A review of Mobile Money fraud, money laundering, and terrorist financing risks and some tools that can be used to mitigate such risks

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Since its introduction in Kenya in 2007, and its rapid adoption across emerging markets, it has become patently clear that mobile phones hold great potential to become a common way of conducting financial transactions on a global scale.

Indeed, according to GSMA data, “the total transaction value for mobile money grew by 22% between 2021 and 2022, from $1 trillion to around $1.26 trillion – and $832 billion of that came from sub-Saharan Africa, with the African growth rate the same as the global average of 22%”.

The sheer value and volume of transactions is nothing short of staggering. And yet, the reverse side of this coin is an increasing potential of bad actors using the scale of this very valuable service for nefarious activities.

These illegal activities range from petty fraud to more serious crimes like money laundering and, likely, financing of terrorist activities. The Financial Action Task Force (FATF), which leads global action on Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) has set out guidelines, based on a risk-based approach, to help tackle these scourges.

The FATF and other pre-eminent stakeholders in the Mobile Money (MoMo) ecosystem such as World Bank and GSMA, are all in agreement about the potentially transformative impact of MoMo in terms of financial inclusion, at scale. However, given the aforesaid volume of transactions, and the high velocity of such transactions, the benefits of MoMo must be balanced with the risk that the ecosystem carries.

This blog explores the various types of fraud, AML, and CFT risks and provides details on how entity resolution tools can be used to enable a risk-based approach to such risks.

Listed below are some of the different types of criminal activities associated with mobile money. These various types of fraud can happen at the customer end channel (as in agents who enable the process to cash in or out, and send or receive), as well as internal fraud by staff.

They include agent-driven fraud such as:

 Split transactions:

Agents split cash-in transactions to earn multiple commissions (this only applies to a tiered commission structure.

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False transactions:  

Agents converting funds to their own use via transferring customer funds to personal accounts.

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Fake Mobile Money Agents:

‍Fraudsters may pose as authorised Mobile Money agents, and trick users into sending money to them for various services. These agents then disappear with the funds.

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Cash-Out Fraud:

‍Fraudsters may work with corrupt agents or employees within Mobile Money service providers to cash out funds from legitimate accounts without the account holder's knowledge.

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Phishing and Social Engineering:

Fraudsters may use phishing emails, SMS messages, or phone calls to trick users into revealing their Mobile Money account details, PINs, or passwords. They may impersonate service providers or financial institutions to gain trust.

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SIM Swapping:

‍Criminals can fraudulently port a user's mobile phone number to a new SIM card, effectively taking control of the victim's Mobile Money account. Once they have control, they can make unauthorised transactions.

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Fraudulent Transfers:

‍This involves unauthorised transfers or withdrawals from a user's bank or Mobile Money account. Typically criminals would gain access to account details, and initiate transfers to their own MoMo accounts or to other recipients.

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Account Takeover:

‍Cybercriminals may gain access to a user's Mobile Money account by stealing login credentials or using malware. Once inside, they can change account settings, withdraw funds, or conduct fraudulent transactions.

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Identity Theft:

Criminals can steal a user's identity to create a fake Mobile Money account in their name. They may then use this account for illegal transactions.

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Account Cloning:

‍Criminals create duplicate accounts using stolen user information and transfer funds between the original and cloned accounts.

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Unauthorized Subscription Charges:

‍Fraudsters may subscribe Mobile Money users to premium services without their consent, leading to unexpected charges and deductions from their accounts.

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False Promotions and Lotteries:

‍Scammers may send fraudulent messages claiming users have won a lottery or promotion. To claim their winnings, users are asked to send money or provide personal information.

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Malware and Mobile App Attacks:

‍Criminals may distribute malicious software or fake Mobile Money apps designed to steal user information or access their accounts.

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Insider Fraud:

This involves employees or agents within Mobile Money service providers abusing their access to manipulate accounts, create fake transactions, or siphon funds.

MoMo operators would, in the first instance, mitigate risk through Customer Due Diligence (CDD), which happens when a customer is onboarded onto the network. Through this, operators can verify the identity of users and agents to prevent fake identity and identity theft. Further, operators also manage risk via Transaction Monitoring. Through these systems, they can detect suspicious or unusual transactions. Education and Awareness are also useful in educating users about common fraud schemes and how to protect their accounts.

The informal nature of most African economies as well as under-developed identity systems creates further challenges. The latter factor is epitomised by the sheer different types of identification allowed across the MoMo market in Africa.

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From all the risk factors detailed above, verification and identification present the greatest potential risks and in effect potential “entry points” for any actors with nefarious intent. These may include money laundering and terrorist financing transactions.

Given the risk factors detailed above, it is important to choose technology solutions that provide the best coverage to mitigate such risks. Senzing, an AI powered entity resolution tool widely used in the financial services and gaming industries is one such tool.

Senzing offers a powerful solution to mitigate the risks associated with mobile money (MoMo) transactions, especially those related to fraud, money laundering, and terrorist financing. Senzing's advanced AI-driven entity resolution technology provides the following key benefits:

Real-Time Fraud Detection:

Senzing's AI technology can instantly identify suspicious patterns and behaviours in MoMo transactions, enabling real-time fraud detection. It reduces false positives by up to 90%, ensuring that legitimate transactions are not unnecessarily flagged.

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Efficiency and Resource Savings:

‍With Senzing, MoMo operators require fewer analysts, less data preparation, and minimal entity resolution expertise. This translates to significant cost savings and increased operational efficiency.

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Continuous Risk Monitoring:

‍Senzing enables continuous risk monitoring of customer accounts. It can quickly identify changes in behavior or transaction patterns, alerting operators to potential fraud or money laundering activities.

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Privacy Protection:

Senzing is designed with privacy in mind, using selective field hashing to reduce the risk of unintended data disclosure. It ensures that sensitive customer information remains secure.

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Cross-Channel Fraud Prevention:

‍Senzing's capabilities extend to cross-channel fraud prevention, making it a valuable tool for MoMo operators to combat a wide range of fraudulent activities.

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Domain Agnostic and Scalable:

‍Senzing's AI is domain agnostic, meaning it can adapt to various industries, including MoMo. It is optimised for scalable cloud infrastructures, ensuring it can handle large volumes of transactions.

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KYC/AML/Sanctions Compliance:

‍Senzing is particularly useful for flagging bad actors and suspicious entities in Know Your Customer (KYC), AML, and sanctions screening processes.

In summary, Senzing's AI-powered entity resolution technology is a game-changer for MoMo operators, helping them proactively identify and mitigate risks associated with fraud, money laundering, and terrorist financing. It streamlines operations, reduces false positives, and ensures compliance with regulatory requirements, ultimately safeguarding the integrity of MoMo ecosystems.