New payment methods (NPMs) such as prepaid cards, Internet-Based Payment Services and mobile payment systems, have made financial transactions faster and simpler (Ana L. Pereira and Ana Maria H. de Alba, “Understanding the new payment methods, their risks, and opportunities”,Assessed 24/1/2020). However their introduction and widespread use has also resulted in a range of problems, foremost among which is the ease of money laundering. Direct and indirect anonymity, the fact that these products have made it easier to exchange financial instruments for money, and the spread of ATMs, which facilitate cash withdrawals across the globe, have made NPMs attractive and useful to money launderers. In response, international organizations (UNODC WEBSITE, Assessed 23/12/2019) have increased their efforts to tackle money laundering worldwide, by introducing measures to eliminate gaps in the regulations and to confront the use of NPMs for unlawful purposes:
(i) In 1996-7, the FATF, an intergovernmental organization that designs and promotes policies and standards to combat money laundering and terrorism financing conducted the first investigation into the growth and the issues associated with NPMs by issuing a report on this matter. At that period, the internet was still developing and the risks were viewed as theoretical rather than actual, but when FATF produced a second report a decade later, this was no longer the case.The “Report on New Payment Methods” focussed on the ways in which money could be laundered by taking advantage of the new technologies. In terms of recommendations, this report concluded that it was essential to monitor how emerging technological changes affected cross-border frameworks and their national counterparts. FATF published another report in 2010 – “Money Laundering Using New Payment Methods”, which listed a series of warning signs of suspicious activity
“Guidance for a Risk-Based Approach to Prepaid Cards, Mobile Payments and Internet-Based Payment Services” was published in 2013. By this time, the FATF had created guidelines for the private sector and countries on how using a risk-based approach would facilitate putting AML/CFT measures into practice. In addition, the guidelines offered recommendations on issuing electronic money, in relation to Internet-based payment systems.
(ii) The 5th Anti-Money Laundering Directive, strips electronic money products (prepaid cards) of their anonymity, particularly when these are used online. Member States can now only permit the anonymous use of electronic money products in two specific circumstances: (1) if a customer uses a prepaid instrument -such as a card – directly in to the retail shops, with the maximum transaction amount dropping to €I50 – the 4AMLD limit was €250; (2)if a customer’s online transaction does not exceed €50. Any anonymous prepaid card which has been issued outside the Union can now only be used within the Union if it complies with the requirements which mirror those set out in Union law. (DIRECTIVE (EU) 2018/843 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU,Assessed 21/1/2020)
(iii) Also the EU DIRECTIVE Payment Services Directive 2 – (PSD2: “What It Is And Why It Matters”, Assessed 26/1/2020,) introduced the Secure Customer Authentication: SCA is the primary PSD2 AML and CFT mechanism, and stipulates that customer identification must now use the robust “two-factor identification” approach for virtually every electronic payment. The two-factor identification process requires verification by at least two of the following three sources of identification whenever electronic payments are being made:
- Knowledge: Customers mustpresent a form of knowledge, for example a password or PIN number.
- Possession: Customers can establish their identity with a physical payment object, such as a payment card or a mobile phone – the latter in relation to mobile wallet payments.
- Biometric: Customers can use biometric data to verify their payment – for example, a fingerprint or voice ID
In my view, further measures that can be taken by financial services firms to prevent and detect money laundering should be based on using of Artificial Intelligence (AI). Artificial intelligence is capable of fast, large-scale information processing, which will significantly help AML teams to keep one step ahead of money launderers by tracking and assessing new products and technologies , and evaluate how these can be used and whether they present potential risks, and identify signs of fraudulent activity – for example, abnormally large money transfers to an unidentified account, customer Identification issues and detection of the use of a laundering route. AI is capable of correlating data in ways which humans could overlook, and of providing more detailed and perceptive findings than those which have been available to date. Financial services should embrace this new weapon in the war against money laundering.
