Mobile Payments–A Growing Threat

In the United States and around the world, law enforcement continues to struggle with the many low-tech but highly effective ways criminals launder money and finance terrorism. Over the last several years, the INCSR Volume II has brought attention to some of these methods and has chronicled progress in developing countermeasures. Two prominent examples are bulk cash smuggling and trade-based money laundering. Unfortunately, while fighting the twin threats of money laundering and terrorist financing, we are also witnessing a plethora of new, high-tech value transfer systems that can be abused. Some of the most innovative are electronic payment products. FATF calls them “new payment methods” or NPMs. They are also sometimes called “e-money” or “digital cash.” Examples include Internet payment services, prepaid calling and credit cards, digital precious metals, electronic purses, and mobile payments or “m-payments.” Driven by a remarkable convergence of the financial and telecommunications sectors, the rapid global growth of m-payments demands particular attention. M-payments can take many forms but are commonly point of sale payments made through a mobile device such as a cellular phone, a smart phone, or a personal digital assistant (PDA).

Worldwide, there are fewer than one billion bank accounts, but approximately three billion cell phones. In developing countries and often cash based societies in South Asia, Latin America, and Africa, mobile communications proliferate, leapfrogging old landline technology. At the same time, there is a growing worldwide trend away from paper and towards electronic payments. It is only logical that the startling advances in communications are followed by innovations in m-payments. There are already indications that money launderers and those that finance terrorism will avail themselves of the new m-payment systems. Responsible jurisdictions must find a balance between the expediency of m-payments, particularly in the developing world, and the need to guard against abuse.