Money Laundering Using New Payment Methods

Electronic money (E-money) is a new tool, which is a consequence of the development of new technologies. The main goal of E-money is to simplify the process of implementation of small payments for the population as much as possible and to increase the availability of financial services in general. Nevertheless, experts are trying to understand what risks in the sphere of AML/CFT are relevant to electronic money. In turn, the answer to this question may indicate the possible prospects of development of the sector.

At the moment the most important task is to consider whether the traditionally characteristic risks of non-cash and especially cash payments may be applicable to the sphere of E-money. In turn, solution of the problem will require an understanding of the specifics of electronic payments, their legislative regulation, and no less important, the factual state of affairs in this sector.

We invite you to discuss the risks you see, the possibilities of their minimization and the way these problems are solved in your countries.

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Total comments: 2

22:28 25.10.2011 - posted by Viktor
The summer of 2011 became a turning point for E-Money business in Russia. Adoption of the Law “On the National Payment System” led to the introduction of the term ‘E-money’ and built the basis for further development of the sector. Yet, there is still a lot of work to be done. The practitioners are to understand how to ensure compliance. The regulators will need to adjust by-laws in order to make them fully compatible with new federal legislation. There are issues that are yet unclear: the clarification is still ongoing. We, of course, can discuss certain norms of the 161-FZ in depth here, but as a moderator I would like to ask another question first. Does new regulation for E-Money calls for the analysis of how existing AML/FT legislation works? Are those two corresponding matters or they should be considered in isolation? And, finally, what is your country experience - how AML/FT affects overall E-Money (or any NPM) regulation and vice versa?

18:45 10.05.2011 - posted by Michael Mamuta
I would like to add several comments on the risks of electronic money, and then separately – non-fiat money. Victor pointed to a qualitatively important moment - electronic money replace cash, but not non-cash money. Therefore, people will use them, only if it is not too burdensome for them (read - convenient). A reasonable limit for unidentified payments is absolutely justified - you will not pay for the bread in a shop showing the passport. Therefore tightening of the rules of above mentioned limit would not lead to the disappearance of the problem (money laundering or financing of terrorism), but to its moving to another even less controlled sphere. You need to find a balance between accessibility of financial services and their security based on economic feasibility. And it can not be the same in different countries; it is rather a matter of national regulators. Certainly, the risks of non-fiat money are worst of all amenable to control by the classical means of combating money laundering due to the lack of formal supervision. But, first of all, if you wish, you can implement the regulation of on-fiat money – as a whole it will be just another monetary model. Secondly, there are always entry and exit points, then the problem of direct and reverse conversion of fiat money in non-fiat one and vice versa appears (in P2P transfers as well as in settlements with suppliers). Actually, we should first of all think about the control of points of conversion in order to make this risk understandable and manageable. Of course, there are a large number of goods and services, which can be purchased with non-fiat money. However, there are also moments of monetization of these means – so it is necessary to think over the adequate control of the identification of "large "purchases through the Internet and other remote interfaces regardless means of payment. In addition, non-fiat money also leave transactional track, which can be traced over for a long period of time - which means that their movement is quite transparent and can be monitored easily than the turnover of cash. In general it seems that the issue is broader and includes not only the problem of non-fiat money - what to do with quasi-money payment instruments? By the highest standards, it is almost always possible to implement certain non-monetary obligations in the legal field of movement, which may serve as a means of settlement. It seems that the question should be not only considered in the field of AML/CFT, but also in other legal competencies including administrative and criminal law. The problem with the various jurisdictions apparently requires certain agreements at the international level including the FATF. Using the method of analogy we may say that there must be an agreement on the activities in respect of transactions, which by their characteristic signs and essence perform as cash payments or transfers, but by their form don’t.

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