Prepaid cards and mobile payments, or “M-payments,” are replacing traditional banking services and money transfer services, which have historically charged high fees for small transfers. The pitfalls for law enforcement and financial services are many – chief among them are the potential risks related to money laundering and terrorism financing.
These easily loaded and transported cards are convenient, but can be abused for illicit purposes. Bankers are now asking themselves if they have the proper controls to manage the risks of M-payments. With the increasing utilization of alternative payment methods, financial institutions need to provide convenient services while protecting their reputation.
At a recent forum on terrorism financing and money laundering, John Cassara, Former Senior Special Agent, US Department of the Treasury, and Dennis M. Lormel, President and CEO, DML Associates LLC and former Special Agent of the FBI, gave two ideas that law enforcement, government and banks could use to come together on to disrupt and prevent the flow of terrorist funding.
John Cassara: It’s high time for the US government to designate prepaid cards as a monetary instrument for purposes of cross-border currency reporting. Right now, you can take a whole lot of value out of the country in the form of prepaid cards - above the $10,000 reporting threshold - and there is nothing we can do. It’s time we stopped that.
Dennis Lormel: I would like to see M-payments handled by banks. That gives me – as an investigator – a footprint, something I can go to tangibly to get evidence to help us monitor transactions and track funds back to the network. Then, if an attack was imminent and [the traffickers] were sending money through the bank, investigators could work with the bank to expand the network and find evidence more quickly. Banking the M-payments gives us leverage to know who the people are.
The one element we don’t talk about here is the regulators. There is a need to have regulators and law enforcement at the table with the banks to work out how to handle the issue of M-payments.
Cassara: We’re on the threshold of a new era of banking and finance. We’re going to have to be nimble. Law enforcement, regulators, industry – we’re all going to have to sit down together and come up with new definitions of what money and value actually is. I couldn’t tell you right now that we should do this or we shouldn’t do that. We need to get a lot of very smart people in the room and have that discussion. Congress definitely has to get involved.
Lormel: I started speaking about the movement away from cash three years ago. I said we needed to be getting ahead of that; we needed to be planning for it. We needed to go to Congress for regulation; be proactive. What’s going to happen and what has happened is that we are waiting, and the bad guys are taking advantage of the situation. So by the time we catch up to them; unfortunately, we’ll have some good case studies to follow.
Cassara: It’s not only the question of what is money, but what is a bank in the future? Today there are approximately 1.5 billion people who use banks. There are approximately 5 billion people who use cell phones, and these are increasingly used to send and receive – transfer money and value. Basically, people have banks in their cell phones. This is whole ‘nother field that is coming at us.
Lormel: Compound that with those who are using anonymous cell phones – law enforcement is further hampered in its ability to trace them.
Don’t let this conversation dismay you. Both Lormel and Cassara agreed that law enforcement, government and industry are on the front lines of disrupting and preventing terrorist funding. They believe that stopping the flow of funds prevents events like 9/11 and the 2010 Times Square bombing attempt. Their advice? Continue gathering information and working together. Keep innovating.