Financial Crime World

Bangladesh’s Mobile Financial Services: Balancing Inclusion and Anti-Money Laundering Regulations

Bangladesh, known for its pioneering role in mobile financial services (MFS), has seen remarkable growth in the sector. With over 800,000 agents, daily transactions worth 6.5 million, and a value of around USD 131 million as of June 2018, MFS has emerged as a vital tool to extend formal financial services to the rural poor, women, and Forcibly Displaced Persons (FDPs) (Reuters, 2018). However, this financial inclusion comes with challenges, particularly in mitigating criminal misuse of these services.

Risks in Bangladesh’s MFS sector

The Bangladesh Financial Intelligence Unit (BFIU), the country’s central anti-money laundering (AML) and combating the financing of terrorism (CFT) agency, has acknowledged the potential risks associated with Mobile Money (m-money) and conducted a comprehensive study titled, “AML/CFT Regulations for Mobile Money: Policy Options for Bangladesh” (Bangladesh Bank, 2018).

  • Weak customer due diligence (CDD): Agents registering multiple SIM cards for anonymous transactions, lack of unique identification documents, and inadequate monitoring mechanisms.
  • Cash-in, cash-out (CICO) and person-to-person (P2P) transactions: Prevalence of cash transactions and transactions between individuals, making it difficult to monitor suspicious activities.
  • Illegal channeling of remittances: A channel for money laundering and terrorist financing through informal networks.
  • Money laundering via hawala transactions: Traditional and unregulated remittance systems with low transparency and monitoring mechanisms.

Proposed solutions

The study proposes several solutions to address the concerns raised:

  1. Progressive Know-Your-Customer (KYC) policies: Develop personal account KYC policies based on the level of identification verification.
  2. Transactional limits: Implement transactional limits based on the level of identification verification.
  3. Automated monitoring system: Develop an automated system-based monitoring mechanism for transactions.
  4. Risk Based Approach (RBA): Implement a Risk Based Approach (RBA) for monitoring and surveillance.
  5. Biometric identification and authentication: Implement biometric identification and authentication during cash transactions.
  6. Training for agents and distributors: Train agents and distributors on AML/CFT issues.
  7. Collection of national ID and trade licenses: Collect national ID and trade licenses for opening agent or distributor accounts.
  8. Physical premise checks: Conduct physical premise checks for agent outlets.
  9. Central depository: Develop a central depository for blacklisted consumers and agents.
  10. AML/CFT hotline: Offer a toll-free AML/CFT hotline for reporting suspicious transactions.
  11. Incentives for reporting suspicious transactions: Offer incentives for reporting suspicious transactions.

These measures aim to ensure transparency, security, and integrity in the m-money sector while promoting financial access for Bangladesh’s most vulnerable population. The robust regulatory framework could potentially serve as a model for other countries grappling with similar challenges in their own MFS systems.

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