Money or Value Transfer Services (MVTS)
Money or value transfer services (MVTS) refers to financial services that involve the acceptance of cash, cheques, other monetary instruments or other stores of value and the payment of a corresponding sum in cash or other form to a beneficiary by means of a communication, message, transfer, or through a clearing network to which the MVTS provider belongs. Transactions performed by such services can involve one or more intermediaries and a final payment to a third party, and may include any new payment methods. Sometimes these services have ties to particular geographic regions and are described using a variety of specific terms, including hawala, hundi, and fei-chen.
An MVTS provider is any natural or legal person who is licensed or registered to provide MVTS as a business, by a competent authority, including through agents or a network of agents. This also includes HOSSPs meeting the aforementioned criteria.
Hawala and other similar service providers (“HOSSP”) are generally referred to as entities that provide MVTS, particularly with ties to specific geographical regions or ethnic communities, which arrange for transfer and receipt of funds or equivalent value which is settled through trade, cash and/or net settlement over an extended period of time, rather than simultaneously with the transfer.
An agent is any natural or legal person providing MVTS on behalf of an MVTS provider, whether by contract with or under the direction of the MVTS provider.
Money or Value Transfer Services (MVTS) encompass a wide range of financial services critical for global monetary transactions.
These services are characterized by the following features:
- Nature of Services: MVTS involve the acceptance and processing of various forms of monetary instruments, including cash, cheques, and other stores of value. The service takes in these instruments and ensures the corresponding amount is paid out in a different form, be it cash or another medium.
- Mechanism of Operation: The operation of MVTS is based on the transfer of funds through communications, messages, or transfers. These services can be part of a clearing network, allowing for efficient and widespread transfer capabilities.
- Involvement of Intermediaries: Transactions facilitated by MVTS can involve one or more intermediaries. This aspect is crucial for the transfer of funds across different regions or countries, often necessitating multiple steps and participants for successful completion.
- Final Payment to Third Parties: A defining aspect of MVTS is the final payment to a third party, which means the beneficiary of the transfer is often not the original sender but someone else designated by them.
- Adaptability to New Payment Methods: MVTS are adaptable and can include new payment methods. This flexibility is key to their relevance in the rapidly evolving financial landscape, where digital and electronic payments are becoming increasingly prevalent.
- Regional Ties and Specific Terms: Sometimes, MVTS are closely tied to specific geographic regions and are known by various terms in different cultures. For instance, in some regions, these services are known as „hawala“ (common in the Middle East and parts of Asia), „hundi“ (South Asia), and „fei-chen“ (China). Each of these terms refers to traditional systems of money transfer that operate within particular cultural or regional contexts.
MVTS play a crucial role in facilitating global financial transactions, especially for communities and individuals who might not have access to formal banking services. Their adaptability and wide reach make them a vital component of the international financial system. However, due to their nature and the complexity of transactions involved, MVTS are also subject to regulatory scrutiny to prevent misuse for money laundering and terrorist financing.
- Attractiveness for Quick and Low-Cost Transfers: MVTS are particularly appealing for individuals needing to send money swiftly to another person. They offer a faster alternative to traditional banking services like domestic or international wire transfers, which may take several days. This speed is a significant advantage, especially for urgent transactions.
- Cost-Effectiveness: Often, the fees associated with MVTS are lower than those of conventional banking services. This cost-effectiveness makes MVTS a preferred choice in regions where banking services are limited or non-existent.
- Operational Variability: MVTS providers operate in various ways. Typically, a provider or a sending agent accepts the money transfer, collects necessary identification information, and systematically records the transaction details, including sender and recipient information, at the point of origin.
- Transfer and Payment Details: Once the transaction is initiated, the MVTS provider transfers the payment details to the payout agent. This transfer can occur directly between agents or through a centralized clearinghouse, which acts as a hub connecting different agents of the provider.
- Availability to the Recipient: The transferred money is made available to the recipient in the appropriate currency at a receiving agent’s location. These agents, who also represent the MVTS provider, collect and maintain required identification information in compliance with local laws.
- Diverse Pay-out Methods: The methods for payout can vary depending on the jurisdiction. Options may include cash, cheques, money orders, payout cards, mobile wallet transfers, bank deposits, or a combination of these methods.
Country/ Geographic Risk
- Terrorist Support and Activities: Countries or areas that are identified by credible sources as providing funding or support for terrorist activities, or those with designated terrorist organizations operating within them, are seen as higher risk. This includes regions where terrorism is actively supported, either financially or through other means.
- Organized Crime and Corruption: High levels of organized crime, corruption, and other criminal activities in a country are red flags. This includes countries that are known source or transit points for illegal drugs, human trafficking and smuggling, and illegal gambling. Such activities often involve cross-border operations and can be linked to ML/TF.
- International Sanctions and Embargoes: Countries subject to sanctions, embargoes, or similar measures issued by international organizations like the United Nations are considered higher risk. These measures usually indicate significant concerns about the country’s activities, governance, or cooperation with international norms.
- Weak Governance and Regulatory Regimes: Countries identified as having weak governance, law enforcement, and regulatory frameworks, especially in terms of anti-money laundering and countering the financing of terrorism (AML/CFT), are viewed as higher risk. This includes countries highlighted in FATF statements for their weak AML/CFT regimes. Financial institutions are advised to pay special attention to business relationships and transactions linked to these countries.
- Sanctioned MVTS or Financial Institutions: Customers who are MVTS providers or financial institutions sanctioned for non-compliance with AML/CFT regulations and not actively working towards remediation.
