tag:theconversation.com,2011:/us/topics/bank-remittances-13628/articlesbank remittances – The Conversation2015-10-08T01:12:58Ztag:theconversation.com,2011:article/483152015-10-08T01:12:58Z2015-10-08T01:12:58ZReal lives, real risk: threats to small money remitters hit African families<figure><img src="https://images.theconversation.com/files/96904/original/image-20151001-5823-37ozrp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Limitations to the flow of money to countries like Eritrea has family members in Australia worried.</span> <span class="attribution"><span class="source">David Stanley/Flickr</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>All Australia’s major banks <a href="https://theconversation.com/bankers-are-about-to-ensure-money-transfers-go-underground-34487">have largely stopped serving small money remitters</a>, amid concerns about money laundering and terrorist financing risk. The options for sending money overseas are becoming limited to commercial banks and large international companies, often the most expensive remittance channel.</p>
<p>Almost one year on, we have interviewed 40 people based in Melbourne from Somalia, South Sudan, Ethiopia and Eritrea, to record, rather than debate, their views. </p>
<p>All senders of money worry they will not be able to send money home, money that feeds their families still in Africa and pays school and university fees. Some worry that if the money stops their parents will starve. Young people will join terrorist groups or decide to flee hunger by joining the boats. One Eritrean community leader said his cousin fled to the Mediterranean shores and died in the attempt to reach Europe.</p>
<p>Regulators are aware of what is happening. They meet with industry representatives, mainly behind closed doors, and debate whether the closures have any real impact. In this process no government or bank official is speaking with the affected communities. Community leaders fear that this marginalisation of those needing to support their families, increases their social exclusion and may feed radicalisation in Melbourne.</p>
<h2>What they said</h2>
<p>Community reaction is a mixture of bewilderment and a feeling of being sidelined. Badra (all the participants’ names are pseudonyms), who supports her family in Somalia and Kenya, says she is “just outraged”.</p>
<blockquote>
<p>“It was put in place without consultation. For me, it is another form of colonialism. People who have gradually built their lives after fleeing war and trauma, are now being cut down… My connection to my country of birth, my parents’ and grandparents’ country of birth, has been cut off.”</p>
</blockquote>
<p>Community members rely on their community-based remittance providers. Banks and other large international providers are too expensive but most importantly they don’t have the reach in the recipient countries and are not located close to family members of many senders. </p>
<p>Ojala from Somalia says:</p>
<blockquote>
<p>“Western Union doesn’t live in a remote area. It can take two days for our people to walk to the city. Then they don’t know English. And the fee is higher.”</p>
</blockquote>
<p>Central to their comments is that sending remittances is not optional. </p>
<p>Faith from South Sudan says: </p>
<blockquote>
<p>“I cannot let my mother die.”</p>
</blockquote>
<p>She sends money every fortnight, turn by turn, to her mother and siblings in Uganda, her father and siblings in South Sudan. How do you manage? we ask. “I budget,” she says. </p>
<p>Helen from South Sudan says: </p>
<blockquote>
<p>“Women send more often. They see the situation. They understand what is happening to the family.”</p>
</blockquote>
<p>Dawood from South Sudan says his family is waiting for his support:</p>
<blockquote>
<p>“Even though I have no money, I have to send. I ask others in my community, here or in Queensland to help. We have to.”</p>
</blockquote>
<h2>Views of remittance providers</h2>
<p>Community-based remitters are stressed. Many who had lost bank accounts, moved to other smaller banks but are fearing that those accounts will be closed too. We interviewed one remitter who, with his last account eventually closed by a smaller bank, was in the process of closing his ten-year old business. </p>
<p>Fuad a small remittance provider from Somalia says:</p>
<blockquote>
<p>“I am worried not only for the business, but …I don’t know how my mother, my brothers and sisters will live. It is very painful. If they close down this business, they close down the life of the people.” </p>
<p>“The Australian government gives us a licence… but the banks say you are too risky for us.”</p>
</blockquote>
<p>These community-based remitters – like all formal remitters - are registered with AUSTRAC and have compliance programs. Most have a customer base of a few hundred customers drawn from their ethnic communities. They know their customers and often their families personally. Customers are registered and send on average A$100-$200 per month. The people who receive their money have to show their ID. Everybody agrees that if a provider is not following the rules, it should be closed.</p>
