M-payment: a Threat to Anti-money Laundering
Phones
Beyond their use for text messaging to send and receive funds, mobile phones can also be placed in “contract-less” mode. To activate this feature, a special chip can be attached to or inserted into the phone. It is likely that future cell phones will come with this feature already built into it. When a consumer wishes to make a purchase, he or she can simply “swipe” a mobile phone over a cashier’s scanning device and complete the transaction. With the “swipe” or “touch and go” feature, no signature or additional data entry is necessary at the cash register.
Pre-Paid Mobile Phones and M-Payment
Low-income consumers or those with poor credit who would not be eligible for monthly phone contracts or credit cards can use pre-paid mobile phones to conduct m-payments. These individuals can load pre-paid cards holding various monetary denominations (, 0, 0, or more) onto a mobile phone to enable the device to be used as a virtual wallet. As in previous examples, friends and family can also transfer funds to the pre-paid phone via text message as well.
Potential Displacement of ATMs, Wire Transfer Companies, and Credit Cards?
As with m-payment accounts holders in other parts of the world, Americans will undoubtedly also embrace the convenience and cost savings of this virtual wallet. With the continued proliferation of m-payment technology, it may be argued that m-payment services could actually result in the death of ATM machines, wire transfer companies, and high interest rate credit card fees. This prediction is well-founded when one considers that the United States contains approximately 250 million mobile phone subscribers—a number equal to 82 percent of the population—and over three billion mobile phones are currently in use worldwide. In addition to these facts, The Wireless Association reported in its 2007 Wireless Industry Survey that consumers send almost one billion text messages each day worldwide.
Even more compelling is the convenience offered by this service. Given this technology, customers no longer have to locate an ATM machine in order to withdraw money. Using a PC, they can transfer funds from their bank accounts directly to their mobile phone accounts. When a migrant worker needs to send money to his family abroad, he or she can merely speed-dial the funds directly from his mobile phone to a relative’s phone. An individual will no longer need to drive to the local Western Union outlet to complete the transaction. In contrast to high interest credit cards, m-payment service providers will offer competitive rates, discounts, or other incentives to attract new customers. Finally, another cause for concern on the part of banks and wire transfer companies is the fact that mobile phones have already contributed to the demise of pay phones, cameras, and retail music stores.
PayPal Facilitates a Fundamental Shift in M-Payment
In a report published by Juniper Research, a respected consultancy group that provides analytical services to the global hi-tech communications sector, Senior Analyst Alan Goode concluded that the entry of PayPal into the micro m-payment and m-retail sector, “will only serve to facilitate a fundamental shift in global consumer payment services now and into the future.” Moreover, Goode predicts that “mobile payments are set to rise to billion in total revenue by 2010.”
Other players that have already entered the m-payment market include Google’s G-Pay, Firehorn Holdings, LLC, mFoundry Inc, and Obopay, Inc. The largest provider is PayPal with more than 100 million Internet accounts worldwide.
“There are numerous money laundering and terrorism financing implications [of m-payments], but digital value smurfing represents a very clear threat.”
-INCSR, March, 2008
Smurfing
The dark side of m-payment, if the service remains unregulated, will enable money launderers, criminals, and terrorists to exploit this new technology. In specific, this new technology will undoubtedly facilitate smurfing.
It is generally known that astute money launderers, criminals, and terrorists have always been willing to keep their financial transactions under ,000 per day to avoid financial reporting requirements. One way to hide money is by using multiple “smurfs” or “runners” to make deposits, purchase money orders, traveler’s checks, or other transactions involving illicit or “dirty” money. Smurfing can be accomplished by spreading small denomination drug payments, or contributions to terrorist causes, across various remittance centers or multiple bank accounts. In essence, smurfing breaks down illegal proceeds into small amounts