Annex 2: Managing ML/FT Risks of Low-Risk Products: The Example of Branchless Banking
Many banks have offered mobile phone banking services for some time. These services generally supported the use of bank accounts that were opened in the traditional manner, after contact with a representative of a bank. However, recently a number of countries allowed limited financial services, especially banking services, where accounts are opened and activated via a mobile phone, without personal contact with the bank or a representative of the bank.1 Porteous classifies the former as “additive” mobile banking, and mobile phone banking account origination that can extend financial services to the unbanked as “transformational” mobile banking.2 Transformational mobile financial services present a powerful channel to broaden financial access, especially in countries with large territories and sparse populations that cannot support traditional branch-based banking.3 It can therefore be used to increase the footprint of a country’s AML/CFT system and to formalize transactions currently concluded informally in cash. However, several features of mobile phone banking can also lead to criminal abuse. A World Bank paper4 identified the following potential vulnerabilities: • Anonymity: the risk of not knowing a customer’s actual identity • Elusiveness: the ability to disguise mobile transaction totals, origins, and destinations • Rapidity: the speed with which illicit transactions can occur • Poor regulatory and supervisory oversight: the risk that the lack of clarity about the role and responsibilities of telecommmunications and financial regulators diminishes the quality of oversight The paper advises a service-based rather than a provider-based approach when assessing actual money laundering and terror financing risks for mobile financial 179