Ross Anderson paper on fraud, risk and nonbank payment systems

[Steve Schear]

[Read the paper here: 
http://www.cl.cam.ac.uk/%7Erja14/Papers/nonbanks.pdf  Very interesting 
stuff, but not likely new to most here.]


The Federal Reserve commissioned me to research and write a
paper on fraud, risk and nonbank payment systems. I found that
phishing is facilitated by payment systems like eGold and Western
Union which make the recovery of stolen funds more difficult.
Traditional payment systems like cheques and credit card payments
are revocable; cheques can bounce and credit card charges can be
charged back. However some modern systems provide irrevocability
without charging an appropriate risk premium, and this attracts
the bad guys. (After I submitted the paper, and before it was
presented on Friday, eGold was indicted.)

I also became convinced that the financial market controls used
to fight fraud, money laundering and terrorist finance have
become unbalanced as they have been beefed up post-9/11. The
modern obsession with 'identity' - of asking even poor people
living in huts in Africa for an ID document and two utility
bills before they can open a bank account - is not only ridiculous
and often discriminatory. It's led banks and regulators to take
their eye off the ball, and to replace risk reduction with due
diligence.

In real life, following the money is just as important as following
the man. It's time for the system to be rebalanced.

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