International money transfer is a key component of global finance. By giving immigrants and expatriates a channel through which to send money home, it is a key source of income for most developing nations. The sector has however suffered greatly worldwide; due to stringent measures and controls introduced by banks globally (‘de-risking’) to combat money laundering and terrorist financing. This ‘de-risking’ or closure of remittance business bank accounts in Australia has left the hitherto robust and vibrant sector reeling and fighting for its very survival. According to industry sources, many hundreds of small remittance businesses have had to close since 2014
The role played by banks
Funds transfers by Banks through the SWIFT network have existed for a long time. Because it takes one to three days for cash transferred as international cash drafts to be processed, and customers must be a registered account holder to use the service, the service has failed miserably in meeting the needs of the target recipients, who hail from areas that are un-serviced or underserviced by banks and need to receive funds virtually instantly. According to a report by the Australian Centre for Financial Studies commissioned by the Western Union Money Transfer service, providing remittance services involving countries with poor financial services infrastructure is a resource-intensive and costly activity that banks have been unwilling or unable to replicate. This has left the role of remittance mostly in the hands of specialist Money Transfer Operators (MTOs) such as MoneyGram, Western Union and an array of smaller local institutions.
Bank de-risking refers to the global trend for banks to close or restrict the accounts of customers including the accounts of remitters. The strengthening of the Anti-Money Laundering and Counter-Terrorism Financing Act of 2006 and its 2007 rules saw banks de-risk accounts belonging to remittance service providers’ en-masse. This withdrawal of banking services has left cash remitters with no option but to turn to the murky world of informal channels which include literally transporting bags of cash to Dubai for onward remittance. Forcing genuine remitters to use these informal channels has resulted in perpetuating the same vice that the Act, and the global rules it is based on, are attempting to stop; that is, money laundering and the funding of terrorist activities.
Compliance checklist
To overcome the challenge of bank de-risking which is currently pulling down the sector and to combat money laundering and terrorist financing effectively, MTOs need to achieve a similar level of compliance to that observed by banks. Currently, the sector has tried self-regulation through the Australian Remittance and Currency Providers Association Limited (ARCPA). They have put together a checklist that defines a compliant and legitimate cash remitter in Australia, which is as follows:
- Enrolled and registered with AUSTRAC as a money remittance service business, which forms part of the designated services under the Anti-Money Laundering and Counter-Terrorism Financing Act in Australia.
- Implemented an Anti-Money Laundering and Counter-Terrorism Financing Act compliance programme to ensure the collection and verification of customer identification, transaction monitoring, statutory reporting and reporting of any suspicious activities and proper record keeping.
- Created a sanctions compliance program to ensure that the names of senders and recipients in every transaction are screened against an updated list of internationally sanctioned names on an automated basis.
- Declared its business as a cash remitter to banks with which it opens and maintains accounts.
- Properly manages remittance customer funds and does not mix customer remittance funds with other business funds.
- Complies with all of AUSTRAC’s reporting requirements with regards to Threshold Transaction Reports (TTRs), International Funds Transfer Instructions (IFTIs) and Suspicious Matter Reports (SMRs) to avoid perpetuating unregulated and unlicensed remittance.
- Implemented a treasury function to buy and sell foreign currency to avoid speculation with local currency, prohibit foreign exchange transactions at anything other than the official rate of exchange, and conduct trades with licensed foreign exchange dealers such as the banks and foreign exchange houses.
- Attained ARCPA certification.
Unfortunately, despite Australian based remittance businesses complying with these conditions, they are still ignored by the banks and forced to either close their doors or look for an alternative means of transferring their client’s funds internationally. Flexewallet, a Novatti Group subsidiary, has initiated a new service to help these remittance agents. Collect and Payment Services (CAPS) is uniting various remittance agents around Australia to send their funds as a collective through Flexewallet’s existing accounts. Flexewallet is also speaking to the banks directly as a collective voice to improve the industry and enable new entrants to compete for move fairly.
In conclusion, if a cash remittance service provider observes these guidelines, they should be compliant and not have any issues with regulators or banks. The barriers and difficulties are not only limited to Australia, and we note similar issues arising worldwide.
