Published on People Move

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

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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.   




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