Written by It is statistically inevitable that some fraction of the more than 300 million transactions performed using M-PESA in 2010, and of the much larger number of transactions that will be performed in 2011 and future years, will not be legitimate. And some fraction of those, in turn, may involve payments that bear on American national security or law enforcement concerns.
Is this real or is it just scaremongering about new technology? I’ve no figures to hand, but I’m fairly certain that 99.99% of the illicit activity in Kenya involves cash (such as being shaken down by the police there, which happened to a colleague of mine earlier this year).
About 100 Narok County council employees have been sent on a one month compulsory leave after they protested the introduction of an electronic revenue collection system at the Maasai Mara Reserve… the employees were opposing the introduction of the e-ticketing at the reserve “to reduce the rampant corruption”. “The electronic ticketing system installed at the gates will deny the clerks the opportunity to handle solid cash, which they have been stealing from the council for many years,” [a council spokesman] added.
[From allAfrica.com: Kenya: Smart Card – Narok Workers Fired]
Therefore, any public policy aimed at improving the life of the average Kenyan ought to have cash reduction at its centre. I’m looking forward to seeing evidence to the contrary, but I think that the bad guys’ medium of choice is the greenback. I’m sure, for example, that Democrat Congressman William Jefferson of Louisiana would not have used M-PESA had it been available in the US.
A former US congressman famously caught with $90,000 (£54,000) in cash in his freezer, has been sentenced to 13 years for bribery and money laundering. William Jefferson, a Louisiana Democrat who served for nearly 20 years, was convicted in August of taking hundreds of thousands of dollars in bribes
[From BBC NEWS | World | Americas | US ‘freezer cash’ lawmaker jailed]
So let’s keep things in perspective. If you want to cut down on bribery, tax evasion and money laundering, then you need to cut down on cash. I’m not so stupid as to imagine that eliminating cash would eliminate crime, but it would at least raise the cost of it somewhat and perhaps tilt the balance in one or two places. If Congressman Jefferson had known that all of his money transfers were being recorded by AT&T, Wells Fargo or Walmoney, it may have swayed his judgement. The report goes on to say that
Given the rate of change of the digital landscape, any set of solutions constructed based on a single snapshot in time will quickly become obsolete. However, by creating the collaborations, regulatory frameworks, and technologies that reflect today’s more fluid and diverse financial transaction environment, government and industry will be better positioned to address illicit transactions today and to adapt to address those of the future.
Indeed, and it’s much too early in the evolution of mobile payments to say what any collaborations, technologies or regulatory frameworks will end up like. So let’s focus on the big picture for the time being: end the cash menace now, and worry about mobile later. Let mobile technology make life better for people.
And the new technology pits mobile operators against banks for the same customers. Working with Equity Bank in Kenya, Safaricom has launched an account called “M-KESHO,” explicitly for mobile savings, but it’s met with less success. Less than 5 percent of M-PESA users have adopted it. The account bears interest and starts a credit history; it also comes with high fees for deposits and withdrawals.
[From In Kenya, Securing Cash on a Cell Phone – BusinessWeek]
That’s, I think, a really important observation. When banks get involved in things, the costs go up. Banks are heavily regulated organisations that have an important function in the economy, although it’s no transparently obvious that payments are one of them. But one of the reason why banks’ costs are high is that they have to “police” the system. The cost of Know-Your-Customer (KYC), Anti-Money Laundering (AML) and Anti Terrorist Financing (ATF) rules and regulations is very high, and the higher you make it the more unaffordable the services become for the less well-off in society. And, just as an aside, the figures seem to show that the stringent KYC/AML procedures that waste everyone’s time and money are not really effective in stemming the flow of criminal cash.
Last year, the D.E.A. seized about $1 billion in cash and drug assets, while Mexico seized an estimated $26 million in money laundering investigations, a tiny fraction of the estimated $18 billion to $39 billion in drug money that flows between the countries each year.
[From U.S. Drug Agents Launder Profits of Mexican Cartels – NYTimes.com]
So, in essence, for a massive expenditure and huge drain on the economy, KYC/AML has made to all intents and purposes no difference: it’s just become a minor tax on criminal activity. It isn’t only e-payments nutters like me who think like this, incidentally. Michael Levi, the respected Professor of Criminology at the University of Wales is blunt.
