Challenges Associated with the Technology for Banking Services
(Published in the Financial Express in January 2019)
Dr. Shah Md Ahsan Habib
As a whole, the technology driven payments and the services brought in several macro and micro benefits. The products and services allowed firms, individuals, government and other economic agents to transfer money on a daily basis without having to use cash. Retail payments are becoming increasingly more prevalent in today’s economy, as the dynamic digital innovation has brought with new mobile and online payment solutions and products. Meanwhile, international efforts continue to appear for promoting universal access to and use of financial services in an attempt to reduce poverty and improve opportunities and living standards for people that do not use such services. As a result of this interaction between an intensive agenda focused on promoting financial inclusion and the greater presence and participation of retail payments in economic activity, the latter represent a highly potential instrument for fostering financial inclusion as individuals and firms interact in the economy via the payments they make to each other through different instruments and channels. Mobile money has established itself as a critical tool for facilitating international remittances, while reducing remittance costs and maximizing the impact of remittances on development. Because of its reach and growing use among underserved people, mobile money is uniquely positioned to transform formal remittance markets and to advance financial inclusion. In 2017, mobile payment was used for international transfers in 51 of the 92 countries where the service is available. Internet-based payment providers are also getting involved. These companies have global reach and substantial experience in the remittance business, bringing additional expertise and robust compliance systems to the table. The services brought notable changes in the payment arrangement in the form of increasing speed, reducing cost, and improving convenience.
Alongside offering remarkable benefits, these growing number and types of technology driven payment methods raise concerns about crimes because criminals can take advantage of these tool swiftly and exploit the system to attain their unlawful and illicit agendas. While the benefits of technology based payment systems are clear, the risks are somewhat less perceptible and vary based on a financial institution’s connections to products and services. The risk common to all, however, is the one presented by a lack of face-to-face interaction with the customer. Technology is bringing up convenience both for the customers and criminals. The electronic payment has accelerated the money circulation speed, and has brought the enormous ease for the trading activities; however, the new payment’s features such as invisible, high speed, concealment and so on have presented the enormous challenge to the anti-money laundering efforts and arrangements. Referring to new payment products and services, the FATF states, ‘the absence of face to face contact may indicate a higher money laundering risk situation’ and ‘an absence of Customer Due Diligence (CDD) increases the difficulty for the service provider to identify suspicious activity.’ With each passing year, non-face-to-face interaction risk continues to heighten for banks and financial institutions as the shift toward online and mobile banking steadily increases. Criminals are rapidly embracing new products and technologies in order to further their schemes and launder their illicitly derived funds.
Risks of mobile payment might stem from four major risk categories: anonymity, elusiveness, rapidity, and poor oversight. A study by the Association of Certified Fraud Examiners notes, financial criminals continue to abuse different payment systems by committing fraud, money laundering, and other crimes, and added despite hefty fines imposed by regulators on prominent banks and financial institutions, criminal monies continue to flow through banks and payment operators. E-commerce payments are quickly gaining popularity, and this growth creates huge opportunities for cyber criminals to abuse the legitimate payments ecosystem. Transaction Laundering has now been recognized as a massive problem throughout the payments ecosystem, and regulators are taking notice and taking action. The evolution of e-commerce and mobile payments has enabled money laundering to reach at a unattainable level that became popular with the title ‘transaction laundering’- occurs when an undisclosed business uses an approved merchant’s payment credentials to process payments for another undisclosed store selling unknown products and services. Transaction laundering, also known as credit-card laundering, is a serious problem for the payments industry.
This advanced, merchant-based fraud scheme takes advantage of legitimate payment ecosystems by funneling unknown e-commerce transactions through legitimate merchant accounts. Valid websites act as payment processing storefronts for criminal enterprises selling firearms, illicit drugs, child pornography and other illegal goods. Merchant Service Providers can unknowingly facilitate money laundering or end up processing payments and expose themselves to financial and legal liability, penalties from the credit card companies and severe reputational damage. Transaction laundering through online sales of products and services are the criminals in question are not just drug dealers, human traffickers or illicit weapons vendors. Digital payment systems laundering often involves the use of micro-laundering techniques where multiple, small payments are made so laundering limits do not trigger. Digital payment systems were most effective when combined with other digital resources that helped hiding the money trail and confuses law enforcement and financial regulators. There are evidences that a significant portion of cyber criminals have exploited the globally reputed and big online and money transfer service providers.
Some of the internet’s biggest marketplaces are being exploited by money launderers by using their online payment systems. A number of recent reports have highlighted that social media is increasingly being used to recruit young people as money mules. Social media is increasingly being used to recruit unwitting mules through offers of ‘make money quick’ schemes or fake job offers. WhatsApp is a known communication method used by criminals to contact would-be victims. Another aspect of P2P is direct communication and the growth of instant messaging apps is nothing short of remarkable. These apps have quickly gone from simply sending text and images to offering a full buffet of services, including payment functions. All these accounts and transactions make for another target for money launderers. Gift cards are big business today. There are reports that fraudsters copied the serial numbers of the cards, scratched off the security code and then covered them up. Then, when the card is activated, they then can access the funds on the card.
Relatively recent area of technology driven product is the crypto-currencies – like Bitcoin that are bringing up a variety of cybercrimes. The main instigator of their popularity among cybercriminals is that they are straightforward to use, relatively anonymous, and their use is unimpeded by borders or legislation. Steadily, Bitcoin has proven itself to be a vital part of the criminal enterprises. Recently, criminals start to embrace bit coin as a partner in their cash-out strategy and launder money aided by Bitcoin. On the way to attain the objective of money laundering, crypto- currency like Bitcoin mixing services aim to disassociate bit coins from their criminal source, and exchange services are services that aim to anonymously convert bit coins to spendable money. Bitcoin mixing services are also called laundering, tumbling’, or cleaning services. It is claimed that when individuals successfully use a Bitcoin mixer and subsequently an underground bit coin exchange, only mistakes will leave sparse traces to your true identity or the fruits of your crime. Crypto currencies may offer, at least theoretically, a near-perfect alternative to tax-evaders who can no longer find a safe haven in tax-haven jurisdictions.
Form the regulatory perspective, generally, crypto currencies is in a sort of twilight zone. In many countries, bit coins are not banned, nor regulated. In some instances, mainstream bit coin exchanges are lobbying to become regulated. The degree to which banning or regulating would have any effect on the facilitating role currently plays in the criminal enterprise, has yet to be determined.
 Professor and Director (Training), BIBM.