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US banks’ actions to close small money transfer companies’ accounts may reduce legitimate options for sending money home

US-based migrants may find it much harder to opt for formal channels in sending money to needy family members overseas because of an increasing tendency on the part of a number of US banks to close down the accounts held by small, niche money transfer companies—including many that are in full compliance with licensing, auditing, customer reporting and other regulatory requirements of US state and national authorities. Somali migrants in the US and their families back home may be particularly hard hit by recent actions taken by some US banks to discontinue working with money transfer companies operating here that focus on sending small remittances from the Somali migrant community—many of whose family members are struggling to cope with their country’s worst drought in a decade while already suffering from decades of civil conflict.  

The banks themselves are responding to changes over the past decade in the level of monitoring required by state and national regulators on their customers’ transaction accounts. The situation varies by US state, with banks in Ohio and Virginia, for example, facing much tougher pressure from their state regulators than banks in some other states to monitor accounts more closely in the post-9/11 period, for fear of antiterrorism and money laundering activities. Fall-out from the global financial crisis has also meant that US banks face greater cost-cutting burdens over the past year and more stringent due diligence requirements in response to the steps taken by US financial market regulatory authorities to strengthen risk management in the US banking sector.  A bill that reportedly is with the US House Committee on Financial Services (Money Service Business Act of 2009) aims to reduce some of the regulatory burden imposed on banks and enhance the availability of transaction accounts held at depository institutions for money transfer companies. The act would basically allow a bank to keep on file specific mandatory self-certifications for a money transfer company for which the bank maintains an account—relieving the bank of the more onerous due diligence compliance requirements in this case.

Understandably, the events that have unfolded in the US financial sector since the onset of the financial crisis last year have shown the need for adequate—and improved—supervision of banks’ financial transactions and better oversight of large cross-border capital flows. But, it is important not to lose sight of the need to strike an appropriate balance in regulating the transfer of small sums of money by migrants.  The irony here is that individual transfers of amounts of a few hundred dollars or less—financial flows so small that they are not likely to be financing terrorism—will be the most affected by US banks’ growing unwillingness to meet the considerably more time-consuming and costly due diligence requirements needed to continue to do business with the money transfer companies that specialize in sending these funds.  In the current banking regulatory climate in the US, it remains easier for larger money transfer companies to continue to send large amounts of money abroad: US banks are not closing down the accounts held by the big players in the money transfer business. And a worsening of already dire living conditions for family members living in countries such as Somalia, if the remittance flows that they have come to depend on are cut, could exacerbate the instability and poverty that already afflicts the country.   

 

Resources:
http://www.washingtonwatch.com/bills/show/111_HR_2893.html
http://www.nmta.us/portal/page.php?2
http://www.fdic.gov/regulations/laws/important/index.html
http://siteresources.worldbank.org/EXTCPR/Resources/WP38_web.pdf?resourceurlname=WP38_web.pdf

 

Comments

Submitted by Anonymous on
The US has every cause to scrutinize funds that leave the shores of this ocuntry to other migrant homelands as remittances especially where these countries have history of its people indulging in terrorist acts. However, as rightly indicated in the last paragraph, undue measures to reduce or cut smaller transfers that usually are sent to supplement feeding, accommodation, healthcare, and education expenses could exacerbate the already hard living conditions and in situations where such remittances are the last resort, consequences could be umimaginable. While enforcing the scrutiny rules, the US should endeavor not to remove food from tables, clothing from the backs of poor family members and take children out of primary and secondary schools for lack of basic welfare support that come in as remittances. A point worht noting is that when such measures are enforced leading to smaller money transfer companies being closed, there is the chance that funds meant to support terrorist activities will be transferred through other seemingly 'good' countries.

Submitted by Sharon N on
Jacqueline: thank you for this post. I completely agree that nations like Somalia are definitely going to be hit by the U.S. banks' decision to prevent small money transfers. I am also skeptical of the banks' decision to close small money transfers since it also limits the ability for U.S. citizens who are working abroad to have access to their own funds. Although the U.S. government believes that it has a responsiblity to ensure that NO funds from the U.S. economy are financing weapons used for terrorism, this decision will ultimately cause nations to be very segmented, rather than having nations work together to erradicate things like poverty. Although it is definitely possible that this decision can exacerbate the poverty, as you've mentioned, I think that the bigger issue at hand is the internal structure of nation-states like Somalia. Since the U.S.'s decision to close small-scale funds is a security measure against terrorism, perhaps greater efforts should be made to "nation-build" countries like Somalia? If the internal structure of the country is stabilized (and the government is trusted), then employment WITHIN Somalia (or other nations of this nature) will increase. And once employment within other nations are secure and lucrative, there won't be (much) need for working in one nation and sending funds to the "home" nation. I know that this is a long way down the road, but if there are efforts to do this, then the banks' decisions to close small transfers won't cause as much havoc as it is now.

Thanks for your comments. The post draws on the example of migrant remittances sent to family members Somalia being affected by US banks' closure of small money transfer companies' accounts (with people in Somalia suffering from a severe drought as well as the effects of decades of civil conflict). But the closure of bank accounts is also affecting small money transfer companies that transfer small amounts to recipients in other countries including a number of well-functioning African states. Jacqueline

Submitted by Bill Field on
I have been reading with interest that the US govenment is pressing to reduce or push out small remittance companies, in some cases good reasons apply however for a society which announces a full democracy I have been working on a global project M2CASH for 4 years where global transactions can be sent to a number of receiving methods ATM,EFTPOS OR POS The key factor in the development would allow govenments to access all transactions and monitoring for AML if this is the true reasons for their reduction of money transfer companies The legitimate companies will then be able to use this highway for transactions globally

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