<p>Abbas from Ethiopia with a remittance business says he feels regulators see people like him as “aliens”. These policies are made without consultation and are further marginalising his community. He sees the move as banks wanting to increase their market share by closing competing businesses.</p>
<h2>Identifying real risk</h2>
<p>These providers and sending communities face a serious dilemma. Their families live in regions with conflict and so the families’ needs are acute. At the same time these regions carry a high terrorism risk, making it even riskier for banks to deal with them. Regulators’ concerns, however, do not resonate with the community. Kubira, a Somalian woman asks “Is sending $150 to your mother, terrorism?”</p>
<p>Senders all indicated that remittances will continue because the survival of their loved ones depend on it. If the formal sector provides no practical alternatives, money may be sent informally with friends or carried by hand. Some of the informal channels are managed by people who are viewed as radical. Community leaders fear the consequences of driving senders, angered by account and business closures, into the hands of radical elements. Regulatory processes aimed at preventing terrorism in the Horn of Africa, can perversely result in increasing radicalisation and risk in Melbourne.</p>
<p>Regulatory processes against money laundering and funding for terrorism require banks to adopt appropriate – and relatively expensive – measures to monitor these customers. This makes the retention of the business of smaller, community-based remitters <a href="http://theconversation.com/lack-of-real-action-on-remittances-increases-terrorist-financing-risk-34706">unviable</a>.</p>
<p>AUSTRAC, the relevant regulator, <a href="http://www.austrac.gov.au/news/austrac-statement">publicly</a> encouraged banks to consider these relationships and to engage remitters with a view to maintaining accounts. This is helpful but regulatory authorities need to be more creative to address compliance costs and the risks of increased international penalties for compliance failures – a key driver of many of the closure decisions. In addition they need to address the threats by other international banks to cease doing business with Australian banks if they continue to service these providers.</p>
<h2>Time to talk</h2>
<p>An important step forward would be to engage the affected communities in Australia. It will show them the Australian government is concerned about their plight and enable officials to explain their regulatory objectives to these communities. A constructive discussion may assist in identifying factors that may lower the perceived risks posed by small community-based remitters. </p>
<p>Funds sent by these providers could be capped at $300 per customer per month, to limit the risk of terrorist financing. Regulators could leverage off the personal relationships between providers and their customers, supported by communities that have a stake in ensuring that these channels are used responsibly. That could open the door to more cost-effective risk mitigation measures by banks and help ensure continued flows of these vital funds.</p><img src="https://counter.theconversation.com/content/48315/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Supriya Singh does not have any funding or affiliation that is relevant, or could be perceived to be relevant to this subject. Her academic affiliation is with RMIT University. </span></em></p><p class="fine-print"><em><span>Louis de Koker does not work for, own shares in or receive funding from any company or organisation that would benefit financially from this article. He does provide policy advice to international bodies and groups that advance financial inclusion.</span></em></p>With fewer options available to send much-needed money to their family overseas, migrant communities fear severe consequences.Supriya Singh, Professor, Sociology of Communications, Graduate School of Business & Law, RMIT UniversityLouis de Koker, Professor of Law, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/478992015-09-29T08:41:16Z2015-09-29T08:41:16ZBanks will help insure Iran keeps promises on nukes<p>In a speech before the UN General Assembly on September 28, Iran’s President Hassan Rouhani heralded the Joint Comprehensive Plan of Action as a <a href="http://www.huffingtonpost.com/entry/hassan-rouhani-united-nations_5608af01e4b0dd8503080480">new chapter</a> in Iran’s relations with the rest of the world.</p>
<p>After a heated and largely politicized national debate, Congress is set to move forward with nuclear agreement. This treaty limits Iran’s nuclear enrichment capabilities over the next decade in exchange for sanctions relief. </p>
<p>Financial sanctions helped bring Iran to the negotiating table. But sanctions also have another use. They have made possible the US monitoring of transactions that may be related to Iran’s covert purchase of restricted items. Iran’s exile from global banking meant that the rest of the world’s banks could easily watch for suspicious transactions involving Iran. </p>
