Alexa… Is Amazon a Bank?

Technology is changing all around us, from the ability to ask Alexa or Siri to perform some of our daily monotonous activities, using bio-metrics to confirm identity and make daily purchases, and even the ability for self-autonomous vehicles. These innovations allow us as humans to shed some of the more tedious activities and focus on activities where more value is derived, and in theory be more productive. Imagine that one hour commute when you can read the daily news and respond to emails, while the car drives itself. While technology yields great benefits, it is not without its drawbacks; the whole "with great power, comes great responsibility" line definitely applies. One of these drawbacks is the constant struggle for regulatory bodies and industries to stay one step ahead and think through the intended and potential unintended consequences derived from these innovative life-changing technological advances. This is particularly true in the Financial Services space, where financial technology, more commonly known as FinTech, has been making some serious waves. This blog series will focus on some of the technology changes in the Financial Services space and the influence these changes have on our daily lives. It also examines the impact on regulation and helps shine a light on some of the potential unintended consequences.

Amazon Cash - The Intended? Metamorphosis to a Bank

Amazon Cash

Unless you have been hanging with Wilson on a deserted island, almost all of us have heard of Amazon and many of us make frequent purchases. Amazon's expansion into a global juggernaut has been impressive and much of this hinges around helping to make daily activities easier and more convenient. While the story of Amazon starts as a much humbler book retailer, the expansion into retail and many other areas is in full force as evidenced with its recent planned acquisition of Whole Foods. Amazon's retail ubiquity is palpable, and while that serves as its flagship, Amazon is well known for original product and service offerings such as Amazon Web Services (AWS), Kindle Readers, Amazon Prime and Fire TVs. Amazon is growing by leaps and bounds and is quickly becoming a category killer and disrupting many different industries, with one of its latest product rollouts, Amazon Cash sending some shockwaves through the Financial Services industry.

Amazon Cash was launched in April of 2017 and it is touted as the "fast, no fee way to use cash to shop on Amazon." The concept is quite simple and works similarly to Amazon gift cards. Amazon partners with a list of brick and mortar retail vendors, including the likes of Sheetz, CVS, GameStop, and quite a few others. These retailers accept these transactions ranging from $15 - $500 for each cash transaction and the customer just needs their Amazon Cash barcode for these funds to be automatically and instantaneously loaded to their account (For more detailed information on Amazon Cash, please click here). I have not personally used the Amazon Cash feature at one of these retailers, but I did create a dummy Amazon account to display a picture of the barcode (See image below).

This barcode can be presented in both print form or via mobile device. The assumed intention of this product is aimed at helping to attract customers that may prefer the use of cash for a myriad of reasons such as inability to access credit, limited availability of banking and debit cards (banking deserts), and those individuals that have gone away from banking due to fees and mistrust. On the surface, this may seem like no big deal or a necessary evolution of a retailer. There is a potential for malfeasance as a retailer starts to act more like a bank. The required regulation for the retailer may be lacking or insufficient to combat the intended and unintended consequences of evolving into more of a financial institution.

Amazon Cash - Less Regulation, Increased Money Laundering Concerns, Who's Watching…

Money laundering is the process of taking dirty money from illicit activities such as drugs and human trafficking and washing this money to make its origin appear legitimate. There are three stages of money laundering: placement, layering, and integration. Below is a high-level overview of these three stages; however, additional insight and information can be found here.

  • Placement is how dirty money enters the financial system. There are many ways to perform placement; however, deposits into a brick and mortar bank or similar financial institution is a common method.
  • Layering is an attempt to create a series of complex transaction movements to cover the criminal's tracks and obfuscate the true origin of the dirty money: to evade law enforcement.
  • Integration is when the criminals reintroduce the dirty money into everyday life, such as buying businesses, homes, or other assets to give the dirty money an air of legitimacy.

Placement is the stage of money laundering that presents the most risk to criminals for getting caught due to the need to move dirty funds into the fi

Amazon Login

nancial system and in many cases an interaction with financial institution employees. Additionally, while all phases have been impacted by technology to varying degrees, placement is arguably still the most pristine as currently there is not a way to deposit dirty money (cash) virtually. As a first mover, Amazon Cash, along with other retailers that follow suit with similar offerings, have the potential to take a few steps in untrodden snow of the placement stage. Either purposefully or indirectly, these retailers will begin to act more like financial institutions, and could provide criminals a new avenue to launder money if the retail industry's internal controls and or regulation are unable to keep up.

