PPS, and NPPS in particular, are extremely attractive to illicit actors because of the rapid movement of funds between Payment Sector participants and across borders. The risks of a specific payment network or application however can vary based on the features that make it more or less attractive to illicit actors, such as: | | • | Transaction speed. Are transactions instantaneous, or do they take hours or days? The quicker the transaction, the easier it is for illicit actors to conduct multiple transfers, further obscuring the origin of the funds, before coming to the attention of the authorities.
| | | • | Transaction limits. Does the PPS have transaction caps or limits? Smaller-value payments are not without risk, especially in the terrorist financing context, but they do make it more difficult to move illicit funds on a large scale.
| | | • | Closed vs open loop system. PPS, primarily SVF, can be “closed” or “open” loop. In a closed loop system, the payment method can only be used for payments to a specific payee. Examples include transit passes and store gift cards. In an open loop system, the payment method can be used to pay a wide variety of payees, and can be linked to other payment methods that further expand its reach. Although it is certainly possible to use closed loop systems for ML/FT (for instance, if a terrorist group collects store gift cards and uses them to purchase equipment), the restrictions on their use makes them less attractive to illicit actors.
| | | • | Methods of funding and access to cash.3 The methods by which a PPS can be funded (such as by cash, through another payment service, a prepaid model, or by third-party funding from anonymous sources) may increase risk. The inputs and outputs of a given PPS are therefore an important consideration when assessing risk, including whether the funding source is located internationally such as a high-risk country. For example, illicit actors may seek to place cash in the financial system or to obscure transaction trails by converting funds in and out of cash. PPS that permit users to fund their accounts with cash, or that allow users to withdraw cash, may be higher risk. In addition, as discussed above in the context of open loop systems, the more open and porous the PPS, the higher the risk it may present. PPS that allow users to fund accounts from multiple sources, and to withdraw funds using multiple methods, are likely to be more attractive to illicit actors, and will be harder to effectively monitor.
| | | • | Payment transparency. NPPS often have aggregated payments and settlement accounts involving multiple parties and long payment chains thereby potentially causing LFIs to have reduced visibility into payment activity taking place through the PPS as well as obscuring an LFI’s ability to identify the ultimate payer and payee for all transactions.
| | | • | Ability for one person to create multiple accounts. Some PPS allow customers to create multiple accounts using the same ID. These may be individual accounts or created on behalf of minors or other family members. Illicit actors may seek to rapidly cycle funds through accounts (whether or not these take the form of virtual ‘wallets’ or other SVF) in order to obscure payment trails. They may also seek to open multiple accounts to facilitate fraud and other criminal activity. Restricting a customer to one account does not eliminate risk, since illicit actors often work in groups, but it makes it more difficult for a single person to launder funds by conducting a self-transfer.
| | | • | Non-face-to-face relationships. Does the payment method allow for a non-face-to-face business relationship? What are the payment method’s characteristics? Can the relationship be established through agents, online or through a mobile payment system? The absence of contact and/or anonymity may increase the risk of identity fraud or customers providing inaccurate information.
| | | • | Use of virtual assets.4 As interest in virtual assets grows, more and more payment methods and schemes are integrating with virtual assets. For example, a global payments firm allow users in some countries to purchase virtual assets using the funds in their account, although not to use them directly for payments. Payment methods and schemes that integrate virtual assets could expose financial institutions to the specific risks of this sector.
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