<p>Now after more than a decade of near financial isolation, Iran is set to rejoin the global economy. Trade and commerce will exponentially increase. How will this affect our ability to monitor financial transactions related to proliferation?</p>
<p>As scholars who study nuclear nonproliferation and financial monitoring, we believe that reconnecting to the global banking system will make it harder for Iran to covertly trade in nuclear goods – not easier.</p>
<h2>Financial vigilance</h2>
<p>After 9/11, US policymakers set about to leverage the US dollar’s dominance in international trade to fight terrorism. </p>
<p>The strategy included a number of tools, including freezing terrorists’ assets, requiring greater scrutiny of transactions and prohibiting entities from using US banks and investment services. </p>
<p>Building on this success, the Department of the Treasury adopted similar methods to stem the illegal trade in dual-use items – goods and services that have both commercial and military applications.</p>
<p>Since 2003, the United States has refined its arsenal of financial tools to dismantle networks that buy and sell dual-use goods. These tools rely both on strict rules about reporting, Iran’s isolation, and the stature of the United States in the global financial system.</p>
<p>Networks that trade in dual-use goods and services need the formal banking system to make payments to suppliers. For regulatory and enforcement agencies, this provides an opportunity to detect and disrupt these illegal activities. But, this process relies on banks’ vigilance in spotting transactions that may be related to proliferation.</p>
<p>This is done in two ways. First, banks can monitor for transactions by entities known to have affiliations with Iran’s ballistic missile or nuclear programs. The Department of Treasury is responsible for maintaining a list of these entities. </p>
<p>Second, banks can monitor for transactions that appear related to Weapons of Mass Destruction.</p>
<p>Pressure on US banks to stop these transactions is tremendous. Failing to detect transactions in violation of sanctions regulations could result in stiff penalties, or worse, exile from the US banking system. </p>
<p>In 2014, for example, the US levied a record-setting <a href="http://www.reuters.com/article/2014/07/01/us-bnp-paribas-settlement-idUSKBN0F52HA20140701">US$9 billion fine</a> against French bank BNP Paribas after the bank failed to stop transactions that were in violation of Iranian, Cuban and Sudanese sanctions. </p>
<p>These tools can also isolate rogue banks. In 2007, the Department of the Treasury used provisions under the US Patriot Act to cut off <a href="http://www.nytimes.com/2007/01/18/world/asia/18iht-north.4255039.html?pagewanted=all&_r=0">Banco Delta Asia</a>, a small private bank in Macau, from accessing the US banking system. Banco Delta Asia was responsible for assisting the North Korean regime with laundering proceeds tied to drug trafficking and managing accounts linked to the proliferation of weapons of mass destruction (WMD). As result, Banco Delta Asia became a global pariah. No bank wanted its business. </p>
<h2>What changes under the new agreement?</h2>
<p>Under the Iran deal, all of the UN sanctions and most of the US and EU sanctions will be lifted once Iran implements, and the International Atomic Energy Agency verifies, promises it made under the Joint Comprehensive Plan of Action.</p>
<p>Lifting sanctions paves the way for Iran to reconnect to the global economy. Interest in new trade and investment opportunities with Iran is high. At a two-day seminar starting September 24, in Geneva, Switzerland, the <a href="http://www.europeiranforum2.com/">Europe-Iran Forum</a> held its second event this year to discuss challenges with finance and investment in a post-sanctions world. <a href="http://www.europeiranforum2.com/speakers/philippe-delleur">Phillippe Delleur</a>, president of French multinational energy company Alstom Internaitonal, was among the impressive list of speakers. So was <a href="http://www.europeiranforum2.com/political-speakers/gholamali-kamyab-1">Gholamali Kamyab</a>, the vice governor of the Central Bank of Iran.</p>
<p><a href="http://www.foreign.senate.gov/imo/media/doc/07-30-15%20ZarateTestimony.pdf">Critics of the agreement</a> fret that once sanctions go away networks could hide procurement of dual-use goods in high volumes of trade and commerce. </p>
<p>This is partially true. When it comes to monitoring for proliferation-related financing, the JCPOA is not clear. Although prior UN resolutions sought to prevent the provision of <a href="http://www.treasury.gov/resource-center/sanctions/Programs/Documents/1929.pdf">financial services to Iran</a>, the new agreement does not clarify the type and scope of information Iran must provide to the UN. This leaves banks in the dark in terms of how financial records should be handled.</p>