- Unusual Business Relationships or Transactions: Customers engaging in activities under unusual circumstances, such as:
- Traveling unexplained distances to conduct transactions.
- Operating within customer networks, involving groups of individuals conducting transactions at multiple locations or services.
- Owning or operating cash-based businesses that seem like fronts or shell companies, or mingling illicit and licit proceeds.
- Politically Exposed Persons (PEPs): Involvement of PEPs, their family members, or close associates, especially when the beneficial owner is a PEP, as outlined in Recommendation 12.
- Non Face-to-Face Customers with Identity Doubts: Customers who are not physically present for identification purposes, and where there are doubts about their identity.
- Use of Agents or Associates Obscuring Beneficial Ownership: Customers using intermediaries in a way that makes it difficult to identify the real beneficial owner of funds.
- Inconsistent or Reluctant Disclosure: Customers providing inconsistent information or showing reluctance to disclose details about the payee or other relevant transaction aspects.
- Acting on Behalf of Third Parties Secretively: Suspicion of customers acting on behalf of third parties without disclosure, or being controlled by others.
- Subject of Law Enforcement Sanctions: Customers known to the MVTS provider as having been subject to law enforcement actions related to proceeds-generating crimes.
- Use of False/Fraudulent Identification: Customers presenting false or fraudulent identification documents.
- Connections to Criminal Involvement: Transactions and activities suggesting connections to potential criminal involvement, as identified in FATF or national authority reports.
- Transaction Patterns Indicative of Criminal Proceeds: Customers whose transaction patterns align with the generation of criminal proceeds, such as those linked to drug trafficking, illegal immigration, human trafficking, corruption, etc.
Product/ Service Risk
- Product and Service Attributes: Certain products and services may inherently favor anonymity or ease of crossing international borders, such as:
- Cash-based transactions.
- Online money transfers.
- Stored value cards.
- Money orders.
- International money transfers via mobile phones.
- Transaction Limits: Products or services that have either very high or no transaction limits can pose additional risks.
- Global Reach: The broader the geographic reach of the product or service, the higher the potential risk due to varying regulatory environments and challenges in monitoring international transactions.
- Complexity: More complex products and services can be more susceptible to misuse, as they may provide more opportunities to obfuscate illicit funds.
- Cash for Negotiable Instrument Exchange: Products or services that allow for the exchange of cash for a negotiable instrument (like a stored value card or money order) warrant closer scrutiny.
For transactions specifically, the risk may vary depending on whether the MVTS provider is sending or receiving the transaction:
Transactions Sent or Attempted
- Customer Behavior at Point of Origination: This includes structuring transactions to avoid thresholds, complexity without lawful purpose, inconsistency with financial standing, and attempts to evade reporting.
- Activity Detected During Monitoring: Includes patterns such as transfers to the same person from different individuals, use of aliases, high concentration of transfers to a particular jurisdiction, and transactions linked to criminal activities.
- Shared Contact Information in Network: A network of customers using shared contact information, which is not normally explicable.
- Transfers to HOSSPs in Illegal Jurisdictions: Transactions to Hawala and Other Similar Service Providers in destinations where such transactions are considered illegal.
- Wire Transfers: Special attention to transactions lacking required originator or beneficiary information, and non-receipt of additional requested information.
- Unusual Patterns: Large numbers of transactions that don’t match the recipient’s usual pattern, potentially linked to illicit activities like drug production or migrant smuggling.
Distribution Channels/ Agent Risk
- Multiple Representations: Agents representing more than one MVTS provider could pose a higher risk due to potential conflicts of interest or divided loyalties.
- Location and Customer Base: Agents located in higher-risk jurisdictions or serving high-risk customers or transactions need closer scrutiny.
- Politically Exposed Persons (PEPs): Agents with PEP status can be higher risk due to their potential for involvement in corruption.
- Unusual Transaction Patterns: This includes agents conducting an unusually high number of transactions with another agent, particularly in high-risk geographic areas, or showing patterns indicative of avoiding Customer Due Diligence (CDD) thresholds.
- Transaction Volume Inconsistencies: Significant deviations in an agent’s transaction volume, either overall or relative to past patterns, can be a red flag.
- Negative Attention or Sanctions: Agents that have attracted negative attention from credible media or law enforcement sanctions warrant additional scrutiny.
- Training Program Non-Compliance: Agents failing to attend or complete required AML/CFT training programs could indicate a lack of commitment to compliance.
- Substandard Compliance Programs: Agents operating compliance programs that don’t effectively manage adherence to internal policies, monetary limits, or external regulations are a concern.
- History of Regulatory Non-Compliance: Agents with a track record of non-compliance and unwillingness to follow review recommendations are high-risk.
- Failure to Provide Required Information: Agents who do not provide necessary originator information upon request could be facilitating illicit activities.
- Poor Data Management: Lax, sloppy, or inconsistent record keeping by agents is a red flag for potential compliance issues.
- Acceptance of False Identification: Agents willing to accept false identification or knowingly use inaccurate records pose a significant risk.
- Imbalanced Send-to-Receive Ratios: Agents with unusual send-to-receive ratios compared to other local agents, or indications of involvement in criminal activities, are of concern.
- Inconsistent Seasonal Business Fluctuations: Seasonal fluctuations in business that do not align with expected income patterns or are consistent with patterns of criminal proceeds warrant investigation.
- Anomalous Customer Ratios: Agents with a high ratio of questionable customers compared to typical customer profiles for similar locations may be involved in illicit activities.