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Financial crime risks in mobile money services

Lurking danger: Mobile money is convenient but the risks are present PIC: KENNEDY RAMOKONE
The world over, financial inclusion has become a topic embedded in every country’s economy.

Financial inclusion, described as the ability to deliver financial products and services in an accountable and maintainable way that encounters the demands and needs of the customers in an affordable and useful manner and allowing for timeless access, is held in high regard by the World Bank, which has acknowledged it as “the key enabler to reducing poverty and boosting prosperity”.

The recognition and the need for financial inclusion has therefore led to an increase in the demand to market and reach out to the unbanked customers.

The high cost maintenance of bank accounts, and the failure to fulfil some of the Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) requirements enforced by financial institutions, however, have been labelled as some of the limitations to achieving complete financial inclusion. Some customers for example, cannot afford bank accounts or fulfil some of the Know Your Customer (KYC) requirements, hence opting for cash payments instead.

To close the financial inclusions gap, mobile network operators have found a way to reach the unbanked in a cost effective and easily accessible manner.  We continue to see an increase in Mobile Money Services across the world in many markets. Mobile Money Service allows customers to use mobile phones to access financial services through mobile technology.

Customers can send and receive money from another person or to pay for goods and services without having a bank account. The service is widely accessible with cash deposits and cash withdrawals (cash out) being made available across a variety of retail outlets such as mobile network agents, pharmacies and supermarkets.

Given its wide and easy accessibility, mobile money services can prove to be a game changer in reaching the unbaked customers. Almost everyone can afford a mobile phone and SIM card, as evidenced by the rapidly growing mobile penetration in Africa and the rest of the world. It is therefore fitting to celebrate mobile money service as a launch pad into the formal financial services for many unbanked customers in emerging markets.

Just like in any other financial services vehicles, mobile money has financial crimes risks associated with it. It is therefore imperative that as the use of mobile money service gains traction, all players in the ecosystem ensure compliance with the regulatory requirements to fight against money laundering and terrorist financing.

The most important obligation by Mobile Network Operators as one of the ways to reduce the risk of money laundering and financing of terrorism is to require

identity documents (copy of Omang/passport) and the registration of physical address (proof of address) prior to the activation or purchase of SIM cards.

Meeting the regulatory requirements makes the transactions less anonymous, as they can be linked to a mobile number which can disclose the sender’s and receiver’s mobile numbers, amount and date the transaction occurred (recordable and traceable).

The financial crime risks associated with mobile money services, which make them vulnerable to money launderers and terrorist financiers are:

The ability to register multiple SIM cards by criminals to hide the true value of deposits.

The ability to perform multiple transactions to confuse the money trail and true origin of funds. Transactions occur in real time, making little time to stop it if suspicion of terrorist financing or money laundering.

Criminal money can be moved through the system rapidly and withdrawn from another account. Money Launders can use merchants, agents, intermediaries and retail partners to front for the laundering of proceeds of crime. As such, people can falsify records, ignore suspicions transactions that may otherwise be reported, or simply be a point of weakness where they do not perform their roles in a diligent manner. Mobile Money Service can prevent the above risk by:

Customer profiling, which includes registration information (name and address location)

Limiting the amount of money, balance, frequency and number of transactions to be concluded on a daily or monthly basis.

Performing real-time monitoring and frequency restrictions on suspicious transactions  Restrictions on transaction amount and total account turnover in a given period

Training and awareness are key to mobile money service operators. Merchants care about the feasibility of their business, so knowledge of how crime can hurt their businesses, will reduce their likelihood to partner with money launderers and terrorist financiers. Furthermore, enhanced initial and ongoing due diligence and monitoring for compliance with obligations. For instance, mobile operators can assess compliance and integrity of their agents using ‘spot checkers’ that test agents.

Given these potential risks it is therefore highly recommended that mobile operators who provide mobile money services have an AML/CFT unit responsible for training frontline staff of agents and retail partners and aid with monitoring of that training. The AML/CFT unit would have to monitor activity on an agent location basis, and can also identify unusual activity to investigate and take corrective action by reporting suspicious transactions to the Financial Intelligence Agency.


*Lesego Kgalemang is a Financial Crime Risk Analyst with the First National Bank Botswana

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