Remittance Sector in Flux Part One: Fears of Terrorism Funding are Shutting Down the Remittance Sector that so Many Rely Upon

399f6ea[1] - Copy (2)

A concerning topic has arisen since late November 2014 that remittance services by banks will increasingly cease to be offered in developing countries. Remittances can be classified as international money transfers  that usually originate from migrants in developed countries to family back home in developed countries. Remittances provide a substantially large proportion of money received by developing countries. This is exemplified by the fact that The World Bank has estimated that in 2013 global remittances were estimated at $542 billion dollars with $404 billion of these dollars being sent to developing countries. On a more micro level remittances often provide a large proportion of the incomes of those that live within developing countries. It is estimated that remittances sustain the welfare of 700 million people globally. These remittances are usually set aside for the paying of school fees for children, healthcare, clothing, or can be used as a source of investment in micro-enterprise. Perhaps of equal importance is that remittances sent between family members or friends evokes a sense of social solidarity that can be so easily lost over such large distances. These connections include migrant workers sending money to home and international students receiving money from home. These migrants require such feelings of solidarity when separated from their home families and cultures. Since the importance of remittances is well established and that remittance services are now ceasing to be offered, the following questions need to be asked. What is the role of banks in providing remittance services? How is the threat of terrorism funding affecting the remittance sector? How are new remittance sector regulations causing the cessation of remittance services? Is there a solution in the foreseeable future in restoring remittance services?

Remittance agencies are usually businesses connected to local communities that can provide cheap, affordable, and responsive remittance services to local communities. These include large agencies such as Western Union or Money gram, but also includes a multitude of small scale agencies. These agencies however require bank accounts to receive and withdraw money from. This designates such remittance services as formal because banks are financially regulated by the governments of host countries. Remittances can also be provided by the informal sector such as using family members or friends travelling between countries to act as remittance delivers. In some cases, in particular the Middle East, trusted men of the community are paid to deliver money from town to town. The benefit of formal remittance services is that it can be regulated from who money is received and withdrawn from. This is not true of the informal remittance market and therefore can be used for funding dubious activities such as terrorism without the eyes of the authorities. However it must be noted that the vast majority of these informal remittance services are for genuine livelihood purposes.

It has become clear that the regulation over the formal remittance market has not been very strenuous over the last couple of years. On the 17th of September the financial intelligence agency AUSTRAC suspended the operations of a remittance agency called Bisotel Reih on the suspicion that it was using the company to fund terrorist activities in the Middle East. It is claimed that Bisotel Reih could have handled  as much as $21.3 million over the period January to August 2014 for terrorist related funding before investigation. The company was based in Sydney and had an office in Tripoli (North Lebanon). This location made it a prime candidate to fund extremist activities in nearby Syria. Bisotel Reih was owned by the sister and brother in law of Sydney terrorist Khaled Sharrouf. Khaled is known as the poster boy of Australian based terrorism, in 2005 he was charged over possession of items designated for a large scale terrorist plot. Investigations began after the company often failed to reveal recipients of money to regulators. Since investigation it has been revealed that one individual that was sent money was a US citizen known to be fighting in Syria. It is claimed that this US citizen has been sent $12,000 dollars during this period. Whilst Bisotel Reih was suspended and later deregistered from continuing remittance services it is clear that they had the opportunity to fund terrorist activity for a long time prior to the investigation and of a very high value. It can only be assumed that such cases have been one of the key causes of increased regulation in the remittance sector especially in the Australian and wider Pacific region.


Above: Hassan El-Sabsabi of Bisotel Reih (brother in law of Khaled Sharrouf) after a raid in Southbrook Melbourne. Photo by: Jason South

The new regulations in the remittance sector have primarily entailed stricter know-your-customer regulations for banks. It not only requires them to know the remittance agency’s identity but also the remitters that the agency deals with. These strict regulations have increased the transaction costs for banks in the remittance sector which many are not willing to shoulder. Banks are also conscious about the personal relations consequences of not adequately fulfilling the necessary counter-terrorism requirements. As a result Banks such as Westpac and ANZ to cease providing bank accounts to remittance agencies that provide such services to many Pacific islands. Westpac has also additionally been forced to cease remittance services because JP Morgan chase, which clears all of its US dollar transactions, is also pressuring it to act in unviable strict accordance to counter terrorism regulations. Regulators have been negotiating with banks encouraging not to cease their services to remittance agencies and to correspond to the new regulations. This has only amounted to temporary reprieves. Westpac for instance will open up remittance services to a select number of companies until March 31st 2015, however a long term solution does not seem to have materialised. This trend is not only occurring within our Pacific region but rather on a global level. In Somalia for instance it has recently been announced that the Merchants Bank of California will drop the accounts of remittance agencies there.

So what is the solution to this remittance crisis? First of it all it can be argued that strict formal regulations in the remittance sector will only slow but not stop terrorist funding. Such remittance services will be offered rather through informal channels that bypass regulatory structures. This argument postulates that genuine remitters are being unjustly punished for no reason as less genuine remitters will still carry out their operations underground. Some call for the return to the status quo. Secondly, it must be asked whether banks have some moral obligation to provide services that are so vital to the livelihoods and emotional welfare of such a large proportion of the global population regardless whether it decreases their profits by a few percentage points or not! One solution therefore is for the banks to take the hit. An unlikely solution. Thirdly, the blame cannot entirely be put on banks. Governments must also shoulder the blame as they have burdened the banks with regulatory requirements and have foregone the financial responsibility themselves. It can be argued that counter terrorism funding activities need to be provided by an industry regulator with a broad enough mandate and power to provide such regulation. Currently regulators do not have this broad mandate or government funding. Government needs to take some responsibility, however where will those required funds come from and at the expense of what? Lastly it can be argued that perhaps alternative regulations need to be offered that both combat terrorist financing activities but also do not cripple banks and remittance agencies with unviable transaction costs. One of these suggestions has been to cap transactions by small remittance agencies. This may not prevent terrorist funding but it will also not prevent those relying on remittances for their livelihoods to be left in the cold. Such a solution offers a balanced approach albeit not a complete solution.

This topic is of particular interest to me and I will continue to track it as solutions and opinions continue to develop.