Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Mahi Sall is the CEO & Founder of FinXpair, a Berlin-based strategic advisory boutique firm focu[...]
Right to anonymous payments
Do we have a right to anonymous payments? If so, is this right linked to certain payment instruments, such as cash? Does this right apply equally to payers in the analogue and the digital world? For most people, the daily payments initiated as market participants are unavoidable. It has therefore become one of our basic needs, like sleeping and eating. The right to anonymity, which can be regarded as an essential pillar of a modern democratic society, is generally derived from the fundamental rights to freedom of expression and informational self-determination.
This right is by no means limited to the analogue world. For example, we have the right to browse the internet anonymously, using appropriate software and pseudonyms. Does this right also apply to the payment act? In the analogue world, this right is indirectly established by the existence of cash. Cash leaves no traces of data and, due to its special status as legal tender, it is a means of payment
See: Bill to overhaul Canada’s privacy laws coming soon
As long as there is still cash as legal tender, we therefore do not only have the option, but also the right to anonymous payments. The interesting question of whether this right can also be enforced anywhere and at any time (e.g. when paying the broadcasting licence fee) has been debated by the German courts for quite some time, at ever higher levels.
Right to anonymous cashless payments
As a means of payment, cash, which is still dominant today, is gradually losing in importance (not, however, as a means to store value). The shift in demand in favour of online retailing has contributed to this, as cashless payments are usually the only option in that area. In the future digital world with, for example, the Internet of Things and automotive payment applications (pay per car), the only thing that will remain are cashless digital payments. In Germany, the right to anonymous online payments is only protected by law for the use of telemedia (Sec. 13 No. 6 of the German Telemedia Act – Telemediengesetz).
The German party SPD was the only party who was consistent and future-oriented in its election campaign program in 2017 in this regard as it demanded a general right to anonymous cashless payment. And rightly so, as why should I have to forfeit my elementary rights from the analogue world when entering the digital world, which is inevitable nowadays? The demand of the SPD party was an important step forward, which unfortunately was again deeply buried in the slightly childish games in the sandpit of the grand coalition.
See: Cadillac Fairview broke privacy laws by using facial recognition technology at malls, investigators conclude
Is this demand even technically feasible? “Cashless + anonymous” is not an inherent contradiction. In contrast to a cash payment, there is always data on the payment process, but not necessarily on the identities of the payer and the payee. This means that digital payments can also be made while maintaining anonymity. You don’t have to surf the Darknet and pay with Bitcoins to achieve this. Digital payments with an anonymous prepaid card (e.g. a gift card) demonstrate how easily this can be done. Since the mid-1990s, analogue cash has been capable of being used digitally 1:1 as an anonymous bearer instrument without any further complications. If technology is not the problem, then what is?
5AMLD: The right through the back door
Let us recall the chutzpah of EU Directive 2018/843 (better known as AMLD5), which has to be implemented by 10 January 2020. In its first draft (2016), the Commission wanted to ban anonymous cashless online payments using e-money. Anonymous e-money payments at the physical POS have not yet been banned, but the thresholds have been significantly lowered (from EUR 250 to EUR 150). In this segment, the door should not be slammed shut completely, as prepaid cards currently still make an important contribution to social and financial inclusion according to recital 14. In addition, according to the Commission’s Impact Assessment Analysis on the draft directive, a ban on anonymous payments in this segment would not be very effective as cash can still be used here.
See: Survey Until Feb 26: Ontario Seeks Input from Individuals and Businesses to Help Shape Digital ID Program
AMLD is obviously intended to prevent money laundering and terrorism financing. There was no evidence of money laundering with anonymous prepaid cards. On the contrary, the current scandals show that money laundering in the billions is mainly carried out via non-anonymous accounts by fully identified bank customers (Danske Bank in Estonia, ING Bank in the Netherlands, Deutsche Bank in Russia, etc.). The only remaining argument is therefore terrorism financing. There was vague evidence, which has not yet been verified, that in the Paris attack (November 2015) the Islamic terrorists used an (anonymous?) prepaid card.
The consequence is to abolish the right to anonymous cashless payment on the internet for half a billion EU citizens. As a passionate cyclist, I am delighted that the terrorists did not use an anonymous bicycle when they fled, for otherwise the Commission would have introduced the same questionable logic of compulsory bicycle registration and the use of number plates throughout Europe.
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