years, this system remains a fundamental method to move cash and cash equivalents.

Smurfing numeric (SVR)

M-payment with a numeric value removes the element of money laundering: cash. In the future, money launderers, drug traffickers and other criminals in cash, "the will demand more for their products or services, but rather, require digital payment sent by text message. With a numeric value, multiple Smurfs is no longer necessary suspicious cash deposit. Criminals will be able to bypass regulated banks and their financial reporting obligations and the exchange of black money from the numerical value in the form of stored value cards or credit card payment Mobile. In addition, a numeric value instead of cash, can send instant pressing a single key on a cell phone, its numerical value across the country, the whole world, or in secret bank accounts in the sea.

A numerical value Only Smurf (SVR) could open multiple accounts with multiple providers of mobile payment services, such as payment-m bank accounts, payment accounts Internet and prepaid mobile phones. Other possibilities could include the rental of cellular phones from others, or use of false identities to open additional accounts. The number of accounts for payment of DVS m only able to establish is unlimited. So, using the same example above, DEP simple payment accounts with only ten different m-probably blanch the same amount of money being different to do Smurfs ten o'clock.

Others findings: the facilitation of tax avoidance for small businesses

M-payment technology can facilitate tax evasion. Three thousand million people worldwide own a mobile phone, but only one billion bank accounts, according to the GSM Association. BearingPoint, a consulting firm important management technology, estimated that the unbanked market in the United States only 510 billion U.S. dollars in 2006.

The rule fundamental in accounting for small businesses is that all transactions are made by a financial company to verify the account provided by banks. For example, when a sole proprietorship, partnership or corporation does business, it does so by using a business checking account. As required by law, banks use the knowledge of Customer (KYC) protocols calling for the identification of new customers and demonstrate the business entity (assumed name registration, operating permits and regulations).

With an account for payments, however, the small business owner can do business almost under the radar. Instead of the deposits of enterprises, society can receive payments electronically. Moreover, instead of paying fees through your business checking account, the company can payments via m-payments. A lack of records written, the owner of a small business unbanked could easily avoid the submission of income tax requirements, thus depriving U.S. Treasury billions of dollars in tax revenue.

"Much of the work and creative thinking will be needed to maintain the benefits [MNP new payment] methods, including mobile payments offer, while both preventing exploitation and abuse by money launderers and financiers of terrorism, while protecting user privacy and integrity of financial systems worldwide. "

-INCSR, March 2008

M-payment is revolutionary, mainly because of its convenience. This technology literally change the way consumers pay for goods and services, how they are compensated, how to save money, how they spend, and how to send money to relatives and friends abroad. This service will create new industries and new opportunities. M-payment is as radical as that may represent the last piece of the financial puzzle that moves our world into a cashless society.

With the convenience provide for payments, however, between the potential for criminal abuse. M-payment technology, if not controlled, can be exploited by money launderers and terrorists. Today United States is not prepared to manage the dark side of m-payments. As recognized INCSR, "The U.S. has few safeguards against abuse of m-payments." Furthermore, The report also warns that the accountability is only applicable federal government to providers of stored value cards is the report of the transactions Currency (CTR) of the rule. A CTR must be filed for all cash transactions over $ 10,000 per day. But CTR can be filed until after fifteen days the transaction occurred, what the terrorists and criminals enough time to disappear. While nearly all U.S. suppliers of m-payment services are recorded as companies money services (MSB) with the Financial Crimes Enforcement Network (FinCEN), the Regulation contains no specific provisions that affect them.

The new legislation is necessary to regulate service providers for payments. Legislation may include a requirement that providers of services to monitor the accounts, improve reporting suspicious activities call for the maximum limits of transactions (for example, $ 1,000.00 per day), may require phone registration prepaid cell m-payments and development of new software for specific payments for suspicious activity.

With m payment would increase to 52 percent by 2011, enough time to take the necessary precautions and regulations in place to combat the threat to the fight against money laundering.

H. Paul Leyva, JD, Consultant, AML Certificate (CMCA) and a student at Thomas Jefferson School of Law, Walter H. & B. Diamond Dorothy, a Master of Laws (LL.M.) International Tax Program. At the request of the distributor, this article has been published without footnotes or references. Version original of this report with all notes and references is available upon request.

About the Author

H. Paul Leyva is a Certified Anti-Money Laundering Consultant (CAMC) and currently a law student at Thomas Jefferson School of Law, Masters of Law (LLM) Diamond International Tax Program.

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