With many new products and services that are brought to market, there are almost always unintended consequences and a tendency for products and services to be used in a way that was never imagined. Amazon Cash has taken a few steps to help mitigate the potential for money laundering by implementing a couple of controls:

  1. Cash deposited may only be used for Amazon products or services, not for gift cards and may not be transferred to other accounts.
  2. No refunds on cash deposited are allowed, except where required by law.

Both controls are helpful in the prevention of rapidly moving funds, layering transactions, and receiving cleansed funds. This is a step in the right direction to help encourage the proper usage of this product/service; however, a few potential risks still exist. Highlighted below are some risks that make this new service from retailers more susceptible to money laundering:

Limited Information at Account Creation

  • Creating an account to utilize this service is quite simple, the only required fields to complete prior to receiving a barcode to deposit cash are name, email, and password (Picture above).
  • As soon as this information is submitted the barcode is available in print form and via mobile device and deposits can begin instantly.
  • Money Laundering Risk - It is difficult to conduct "Know Your Customer" (KYC) or customer verification activities due to the collection of limited information. Without significant identifying details on its customers (Common KYC Info - Name, Address, DOB, TIN), Amazon exposes itself to risk of doing business with bad actors. This allows cash to be deposited without knowing the true identity of customers, making screening and monitoring difficult if not impossible due to limited customer information.

Anonymity and Ubiquity of the Barcode

  • In a similar vein to limited information, there is an anonymity in the barcode due to the lack of customer verification process.
  • Money Laundering Risk - The username and password could be shared with many different individuals with a smartphone (Ubiquity) and these individuals could help to deposit multiple transactions daily through various retailers, which closely resembles a common money laundering technique called smurfing.
  • Smurfing is where criminals pay a small fee to individuals and then utilize these individuals to make smaller deposits across multiple branches/outlets to help avoid raising suspicion and avoid regulatory filings.

Retail Associate as 1st Line of Defense (LOD)

  • As mentioned previously, the placement stage presents heightened risk for criminals due to the required interaction with financial institution staff when presenting dirty money.
  • Money Laundering Risk - Savvy money launderers can pinpoint associates at Amazon partner stores who may not be able to mitigate money laundering activities. This concern and risk is greatly increased when this responsibility is passed to cashiers at local retailers, who most likely have little to no money laundering education and techniques for front-line detection and prevention.

Transaction Monitoring & Aggregation of Transactions

  • Transaction monitoring is used to help identify customer activity that deviates from normal behavior and appears suspicious with potential red flags for money laundering.
  • Money Laundering Risks:
    • This monitoring is difficult to perform based on the first risk of limited customer information. The lack of information makes judging normal activity/behavior difficult.
    • Finally, in the case where an individual adds over $10,000 of cash in a single day to their account through multiple transactions, the retailer would have a potential obligation to file a Currency Transaction Report (CTR) with the Financial Crimes Enforcement Network (FinCEN). The monitoring of daily cash activities would need to be robust enough to produce this reporting. More information about CTRs can be found here
  • Each distinct cash transaction is limited to between $15-$500 at each retailer. The overall daily limits are less clearly defined and are subject to a retailer's discretion.
  • Money Laundering Risk - The ability for an individual to visit the same retailer multiple times throughout the day, travel to multiple locations of the same retailer/different retailers, or the use of smurfing as previously described all exist and present risks for criminals to deposit large volumes of cash in a single day

Conclusion

Many of these highlighted money laundering risks may be addressed by retailers on the back-end, but not published, to stay one step ahead of the criminals and to avoid providing these criminals a road map to beat the system. As evidenced by the recent FBI investigation into a money laundering scheme involving eBay, it is clear that criminals are capitalizing on online retailers who act as financial intermediaries. Regardless of the maturity of a specific product/service, it is important that risks from new products and services are constantly assessed, prioritized, and mitigated. The speed of technological change is exponentially increasing and while this change is often good, it is important for companies and industries to peer in the dark corners and brainstorm how these products/services could be used nefariously and then work diligently to turn on the lights.