<p>On the other hand, Iran’s reconnection to the global banking system can potentially increase financial transparency. Iran’s financial isolation forced much of its economy to use <a href="http://www.economist.com/news/business/21574540-how-iranian-companies-manage-keep-trading-foreigners-around-block">alternative</a>, less efficient financial payment methods. In many cases, these methods were subject to <a href="http://eng.majalla.com/2014/06/article55250420">less regulatory oversight and scrutiny</a>.</p>
<p>But as global trade and commerce with Iran begins to normalize, international banks’ need for financial transparency, from a regulatory perspective, will increase. This is good news for agencies responsible for detecting potential violations of the agreement.</p>
<p>Economic integration may also encourage Iran to adopt international anti-money laundering norms and standards. The <a href="http://www.fatf-gafi.org/pages/aboutus/membersandobservers/">Financial Action Task Force</a>, which is the intergovernmental body responsible for setting policies to protect the integrity of the global financial system, continues to cite serious concerns about gaps in <a href="http://www.fatf-gafi.org/publications/high-riskandnon-cooperativejurisdictions/documents/public-statement-june-2015.html">Iran’s anti-money laundering laws</a>. Until Iran addresses these issues, banks will take a cautious approach handling Iranian transactions. </p>
<p>Also, many of Iran’s trading partners belong to the <a href="http://www.egmontgroup.org/about/list-of-members">Egmont Group</a>, an informal network of financial intelligence units that act as a clearinghouse for the receipt and analysis of suspicious transactions reports. This means, for example, that if a German bank files a suspicious report on an Iranian transaction, that report can be made available to US law enforcement or intelligence agencies. </p>
<h2>Challenges remain</h2>
<p>Compared to countering terrorist financing, establishing international norms on countering proliferation financing have been slow to catch on. </p>
<p>A 2012 study by Nikos Passas on the implementation of <a href="http://www.state.gov/t/isn/c18943.htm">UN resolution 1540</a> found that UN members states varied considerably in their approach to financial vigilance. The resolution calls upon member states to establish controls on providing funds and services, such as financing to nonstate actors seeking WMDs. As a result, global implementation of tools to prevent proliferation financing has lagged compared to other types of financial vigilance.</p>
<p>Reconnecting Iran to the global banking system may increase transparency, but banks still need to know what they are looking for. How exactly are proliferation-related financial transactions any different than normal trade and commerce? The answer is they are not very different at all.</p>
<p>This can be problematic given the volume of daily global transactions. Since January 2015, for example, the <a href="https://www.swift.com/assets/swift_com/documents/about_swift/SIF_201508.pdf">Society for Worldwide Interbank Financial Telecommunications</a>, which is the world’s largest communications system for the financial sector, processed over four billion messages – almost 50% of these are payment related. </p>
<p>The solution? Banks need better guidance to be truly effective at monitoring for transactions related to proliferation. This is no easy task. Building public-private information sharing relationships is a good place to start, but common legal frameworks, standard interpretations of international resolutions, and political support are also needed.</p><img src="https://counter.theconversation.com/content/47899/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nikos Passas has received funding from the EU Commission and served as Team Leader for a study into financial vigilance and proliferation of WMD control in 2009. </span></em></p><p class="fine-print"><em><span>Aaron Arnold does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Increasing trade and commerce will make it easier to verify the Iranians are keeping their promises under the nuclear agreement.Aaron Arnold, Associate with the Project on Managing the Atom, Harvard Kennedy SchoolNikos Passas, Professor of Criminology and Criminal Justice, Co-Director of Institute for Security and Public Policy, Northeastern UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/347062014-11-30T18:55:50Z2014-11-30T18:55:50ZLack of real action on remittances increases terrorist financing risk<figure><img src="https://images.theconversation.com/files/65692/original/image-20141127-17453-yflahj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Pushing money remitters out of the market is only likely to increase the risks of money laundering and terrorist financing.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Globally migrant communities will send nearly <a href="http://www.worldbank.org/en/news/press-release/2014/10/06/remittances-developing-countries-five-percent-conflict-related-migration-all-time-high-wb-report">US$435 billion</a> to family members in home countries this year. These remittances are vital and sustain not only the livelihoods of the recipients, but also the economies of poor countries. </p>
