The world makes much ado of
people and organizations – and even governments – assisting militant, fringe
organizations engaged in nefarious schemes against the larger humanity. These
include terrorists, pirates, drug dealers, and human traffickers.
Among these the three most
sought after, most publicized groups are terrorists, pirates and drug cartels.
And the world is right to explore ways to stop organizations of this elk sell
human lives cheap down the drain – each in accordance to its own, heinous code
of operations.
The world is also right to
wage a relentless offensive against these enemies instead of hiding behind
defensive measures that invariably show the chinks in the armor through which
infiltrators creep in into the system to compromise it or wholly destabilize
its effectiveness. Examples abound.
Realigning
Policies
On occasion, good intentions
open floodgates of disaster, misery and deprivation that is far worse than acts
they set out to curb or prevent from happening.
The May decision of the
Barclays Bank to close the accounts of some 250 Money Services Businesses
(MSBs) serving millions and millions of needy beneficiaries in developing
countries presently tops the list of good intentions turning awry.
The down turn in the
Barclays decision is that it creates untold of, immeasurable agony and
deprivation among millions of innocent recipients of remittances who are punished not on solid grounds but on
the dictates of ‘preventive measures’ against perceived crimes that may or may
not have happened at all.
The short term gains of
decisions such as that of Barclays cannot balance or justify the far-reaching ramifications
of residual consequences that will yet prove far more alarming than that which
the Bank seeks to cover. For one, millions and millions of people who depended
on relatives and friends, and made a honest living on remittances will take up
the begging bowl at best joining the hordes of stateless, humiliated masses of
international refugees – a state that the world can do without.
Secondly, money transfer
will disappear from a certifiable transaction to an unaccountable underground
labyrinth of channels, driving hard earned cash right into the hands of a
ruthless, manipulating underworld.
Far more thoughtlessly,
decisions such as that of the Barclays denigrate the usefulness of paper trails
in money transfers as it severely punishes the conscientious, law abiding
practitioner for negligible oversights – if any, whilst opening limitless
opportunities for shady deals and trail-less transactions.
On the other hand, it
indirectly scoffs at financial regulations designed to combat money laundering
and terrorist financing by exerting unbearable pressure on compliant companies
that are not of western origin. The words ‘double standards’ glare out – for
better or for worse.
Major MSBs that have been
adversely affected by recent events, such as the Somali-origin – Dahabshiil,
vigorously comply with international regulations combating terrorist financing,
proliferation of weapons and the proceeds of crime. MSBs of this genre should
be rewarded for fulfilling FATF expectations such as Recommendation 15 below,
and not punished on the pretext of the flimsiest of reasons. The aspersion implied in the Barclays
decision and the dark smudge it leaves on the shining record of blameless MSBs
should be immediately retracted, and especially in the light of the decision’s
ominous connotations and impact.
Recommendation
15 points out:
Countries should take
measures to ensure that natural or legal persons that provide money or value
transfer services (MVTS) are licensed or registered, and subject to effective
systems for monitoring and ensuring compliance with the relevant measures
called for in the FATF Recommendations. Countries should take action to identify
natural or legal persons that carry out MVTS without a license or registration,
and to apply appropriate sanctions.
Any natural or legal person
working as an agent should also be licensed or registered by a competent
authority, or the MVTS provider should maintain a current list of its agents
accessible by competent authorities in the countries in which the MVTS provider
and its agents operate. Countries should take measures to ensure that MVTS
providers that use agents include them in their AML/CFT program and monitor
them for compliance with this program.
The only consideration that
governments, financial regulators, banking institutions, money transfer
businesses and individuals should all keep uppermost in mind is to abide by the
laws as best as can be implemented giving adequate allowances to cultural and
geographical contexts.
Legality
of Mobile Money Transfers
The UN estimates that there
are around 300 million adults that would have been able to receive remittances
from relatives who have currently no access to conventional money services, and
have never seen the inside of a bank or another MSB for one reason or another.
The system is user friendly, accessible to anybody connected to a
telecommunication network, and offers the user innumerable outlets that he or
she can send and receive money. It is virtually as easy as topping up mobile
accounts.
On the other side of the
spectrum, regulators have always had issues with mobile banking. In
conventional banking and money transfer systems, financial regulators have
levels of reports and documents available to them to inspect giving them the
necessary base to influence these institutions’ operations. In mobile banking
this is not available.
The eleventh FATF recommendation on
record keeping stipulates:
Financial institutions
should be required to maintain, for at least five years, all necessary records
on transactions, both domestic and international, to enable them to comply
swiftly with information requests from the competent authorities. