Even banks that view themselves as having limited to no exposure to NPPS may in fact have indirect exposure through customers who link their bank accounts to payment apps, or use their bank accounts to fund SVF accounts or wallets (or withdraw funds received in such wallets to their accounts), or withdraw funds as cash and use it to purchase other prepaid instruments. Account activity of this type poses unique challenges for account and customer surveillance, because frequently the bank will be aware only of the immediate source or destination for the transaction, rather than the entire transaction chain. This can allow customers to deliberately thwart transaction monitoring programs and prevent the bank from understanding and assessing the activity on the customer’s account to determine whether it is in fact in line with the customer profile. Examples of how intermediation can limit a bank’s ability to identify suspicious or unusual behavior include:
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Many banks have automated transaction rules designed to identify possible unlicensed money transfer activity by alerting on accounts that receive multiple small deposits from different sources, followed by a single large cross-border transaction. A customer could thwart this surveillance by having associates deposit the funds to be transferred in an SVF wallet, and then moving those funds to a linked bank account in order to execute the cross-border transfer. From the bank’s perspective, it would appear that the customer received only one deposit. Relatedly, the provider of SVF could not know that the funds were ultimately transferred across borders.
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Many banks use watchlists to identify transactions that may be illegal or in violation of bank policy, such as the use of gambling websites. A customer seeking to evade these restrictions could use a foreign payment app linked to their account to purchase the assets; this transfer would likely appear on the bank’s records as a debit in favor of the operator of the payment app. The operator, in turn, may not be responsible for enforcing the laws of the jurisdictions where its foreign customers are based. It is therefore important for banks to identify foreign payment apps in order to appropriately assess the risks of the transactional activity.
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A customer that generates a high quantity of illicit proceeds in cash can evade surveillance the bank applies to cash deposits by depositing the cash with a provider of NPPS (including both SVF and any other payment app that accepts cash inputs) and then withdrawing the funds from the payment service to his/her linked bank account.