<p>Recently Westpac, mirroring 2013 steps by <a href="https://theconversation.com/banks-move-on-money-remitters-but-will-it-really-combat-crime-16969">Barclays</a> in the UK, became the last big Australian bank to <a href="https://theconversation.com/bankers-are-about-to-ensure-money-transfers-go-underground-34487">terminate its services</a> to small remitters. This poses a serious risk to the continued, transparent flow of remittances. </p>
<p>Not all Westpac remitter accounts were closed as a group of remitters brought a [legal case](https://www.comcourts.gov.au/file/FEDERAL/P/NSD1222/2014/order_list#;javascript:void(0) against Westpac. This case as well as discussions between the <a href="http://www.arcpa.org.au/">newly organised Australian remittance industry</a>, the banks and the Australian government continue. The lack of real and urgent action however threatens to increase terrorist financing risks. </p>
<h2>Moving money – above or below board</h2>
<p>Informal, ethnic remittance services – for example, in the form of <a href="http://www.treasury.gov/resource-center/terrorist-illicit-finance/Pages/Hawala-and-Alternatives.aspx">hawala</a> – are well-developed and often said to pre-date Western banking. These systems shift value across borders without moving physical money. The flow happens through a network of trusted agents, often involving cross-border trade and over and under-invoicing.</p>
<p>Informal remittance systems transfer funds cheaply and efficiently for honest customers. However, the lack of transparency and industry practices also expose them to abuse. Informal remittances are ideal for money laundering, tax evasion and terrorist financing. </p>
<p>Alongside informal services, formal providers channel money through the banking system. Formal remittance transactions are generally handled by large international companies like Western Union and Moneygram and a host of small service providers. These providers - generally small businesses with ties to ethnic communities - provide affordable and accessible services to ethnic migrant communities. To remit money through the formal financial system, remitters require bank accounts. </p>
<p>From 2001 governments decided to formalise these services and terminate informal remittances. Yet full regulation of remittance services was deemed challenging. Governments settled for basic registration of providers who were required to implement anti-money laundering and terrorist financing (AML/CTF) measures.</p>
<p>The AML/CTF compliance burden soon proved too onerous for small remitters, while the registration processes were inadequate to weed out criminal elements and ensure the integrity of registered remitters.</p>
<p>Simultaneously the duty of banks to monitor their customers to prevent criminal transactions was increased, especially in relation to higher-risk customers. Regulators identified remittance businesses as higher-risk customers, thereby requiring banks to spend more money on monitoring their accounts than those of less risky customers. It soon became clear the costs of maintaining these accounts exceeded the income they could generate. </p>
<p>Further pressure was placed on remittance relationships when regulators began to impose <a href="http://www.reuters.com/article/2012/12/11/us-hsbc-probe-idUSBRE8BA05M20121211">superfines</a> on banks for AML/CFT failures. Large international banks began to refuse to deal with smaller banks that could not prove they were adequately managing remittance risks. Targeted law-enforcement action against remitters provided <a href="https://www.crimecommission.gov.au/media-centre/release/australian-crime-commission-speeches/executive-director-operations-address">evidence</a> of serious criminal infiltration and collusion by some providers.</p>
<p>For many banks it just made compliance and business sense to exit the small remitter market, thereby undermining the formalisation policy objective.</p>
<h2>What now?</h2>
<p>Remitter account closures are occurring worldwide and regulators appear unable to prevent it. The most promising development to date was the establishment of a joint government and industry task group in the UK (the <a href="https://www.gov.uk/government/policies/helping-developing-countries-economies-to-grow/supporting-pages/enabling-the-continued-flow-of-remittances">Action Group on Cross Border Remittances</a>) to develop, among others, a safe UK-Somalia remittance corridor. </p>
<p>In general, however, regulators have merely called on banks not to engage in wholesale account closure, without taking any steps to change the rules that have led to this response. Given that money service business account closures <a href="http://dro.deakin.edu.au/view/DU:30016859">started </a>in the mid-2000s in the US, the lack of action is disappointing. Regulators have had 10 years to intervene.
.
