The Taiwan Banker

Most merchants in Chatuchak, an ordinary market in Bangkok, Thailand, accept QR code scans for payments, in a scene which can be seen across much of Southeast Asia these days. Digital money offers advantages of cash like traceability and easier handling, yet some stalls have recently been putting up “cash only” signs. It is fears precisely over money laundering which are now pushing people back to untraceable exchange. Local media spoke to Nam Ruencharoen, a dessert and fruit vendor who decided to stop accepting mobile payments due to the possibility that any of her customers could be a mule account. Many others have not taken that step, afraid of losing revenue if they do, but are still watching the situation warily. A smoothie shop operator mentioned that her child’s friend runs a business selling mobile phones with installment payments, and had experienced account closure which had had yet to be resolved. Single-holder physical shops with shaky finances are probably not the main intended target of the recent crackdown on suspicious bank accounts in Thailand, which has reportedly affected 3 million accounts, but the underlying threat is real. Transaction laundering, or moving money through real businesses, is growing around the world. The business owner might be complicit in the crime model, or an unwitting bystander, but either way, such schemes pose a formidable challenge for the platforms, financial institutions, and regulators tasked with distinguishing money laundering from real transactions. In Thailand, criminals have been buying goods for later resale, partially replacing mule accounts in the transaction layering process. E-commerce stores, which inherently depend on anonymized, digital transactions, are particularly vulnerable to this type of exploitation and subsequent actions from their payment providers. Banks have been shutting down entire accounts upon suspicion of fraud, rather than just freezing the transfer amount. Besides inconvenience and operational disruption, such closures can also lead to downstream legal liability for the affected account holder, as writing a check that bounces is a crime in Thailand. Banks and the government have set up remediation processes, but they can be slow. Furthermore, criminals sometimes even attempt to use those processes to regain access to their funds, creating a new threat surface. Thailand faces a perfect storm for fraud, as a relatively developed economy sharing land borders with Myanmar, Cambodia, and Laos, homes to the world’s most notorious scam compounds. Myanmar is going through a civil war, becoming a source of refugees in Thailand. Ms. Ruencharoen, the food vendor, also brought up the risks from migrant customers in explaining her decision, who may have previously been paid by mule accounts, or perhaps used black market remittance services to prevent confiscation by their home government. Scams have also become an increasingly important aspect of Thailand’s national security. Its recent brief war with Cambodia in July was preceded by the announcement of a broad 3-month crackdown on transnational (i.e. Cambodian) crime. After the war started, the state-linked National News Bureau of Thailand asserted that online scams had declined sharply over a period of days, as the work of scam centers shifted to digital information warfare aiming to “erode public confidence and provoke internal divisions,” which would indicate a mix between economic and military motivations for their operations. Reports of the domestically-oriented banking crackdown meanwhile started emerging shortly thereafter in August. Further back in January, reports of the attempted kidnapping of Chinese actor Wang Xing had greatly complicated both Thailand’s economic and diplomatic relationships with China. The problem was getting too big to ignore. Thailand is both blessed and constrained by its geography, but there are also broader lessons to be drawn about payment infrastructure and financial frictions. Most of Asia has been pushing for sovereign or regional payment solutions, to a greater or lesser extent, for about a decade. American credit cards have a much longer history than that, but often charge merchants transaction fees worth multiple percentage points – which can be a significant percentage of profit margins, depending on the industry. Although the debit card system has lower fees, with fewer guarantees, a part of those margins involves the hassle of chargebacks and customer guarantees. For countries seeking low-margin alternatives, it turns out that some of those data-intensive processes and associated fees really add value, and cannot be eliminated by fiat. Multiple countries are experiencing growing pains in the visions for cashless society. In September, Vietnam also made headlines by closing 86 million bank accounts lacking biometric verification, nearly half of its total of 200 million, which was driven by many of the same kinds of financial crime that have occurred in Thailand and elsewhere. Despite the large headline number, this action appears to have been much disruptive than the former case, and large portion of the affected accounts were abandoned, or even in fact “ghost” (dummy) accounts. Nevertheless, the move has disproportionately affected those who lack convenient access to physical branches, including rural residents, the elderly, and overseas account holders. To be clear, this digital transformation initiative will almost certainly be worth it. Biometric identification will not only involve the banking sector, but will also allow a variety of government services to digitalized and integrated. What both the Thailand and Vietnam cases can illustrate, however, is the often-unpredictable consequences of financial connectivity. Far from fully resolving fraud and money laundering, biometric identification has now activated a new treat model, known as “face farming,” in which overseas compounds kidnap individuals with biometric accounts and use them to periodically approve transactions. Of course, sometimes people willingly rent their accounts as well. At worst, it may be possible to draw a link between the digitalization drive and the growth of the scam industry. Even if true, however, it would be difficult to stop the trend entirely, and it may not be prudent to hold one’s own development back solely due to the problems of one’s neighbor. In any case, however, their experience of digitalization in a difficult neighborhood will be worth watching for much broader lessons.