Mobile Banking And The Threat Of Money Laundering
blurb:isstoday:280708mobilebank
28 July 2008: Mobile Banking And The Threat Of Money Laundering
About 16 million South Africans currently do not have access to banking services.These people are the target market of a small company called Wizzit, a cellphone-based banking facility started by CEO Brian Richardson and Wizzit chairperson Charles Rowlinson in 2004. Wizzit’s approach is different in that it does not require its clients to hold a pre-existing account with any major bank, only a functioning mobile phone. Because it operates on any phone, sim card and network, whether contract or prepaid, it is perfectly adapted to those living in rural areas without easy access to banks. While this is advantageous to users, it also opens avenues for exploitation by criminals, looking to turn dirty money into virtual money with a legitimate veneer.
Wizzit is not a uniquely South African phenomenon. In addition to Wizzit and MTN in South Africa, M-Pesa provides mobile financial services in Kenya; Orange Money does the same in Cote d’Ivoire;Orascom in Algeria, Tunisia, Egypt and Zimbabwe;Celpay in Zambia and the DRC and the UK-based Monitise across East Africa.
Wizzit is a division of the South African Bank of Athens Limited. It facilitates access to service from a range of other banks as well - allowing clients to make deposits into their accounts at any post office, or from other banks by electronic funds transfer (EFT). Clients receive Wizzit Maestro debit cards that can be used to withdraw money from any auto-teller machine (ATM) or to pay for purchases at selected stores. Bank charges range from 20c to R4, 99. No minimum amount is required to keep an account active, making it affordable to low-income earners.
A 2006 report by the Consultative Group to Assist the Poor (CGAP), the UN Foundation and Vodaphone found that there is great potential for cellular banking to increase accessibility of banking services to millions of low-income earners. As banks are mostly in towns and cities, it is those living in rural areas that have the hardest time banking their income. In addition, banking charges are often too high for a low-income potential client. The minimum deposit required by many banks to keep an account open is often the equivalent of a week’s food budget.
Wizzit operates under an exemption to the South African Financial Intelligence Centre Act 2001 (FICA), which allows one to open an account without proof of permanent address if transactions are to be limited to R5000 a day and the balance in the account does not exceed R25 000. Wizzit can therefore accept and manage accounts of clients with low incomes, some of whom live with family or in informal housing and would not be able to produce utility bills in their name. On the other hand, it means those who might want to exploit the service cannot be traced to their homes.
George Hardaker, a senior special investigator in the Asset Forfeiture Unit of the National Prosecuting Authority, claims that criminals by their very nature will seize whatever opportunity they can to abuse the mobile banking system. One way is through ‘smurfing’, in which a criminal can use a number of people to open accounts and conduct below-threshold transactions over a period of time. In this way, large amounts of money can be moved and disguised without ever being reported. Hypothetically, a single account can move R35 000 in a week, without exceeding the R25 000 barrier. Five accounts can move R175 000 within the same period, without the account-holders disclosing a permanent address. Senior superintendent Ronel van Wyk of the Commercial Crimes Branch of the South African Police Service believes that there is sufficient evidence that these accounts are utilised for crime. The extent of this is still a matter of speculation.
Are mobile banking service providers calling for stricter regulations? No, in fact it is quite the opposite. A July 2007 report by cellular companiesVodaphone, Nokia, and Siemens called for relaxing the regulations that inhibit the uptake of cellular financial services, such as the processes for verifying original documents required by Know Your Customer (KYC) regulations. According to the report, current regulations are inappropriate for developing markets where formal documentation and access to photocopiers are limited. The report recommends using the mobile networks’ data to identify clients, and encourages dialogue on this issue by telecommunications regulators and banking institutions. It also calls for a review of deposit-taking regulations, as present limitations restrict the size of the transactions mobile financial services can provide.
According to Brian Richardson there is no doubt that the cost of compliance is a very large component of the costs of running a business. The trick is to balance the high costs of compliance with a pragmatic and reasonable risk-based approach. Richardson does “not for one minute” believe that a relaxation of regulations in respect of cellular banking “would lead to an increase in money laundering or funding of terrorist activities.”
It is clear that cellular banking promises to change the way people handle money and is a big step towards social and economic development. But we have to ask the question, at what cost? At the moment, a little money laundering might seem like a small price to pay for the remarkable benefits mobile banking is bringing to South Africa. At the same time, South Africa cannot shirk its international obligations to combat organised crime and money laundering.
Melissa Nefdt,
Intern, Organised Crime and Money Laundering Programme, ISS Cape Town