The reality is that remittance flows will not stop. Immigrants who need to support vulnerable and often desperate family members abroad will continue to do so. They have no option.</p>
<p>If they cannot afford the more expensive services of the larger, formal providers, they will use informal channels or one of the myriad new online channels. Greater use of these channels will increase terrorist financing risks to society. In addition, the frustration and alienation experienced by members of such communities in Australia and abroad may translate into higher terror risks. </p>
<p>There are therefore compelling reasons to turn this situation around. What can be done?</p>
<p><strong>1) Develop a holistic policy</strong></p>
<p>The remittance debacle constitutes clear policy failure. Initial policy interventions were driven by security concerns. The sense of urgency in 2001 did not allow for sufficient fact-gathering and consultation. A holistic policy that aligns the national security, regulatory and international development goals of government is required. </p>
<p>Cross-border cooperation is also required. Money remitted from Australia is received elsewhere. When the recipient is in Somalia or another developing country where secure identification is not available, Australia will need to cooperate with foreign governments to limit criminal risks.</p>
<p><strong>2) Regulate remittance services appropriately</strong></p>
<p>The amount of money involved and the social impact of remittances demand appropriate regulation, including consumer protection. Governments recognised the need for regulation but were not prepared to do what it takes. They therefore restricted the regulatory focus to AML/CTF aspects only and burdened banks with an uncommercial, quasi-regulatory monitoring function.</p>
<p>This approach has clearly failed. The industry requires a regulator with a broad mandate, one that reflects and balances the interests of the broader industry, providers, customers and society. Industry self-regulation could assist in nurturing the industry but government must shoulder the weight of the regulatory responsibility.</p>
<p><strong>3) Cap transactions by small remitters</strong></p>
<p>The regulatory and supervisory frameworks can be proportionate if a risk-based approach is adopted. The most challenging entities to regulate are the small, independent remitters. One light-touch option is to provide a special minimal compliance regime enabling them to process a limited number of small remittance transactions.</p>
<p>For example, one could <a href="http://www.sbs.com.au/news/article/2013/10/29/austrac-focuses-money-remitters">impose limits</a> on individual transactions, with a total cap on the value of their monthly remittance business. Such caps are used successfully to <a href="elibrary.worldbank.org/doi/pdf/10.1596/978-0-8213-8669-9">reduce the risks posed by mobile money in developing countries</a>. Correctly calibrated caps would align the risk of abuse with the <a href="http://www.news.com.au/national/western-australia/paperwork-averse-man-fined-7000-in-perth-court-for-conduct-known-as-structuring-or-smurfing/story-fnii5thn-1227126086440">compliance capacity</a> of the business, while facilitating affordable remittance flows. </p>
<p>These are longer-term solutions. In the short term – counted in days and weeks – we need government action to secure banks that are still willing to engage these remitters. It’s <a href="http://adam-bandt.greensmps.org.au/content/media-releases/government-must-listen-remittance-industry-bandt">up to government</a> to devise a scheme that can keep small remittances flowing – and terrorist financing risks contained – until a more appropriate framework is developed. Having created the <a href="http://dro.deakin.edu.au/view/DU:30065439">regulatory conditions</a> for account closures, it is insufficient to merely call on banks not to close these accounts.</p><img src="https://counter.theconversation.com/content/34706/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Louis de Koker does not work for, own shares in or receive funding from any company or organisation that would benefit from this article. He does provide policy advice to international bodies and groups that advance financial inclusion.</span></em></p>Globally migrant communities will send nearly US$435 billion to family members in home countries this year. These remittances are vital and sustain not only the livelihoods of the recipients, but also…Louis de Koker, Professor of Law, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/344872014-11-21T01:49:41Z2014-11-21T01:49:41ZBankers are about to ensure money transfers go underground<figure><img src="https://images.theconversation.com/files/65077/original/image-20141120-28654-15fv7j2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Millions of people around the world rely on money transfer operators to send funds to their families.</span> <span class="attribution"><span class="source">Gregory Wake/Flickr</span>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span></figcaption></figure><p>Next week, Australian bank Westpac will become the last of the big four banks to <a href="http://www.theage.com.au/business/banking-and-finance/westpac-closes-door-on-money-transfer-operators-as-terror-laws-bite-20141118-11p75z.html">stop serving money transfer operators</a>, amid concerns about breaching laws on money laundering and terrorist financing.</p>
