New payment methods: A review of 2010–2012 FATF mutual evaluation reports

Abstract

Traditionally, the financial sector is often seen as the gatekeepers of the Anti-Money Laundering/Counter Terrorism Financing (AML/CFT) regime. In recent years, new payment methods, particularly stored value prepaid cards and mobile money transfer systems, are increasingly been seen as a widely accepted payment method. However, they have also been highlighted as potential money laundering and terrorism financing instruments. This paper aims to provide an improved understanding of the money laundering and terrorism financing risk environment and hopefully, new payment method providers are better placed to manage new and emerging threats. A review of the compliance levels in 65 mutual evaluation (and follow-up) reports published by FATF in English between 1st of January 2010 and 31st of December 2012 suggests that there are still compliance issues in areas that might afford exploitative opportunities for transnational crime and terrorist networks – after all, global standards are only as strong as their weakest link. This can have detrimental effects on a country's national security through increasing risks of money laundering and financing of terrorism (e.g. due to regulatory arbitrage), and wastage due to the implementation of inappropriate regulatory measures. We conclude with a three-pronged evidence-based AML/CTF approach, with the aim of helping governments and key stakeholders to improve knowledge of the nature and dimensions to the problem, and of suitable risk management and mitigation strategies that would enable scarce resources in fighting money laundering and terrorism financing threats to be more effectively allocated and, hence, make the most impact.