It is difficult, even with hindsight, to work out when and how the view developed that attacking the money trail was a key element in the fight against terrorism.
[From Combating the Financing of Terrorism]
Look: there is no evidence that KYC/AML/ATF has achieved anything at all in this area. The sums that terrorists require are so small, and the “black” economy so large, that here is no chance of stopping terrorism this way and the the criminals can get round them easily, but by excluding the poor from financial services the harm that over-strict regulations cause is tremendous. We need a concentrated policy effort to get cash out of their lives, and putting up barriers to mobile money shouldn’t be part of them.
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I think you will find, if money laundering is your concern, and if you do the research, that the biggest culprits are the biggest banks. Please do the research. Otherwise they would have all gone under in 2008. Money laundering is only a crime when that cartel isn’t involved. I also believe that it is in the interests of the biggest players in any field, to promote regulation and standards which make it harder for smaller players to compete. Also, cash transactions are FREE, and banks cannot profit from them, and cash held in my hand is cash the derivatives of which banks cannot gamble with. Finally I think you will be hard pressed to find any terrorist activity in the last decade, and previously in which the state had no involvement. Consequently I view all this talk of removing cash in the name of convenience as rather sinister. Rather than profiting on, reporting, and data-mining every transaction, we should instead be talking about how banks could be supporting massive investment in rebuilding our energy infrastructure.
The problem with the thinking in this area revolves around the definition of what we are discussing. When people talk about ‘illicit activity’, they are talking about activity that the State has declared illegal. We are not talking about theft, or any unambiguously immoral act. It is very important to separate the needs and rights of individuals from the venal desires of the predator State.
When you are shaken down by the police in Kenya, this is a problem with the out of control police, and not a problem with cash. Conflating the existence of cash with police corruption is not logical, and the solution is to solve the problem of the police and how they are funded, not to put everyone in a cashless society prison.
It is completely wrong to say that cash reduction will improve the lives of the average Kenyan. What will improve their lives is the elimination of the State from all financial matters. The money used by Kenyans should be gold and silver only. This would put an end to inflation for them, and act as a solid foundation for growth, whilst shrinking the size of their illegitimate, wasteful and predatory government.
The author is correct in saying that that the bad guys’ medium of choice is the greenback, but he is right only in the same sense that a stopped clock is right twice a day. The bad guys in this case are the State and the central banks who are printing money and stealing from the hapless individuals who are forced to use their fraudulent money.
If you want to cut down on bribery, tax evasion and money laundering, then you do not need to cut down on cash. You need to cut down on the State and the parasites who use violence to fleece the public. Saying that you need to eliminate cash to stop bribery is like saying you have to dynamite a house to prevent it from burning down by accident. It simply doesn’t make any sense whatsoever, and would cause harm orders of magnitude greater than the problem it is setting out to solve.
For the record, tax evasion and money laundering are not crimes, any more than miscegenation is a crime. All of these are creations of the State, directly or indirectly. Bribery can only exist where there is a State that can wield arbitrary power over individuals and their property. For example, if you need the permission of the State to put an extension on your house, and this permission must be granted by an aparatchick, then an opportunity for bribery is created that would never have existed without the State and its arbitrary laws. Jefferson would never have been able to collect bribes if he did not have the power to approve anything. This is the real problem that must be addressed; the nature of money is not related to id at all.
Cash is anything but a menace. It is a perfect, natural solution to the problem of exchanging goods of different sorts between people, without an interposing intermediary. There is no reason whatsoever to eliminate it, and anyone that suggests this does not have a full grasp on the ethics of liberty and the true nature of the State and man.
We must face these issues squarely and honestly. It is completely wrong to put everyone into a slave system of un-free money simply because the State and its operatives are running wild. Anyone who wants to think about this seriously should concentrate on identifying the real problems, and solving the root causes, instead of using artificial false problems (‘money laundering’) as a pretext to create a business model that will be forced on everyone.
The point isn’t whether or not KYC/AML/ATF has been effective. The point is that a person’s money should never be used as a method of tracking identity or personal behavior. The right to financial privacy, including identity and user-defined anonymity, is a fundamental cornerstone of human rights.