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Article
Publication date: 24 March 2020

Pavel M. Shust and Victor Dostov

The purpose of this paper is to present the identification-verification-confirmation of identity (IVCid) model that can be used to retroactively analyze the existing…

Abstract

Purpose

The purpose of this paper is to present the identification-verification-confirmation of identity (IVCid) model that can be used to retroactively analyze the existing customer identification programs and devise new ones that can be used in face-to-face or non-face-to-face environment.

Design/methodology/approach

This paper outlines the main elements of the customer due diligence (CDD) process and identifies those which may present a barrier to the customers. It then outlines the IVCid model. The model is used to analyze existing CDD approaches in physical presence, using reliable databases, biometrics and electronic signatures.

Findings

The IVCid model suggests that any customer identification program contains three elements: identification (collection of information), verification (checking the veracity of information) and confirmation of identity (linking the information to the individual). The accuracy of this model is confirmed by the analysis of the existing CDD procedures in some countries.

Research limitations/implications

This paper looks at a limited number of practical cases of CDD implementation. Further research might be needed to assess the strengths and weaknesses of biometric-based or e-signature-based solutions. Research might be needed to establish links between the IVCid model and financial inclusion.

Practical implications

The IVCid model allows for “modular” approach for the CDD procedures. It also underlines some risks associated with current CDD models.

Social implications

The IVCid model can be used to devise the CDD procedures that more effectively contribute to financial inclusion.

Originality/value

This paper proposes the first universal model for the CDD procedures that works for both face-to-face and remote scenarios while also being technology- and business-neutral.

Details

Journal of Money Laundering Control, vol. 23 no. 4
Type: Research Article
ISSN: 1368-5201

Keywords

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Article
Publication date: 13 August 2019

Victor Dostov, Pavel Shust, Anna Leonova and Svetlana Krivoruchko

The purpose of the paper is to explore the initial coin offering (ICO) statements as “soft law” instrument used to regulate disruptive innovations.

Abstract

Purpose

The purpose of the paper is to explore the initial coin offering (ICO) statements as “soft law” instrument used to regulate disruptive innovations.

Design/methodology/approach

The research is based on the qualitative content analysis of 40 ICO statements issued by regulators in 37 countries by applying a custom-made coding table.

Findings

The research shows that “soft law” is used predominantly by high-capacity jurisdictions. “Soft law” allows for more flexibility and less technological and business neutrality. The findings also show the contradiction between empirical evidence and public sentiment: it seems that the widespread notion that virtual currencies have connotations with money laundering/financing of terrorism (ML/FT) is not shared by the regulators, who are more concerned by the fraud. Finally, it was found that the standard-setting bodies are lagging behind in providing guidance on the emergence technologies.

Research limitations/implications

The content analysis is based on 40 statements, which is a limited set of data. The method might be subject to interpersonal bias, although arrangements were made to ensure the uniformity of coding process.

Practical implications

The findings imply that soft law is an attractive risk-mitigation tool when the object of regulation is still evolving but the risks are present. Soft law also might contradict with the “technology and business neutrality” principle which requires further research. Finally, the findings show the need for more active involvement of the standard setting bodies.

Originality/value

This is the first in-depth research of the ICO-related statements as “soft law” instruments. It also offers a new perspective on the issue of financial innovations regulation.

Details

Digital Policy, Regulation and Governance, vol. 21 no. 5
Type: Research Article
ISSN: 2398-5038

Keywords

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Article
Publication date: 1 July 2014

Victor Dostov and Pavel Shust

The purpose of the article is to look closely at the phenomenon of the cryptocurrencies such as and bitcoin to identify their potential vulnerabilities to money laundering…

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Abstract

Purpose

The purpose of the article is to look closely at the phenomenon of the cryptocurrencies such as and bitcoin to identify their potential vulnerabilities to money laundering and financing of terrorism. It also explores their specific characteristics relevant to ML/FT risks.

Design/methodology/approach

Using digicash and bitcoin protocols as primary cases for centralized and decentralized cryptocurrencies we analyse their characteristics against cash and cashless payments. We also draw on “bundle of attributes” that may define their attractiveness for common public or criminals.

Findings

Our research shows that characteristics of the cryptocurrencies are unlikely to make them popular among the consumers, as demand for anonymity seems to be overrated. Cryptocurrencies can also be classified as payment instrument rather than private currencies; therefore their embededdness in the financial system minimizes the ML/FT risks.

Research limitations/implications

Some decentralized cryptocurrencies operate within informal communities. Therefore, relations within these communities are constantly evolving and need to be monitored further.

Practical implications

The paper provides an insight into the mechanics and classification of cryptocurrencies as payment instruments. Place of cryptocurrencies within the broader payment ecosystem defines their potential vulnerabilities to being abused by the criminals.

Originality/value

The paper fills the gap in research on cryptocurrencies as payment instruments rather than private currencies and also provides an overview of their relevance for the Anti-money laundering and combating financing of terrorism (AML/CFT) regime.

Details

Journal of Financial Crime, vol. 21 no. 3
Type: Research Article
ISSN: 1359-0790

Keywords

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Article
Publication date: 7 October 2014

Victor Dostov and Pavel Shust

The purpose of this paper is to analyse money laundering and financing terrorism risks of present customer loyalty programs. We try to identify the current state of money…

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2873

Abstract

Purpose

The purpose of this paper is to analyse money laundering and financing terrorism risks of present customer loyalty programs. We try to identify the current state of money laundering and financing 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 financing risks that can be relevant for the non-financial products which demonstrate some payment functionality.

Originality/value

The paper is one of the first research of the loyalty awards as a quasi-payment tool in the context of the anti-money laundering and combating financing of terrorism (AML/CFT) regime.

Details

Journal of Money Laundering Control, vol. 17 no. 4
Type: Research Article
ISSN: 1368-5201

Keywords

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