In her article last week ’Soon on your mobile phone- money transfers to al Qaeda,’ Rachel Ehrenfeld quite rightly points out the danger that money transfers through mobile phones pose as a simple and relatively uncontrollable way through which terrorists and their supporters can move money around the world.
It is indeed ’a terrorist dream comes true,’ as Rachel writes. In the same way as the Internet has unintentionally created an easy-to-use and relatively secure infrastructure for terrorist groups to publish their propaganda, recruit new members, carry out training, send operational instructions, and broadcast gory videos of victims being ’executed,’ today’s cool modern technology has also unintentionally created new infrastructures for terrorists and criminals to transfer money, while making it more difficult to track the flow of funds.
The reality is that while the US Administration is upsetting the European Union and Switzerland by tapping into the data stream from SWIFT, hopefully with some worthwhile intelligence results, FinCEN and the other financial intelligence units around the world don’t yet have straightforward ways to gather intelligence from the many new forms of money transfer that the Internet age has provided. Mobile phones are only one. Pre-loaded plastic value cards, where a user can pay cash to load up the card with money in one location, and give it to someone else to draw cash in another location (or, for that matter, pre-paid dialling cards for telephone usage, which are as good as cash), are another. Internet payment systems, especially popular among the tens of millions of on-line gamblers, are a third. All of them make it easy for people to transfer money from country to country without either side being properly identified, a condition which lies at the very heart of counter-terror finance and anti-money laundering efforts.
The whole international AML/CTF regime is based on a set of recommendations created by the Paris-based Financial Action Task Force, which is effectively the world’s super-regulator: forty recommendations deal with AML; nine Special Recommendations deal with CTF. All these recommendations, together with regular studies carried out by FATF into how money launderers and terror financiers actually work, are then translated into national laws and regulations all over the world. Among other things, banks and other financial institutions are obliged to carry out ’Know Your Customer’ checks, to do positive identifications of the senders of electronic transfers to their own customers, and to report on unusual and suspicious transactions to their national Financial Intelligence Units. The institutions, on the whole, comply with the regulations, and those that are caught not complying face fines and reputation loss. The system is actually totally counterproductive, because banks are all so afraid of being non-compliant that they file masses of irrelevant suspicious transaction reports, enough to swamp the FIUs with paper and ensure they can’t even prioritise which reports ought to be investigated.
But that problem is for another article. The problem is that our 21st-century high-tech start-ups have inadvertently created a parallel new global financial system that is mainly unregulated. It’s true that the largest money transfer companies, Western Union and PayPal, and many of the smaller ones, do take compliance seriously. But they are the exception: indeed, it is likely that some of the Internet- and mobile-based financial institutions, and especially the on-line gambling services that in practice act as banks too, are interested in attracting users who would rather remain invisible to the authorities.
And where have the international and national regulators been? Asleep at their guard posts. I hope that some alert and well-informed reader will tell me that I’m wrong, but I haven’t yet seen any serious attempt by the regulators to tackle the massive problem by new forms of money. I don’t mean public speeches pointing out that there are new types of electronic money, but actual regulatory action. The financial regulators must analyse and understand what the risks are; they must quickly find ways to force the service providers to carry out KYC procedures that are more than just window-dressing; and if necessary they must block the introduction of new payment services until reasonable solutions are found. Will this cause inconvenience to the public? Certainly, but probably less inconvenience than the results of a successful terror attack like 3/11 in Madrid or 7/7 in London. And the regulators shouldn’t try to make the excuse that the sums involved in most potential transfers by mobile phone or plastic card are insignificant. As Rachel pointed out in her most recent piece here, ’The U.S. Failure to Stop Terror Financing,’ the cost of the attacks on London’s public transport system were only $2,000, a sum that could in the future be moved with a few unnoticeable SMS messages.
Comments