Terror Finance Experts: Regulators Ignore Mobile Phone Payments Threat

By David Marcus
Israel News Agency

Jerusalem ----- February 21, 2007 .... A new initiative to allow cell phone owners worldwide to send each other money through the mobile network is a dream scenario for terrorists, but the international financial regulators appear to be doing nothing about it. Al Qaeda, Hizbollah, Hamas members and their ilks the world over are delighted. Soon, they and other criminals will be able to use cell phones to transfer money around the globe.

The warning comes from two experts on terror financing in the USA and Israel. Rachel Ehrenfeld and David Nordell, two of the founding contributors to the Terror Finance Blog, point out that the initiative announced by the GSM Association, the trade body for mobile phone operators, to enable 600 million cellphone users in more than 100 countries to transfer money internationally is a "terrorist dream."

The international regulators responsible for stopping and investigating terror financing and money laundering have been "asleep at their posts" in the face of this threat.

The Paris-based Financial Action Task Force, the leading international regulator, and national regulators worldwide, have obliged banks and other financial institutions to identify their customers, to refuse to do business with people on international terrorist and criminal blacklists, and to report suspicious transactions to the authorities.

But the regulators haven't done anything about new types of international payment system using the Internet and phone networks that bypass the conventional banking and money transfer system, says Nordell.

Person-to-person transfers via mobile phone will be almost anonymous, and completely uncontrollable unless the regulators intervene and block these new new services until ways are devised to track the flow of funds.

“The system will allow a person to put cash onto their mobile, and order it to be sent to a mobile phone number abroad, where the recipient receives a text message saying that money has arrived,” says Nordell.

But a pilot program, announced by mobile operator trade body the GSM Association, says that it could make sending cash easier and cheaper for migrant workers. The initiative is backed by 19 mobile firms representing over 600 million customers in over 100 countries.

Vodafone and Telecom Italia are among mobile firms backing the scheme.

The system will allow a person to put cash onto their mobile, and order it to be sent to a mobile phone number abroad, where the recipient receives a text message saying that money has arrived. As a result, the costs of sending small amounts of cash could be reduced to just a few percent, from 24% currently.

A typical deal to send $200 back to relatives in a migrant worker's home country cost between $15 and $26 on average in 2005, according to the International Monetary Fund. Mastercard, the payment processing firm, will pilot a global hub that will link together national markets with local payment systems.

Less than one billion people have a bank account worldwide but close to three billion now have a mobile phone, according to the GSMA. "The only way to sustainable serve these people is through mobile communications," said GSMA spokesman Ben Soppitt. If successful, the initiative could double the number of recipients of international remittances to more than 1.5 billion and quadruple the size of the market from $230bn (£117bn) to more than $1 trillion (£513bn) by 2012, the GSMA says.

Sunil Mittal, chief of Bharti Airtel, India's largest mobile operator said the scheme would provide "immense benefits to people in developing nations such as India". India is both the world's fastest growing mobile services market and the biggest recipient of overseas remittances, accounting for around 10% of the world market.

PayPal, an eBay Company, has enabled any individual or business with an email address to securely, easily and quickly send and receive payments online since 1998. PayPal's service builds on the existing financial infrastructure of bank accounts and credit cards and utilizes the world's most advanced proprietary fraud prevention systems to create a safe, global, real-time payment solution.

PayPal, which has over 100 million account members worldwide, is also encouraging money by phone.

"Just like you do online, now you can buy stuff, send money, even donate to charities using your phone," says Paypal. "No more driving to stores, braving traffic and crowds, or waiting in line. Use your phone to get what you want, when you want it. And because it’s PayPal, you can count on it being safe and secure. By pressing a few buttons, you can: Send money to a friend’s phone # or email address. Let’s say you owe a friend for lunch. Instead of paying cash or writing a check, just text or call PayPal. We’ll send your friend a text message or email letting her know she’s received money."

As these transactions are being processed over the Internet, the Israel News Agency does not see a real and concrete threat arising from such transparent electronic money transfers by terrorists.

"The Internet was created by US intelligence," says Joel Leyden, publisher of the Israel News Agency. "In fact, every piece of email and every Website which flows through the Net is monitored and processed by Intel software such as Carnivore, a controversial program developed by the U.S. Federal Bureau of Investigation ( FBI ) to give the agency access to the online / e-mail activities of suspected criminals. Although Carnivore was abandoned by the FBI in favor of commercially available eavesdropping software by January 2005, the program that once promised to renew the FBI's specific influence in the world of computer-communications monitoring is nonetheless intriguing in its structure and application."

Leyden says that the CIA, NSA, Mossad and other Intel organizations can easily monitor these electronic transactions. "The keyword here is "electronic" as bin-Laden and other terrorists are known to resist anything electronic in fear of being "scooped" or captured by the US, UK or Israel satellites. But that's not to say that Intel operations are full proof. 9/11 is one such failure where "chatter" relating to the New York and Washington terror attacks was intercepted days before September 11, 2001 and was only read on the afternoon of 9/11. But even given this monumental Intel failure, US and other global Intel budgets have dramatically increased since then. They are probably reading my next sentence here even before I type it. And quite frankly, I hope they are as our democracy, our national and global security rests in their good hands."

Ehrenfeld and Nordell are two of the 10 international experts who last year formed the largest independent group of terror finance analysts and who together write the only professional blog on how terrorists exploit the world financial system to pay for their propaganda, training and operations. The group's members are based in the USA, Canada, UK, Switzerland, Israel and Australia.