<p>There is the whiff of the illicit about sending money overseas in Anglo-American countries. Sending money to parents and siblings does not feel natural, for it is not a cultural practice. Parents and grandparents give money to children and grandchildren, but money seldom flows back up the generations. Some of the regulatory practices to curb sending money overseas stem from this cultural presupposition.</p>
<p>These assumptions have also made it difficult for organisations to see the importance of remittances. In 2003 <a href="http://www.ted.com/talks/dilip_ratha_the_hidden_force_in_global_economics_sending_money_home?language=en">Dilip Ratha</a> put remittances on the map. He found that remittances to the Philippines were 51 times higher than the International Monetary Fund estimated. </p>
<p>Ratha is an Indian migrant to the United States and used to send money to his family in Orissa. He is now the lead economist and manager of the Migration and Remittances Development Prospects Group at the World Bank. </p>
<p>Despite the Anglo worldview, the global norm is to share money within the family. In most parts of Asia, Africa, Latin America and the Pacific, money is routinely shared both ways between parents and children. </p>
<p>When my mother was alive, I sent money home to India. I followed my sisters who had sent money home from Mumbai and New York. Their money helped put food on the table, for we were a refugee family. </p>
<p>By the time I began earning overseas, my mother had retired as a principal of a university college. She could manage. I sent money to show love and care. My mother would boast of receiving money, for it showed she had a filial child. </p>
<p>In 2014 remittances to developing countries are projected to reach $US435 billion, more than three times the amount of overseas aid. Remittances are greater than foreign direct investment in countries except for China. </p>
<p>In many countries, remittances can be up to 70% of the household income. They pay for food and housing, for the children’s education and the family’s health. </p>
<p>Remittances are important for the country too as they are more stable than private equity flows. They are an important percentage of Gross Domestic Product (GDP). In 2012, formal remittances accounted for 12.2% of GDP in Bangladesh, 23.2% in Samoa and 12.6% in Tonga, according to the World Bank. The figure for Vietnam in 2011 was 6.3%. </p>
<p>Money laundering and funding terrorism happens through all payment channels. Some of the most dramatic cases have happened through banks. Shutting down the remitting organisations’ bank accounts and hence shutting down their operations will only mean we lose transparency and the audit trail. </p>
<p>Ensuring transparency means that regulators, formal financial institutions and money transfer organisations can work together. They can devise signals that track and curtail money laundering and funding of terrorism. </p>
<h2>Bank self-interest?</h2>
<p>It is difficult not to suspect banks of a self-serving motive in withdrawing their services from registered remitting organisations. Commercial banks are often the most expensive remittance channels. </p>
<p>World Bank figures show the cost of sending money from Australia via banks, particularly to remittance-dependent countries in the Pacific, is more than twice the percentage charged by money transfer operatives (MTOs). The bank average cost for sending A$200 to Samoa is 18.38% compared to MTOs at 7.64%. For Tonga the average percentage costs are 18.26% versus 8.78%. </p>
<p>Closing down non-bank money remittance channels will leave families in Australia, Asia, Africa and the Pacific without the means of lending or receiving support. The money transfers will not stop, because they are deeply embedded in the role of money as a medium of relationship. Most likely the transfers will move to informal channels. </p>
<p>This is contrary to the agreed aims of G20. The struggle has been to lower the cost of remittances from the present average of 7.9% to 5%. There has also been a steady push to increase the percentage of formal remittances. At present informal channels are estimated to account for 45-80% of all remittances. </p>
<p>The high cost of remittances and onerous regulation are leading to speculation, particularly in Africa, that cryptocurrencies like Bitcoin will reduce the cost of remittances and increase access. Bitpesa in Kenya advertises a 3% transfer fee. Despite the promotion, there is little evidence or study of use on the ground. But alternatives that bypass the banking channels are looking increasingly attractive to those sending and receiving money across borders.</p>
<p>What then for money laundering and funding of terrorism?</p><img src="https://counter.theconversation.com/content/34487/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Supriya Singh does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Next week, Australian bank Westpac will become the last of the big four banks to stop serving money transfer operators, amid concerns about breaching laws on money laundering and terrorist financing. There…Supriya Singh, Professor, Sociology of Communications, Graduate School of Business & Law, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.