Customer loyalty programs: money laundering and terrorism financing risks
| DOI | https://doi.org/10.1108/JMLC-06-2013-0021 |
| Pages | 385-394 |
| Date | 07 October 2014 |
| Published date | 07 October 2014 |
| Author | Victor Dostov,Pavel Shust |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation |
Customer loyalty programs:
money laundering and terrorism
nancing risks
Victor Dostov and Pavel Shust
Russian Electronic Money Association, Saint-Petersburg, Russia and
Financial Innovations Division, Section for Finance and Economic
Research, Russian Presidential Academy of National Economy and Public
Administration (RANEPA), Moscow, Russia
Abstract
Purpose – The purpose of this paper is to analyse money laundering and nancing terrorism risks
of present customer loyalty programs. We try to identify the current state of money laundering and
nancing of terrorism (ML/FT) risks and detect the vulnerabilities that may be present in loyalty
schemes that tend to obtain wider payment functionality.
Design/methodology/approach – The paper draws upon the risk matrix developed by the
Financial Action Task Force experts for the new payment methods. Each risk factor is analysed
against the features of the customer loyalty programs, and the aggregated risks are also reviewed
within three stages of money laundering.
Findings – The analysis shows that despite the obvious evolution of payment functionality of the
customer loyalty awards, businesses have already put in place relevant risk-mitigation measures
that support the hypothesis that business practices can effectively mitigate ML/FT risks even
without precise regulation. Yet, the paper shows some potential vulnerabilities that are to be
monitored in order to prevent the system from abuse by the criminals.
Research limitations/implications – The paper shows that loyalty awards share certain
characteristics of the centralized private currencies. Hence, researchers are encouraged to look
more closely into the potential ML/FT risks posed by the private currencies as well.
Practical implications – The paper provides an insight into money laundering and terrorist
nancing risks that can be relevant for the non-nancial products which demonstrate some
payment functionality.
Originality/value – The paper is one of the rst research of the loyalty awards as a
quasi-payment tool in the context of the anti-money laundering and combating nancing of
terrorism (AML/CFT) regime.
Keywords Money laundering, Anti-money laundering and terrorist nancing,
New payment methods, FATF, Loyalty programs, Frequent-ier programs
Paper type Research paper
In his statement at the anti-money laundering and combating nancing of terrorism
(AML/CFT) European Union (EU) conference on the 15th of March, President of the
Financial Action Task Force (FATF) Bjørn S. Aamo announced that effectiveness
has now moved to the top of the FATF’s agenda (Aamo, 2013). The overall
effectiveness of the AML/CFT system is now to complement technical compliance
with FATF Standards. Yet, this long-awaited turn of the FATF’s approach is likely
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1368-5201.htm
Customer loyalty
programs
385
Journal of Money Laundering Control
Vol. 17 No. 4, 2014
pp. 385-394
© Emerald Group Publishing Limited
1368-5201
DOI 10.1108/JMLC-06-2013-0021
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