Thursday, May 10, 2007

Follow the money stupid

Speaking of identity and appropriate policing methods, Ross Anderson was recently commissioned by the Federal Reserve to research and write a paper on fraud, risk and nonbank payment systems. Ross says:

"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."

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