Financial Cryptography

The FATF and the War on the Poor: 0.2% effective against Money Launderers, 300% more effective against the poor than aid?

(Ed: copying direct from pymnts.com, with my emphasis:)

The Global Cost Of Anti-Money-Laundering Efforts

Global efforts to prevent money laundering are both ineffective and incredibly expensive to maintain - and poor countries are the ones hit hardest by that cost, according to a commentary for Bloomberg.

At best, the global anti-money-laundering (AML) system "snares just a fraction of 1 percent of criminal income flows," wrote Charles Kenny, a senior fellow at the Center for Global Development. Citing numbers from a 2006 study, Kenny said global money-laundering transactions are at least 2 percent of global GDP, or roughly $1.5 trillion. Actual money laundering convictions worldwide involve at most hundreds of millions of dollars, and in the U.S., the amounts seized in AML efforts is less than 0.2 percent of all laundered money.

"A system that misses all but a fraction of a percent of criminal financial flows is almost guaranteed to miss terrorism finance in particular, which involves very small sums," Kenny wrote, noting that no known AML prosecutions have involved terror financing.

But AML efforts still cost money: an estimated $7 billion annually in the U.S. alone for implementing AML regulations from the international Financial Action Task Force (FATF). The cost is disproportionately more in smaller countries such as Mauritius, which has 1.3 million people and 25 government officials working on AML implementation - more AML bureaucrats than the country has opticians - and that's not counting bank staff who carry out customer investigations.

FATF rules are also why Somalian expatriates can no longer send money home. Last week, the last U.S. bank that allowed remittances to Somalia, Merchants Bank of California, cut off the $160 million to $180 million in money transfers, citing potential liability if a transfer was linked to terrorism.

However, there's no evidence that was the case, Kenny wrote: "Most [remittances] were being used to support schooling, housing, food, and other living costs for Somalis. The country is one of the poorest in the world and remittances are equal to about one-third of the country's GDP."

Remittances worldwide totaled $582 billion in 2014, with $435 billion - 75 percent of the total - going to developing countries. That amount is three times larger than official developmental assistance, according to the World Bank.

News that's news: Kenya's M-Kopa Solar Closes $12.45m

If there's any news worth blogging about, it is this:

Breaking: Kenya's M-Kopa Solar Closes $12.45 million Fourth Funding Round

M-KOPA Solar has today closed its fourth round of investment through a $12.45 million equity and debt deal, led by LGT Venture Philanthropy. The investment will be used to expand the company's product range, grow its operating base in East Africa and license its technology to other markets.

Lead investor LGT Venture Philanthropy has backed M-KOPA since 2011 and is making its biggest investment yet in the fourth round, which also includes reinvestments from Lundin Foundation and Treehouse Investments (advised by Imprint Capital)and a new investment from Blue Haven Initiative.

In less than two and a half years since launch, M-KOPA Solar has installed over 150,000 residential solar systems in Kenya, Uganda and Tanzania, and is now connecting over 500 new homes each day. The company plans to further expand its distribution and introduce new products to reach an even larger customer base.

Jesse Moore, Managing Director and Co-Founder M-KOPA Solar says, "Our investors see innovation and scale in what M-KOPA does. And we see a massive unmet market opportunity to provide millions of off-gridhouseholds with affordable, renewable energy. We are just getting started in terms of the scale and impact of what we will achieve.

Oliver Karius, Partner, LGT Venture Philanthropy says, "We believe that we are at the dawn of a multi-billion dollar 'pay-as-you-go' energy industry. LGT Venture Philanthropy is a long-term investor in M-KOPA Solar because they've proven to be the market leaders,both in terms of innovating and delivering scale. We have also seen first-hand what positive impacts their products have on customers lives - making low-income households wealthier and healthier."

This deal follows the successful $20 million (KES1.8 billion) third round funding closed in December 2013 - which featured a working capital debt facility, led by the Commercial Bank of Africa.

The reason this is real news in the "new" sense is that indigenous solutions can work because they are tailored to the actual events and activities on the ground. In contrast, the western aid / poverty agenda typically doesn't work and does more harm than good, because it is an export of western models to countries that aren't aligned to those assumptions. Message to the west: Go away, we've got this ourselves.

Peppercoin lacks spice

Peppercoin, a venture by Ron Rivest and Silvio Micali to monetarise certain token money ideas based on statistical settlement, raised some money ($4 million on top of $1.7 million).

This is a standard crypto-hype-venture capital-DRM play. The crypto is cool, the people are the doyens of the cryptography field, and the market is open. What more perfect combination?

But, this is no new money venture. It is striking in its ignorance. Peppercoin ignores all the lessons of the past, in so complete a fashion, that one wonders what they were thinking?

It has been very clear since about the late 90's that the retail model is bankrupt. Both Paypal and e-gold - the two successful money models so far - cracked this problem in innovative ways. Yet Peppercoin decided to ignore their work and go back to the merchant-consumer model.

It's also been more or less clear that the downloaded client model is also a dead loss. I personally have been guilty of belatedly recognising that, and in the late 90s we rectified at least our understanding, if not our technology line. (The XML-X project was our answer to that.) There are ways to make the downloaded client model work, but they require integration with the application in a way that is decidedly absent in the peppercoin model.

A further delito is the micropayments trap. Simple mathematics will show that micropayments don't work. Simply take any given merchant, and calculate the most possible number of transactions, multiple by the low amount of each transaction, then work out how much revenue you got. Digital and IBM already discovered this at a cost of countless millions, and you can too, with a $5 pocket calculator.

The only thing left is that Peppercoin has some sort of secret weapon. Always possible, and always unlikely. Except them to raise another round, and then get absorbed somewhere and quietly forgotten.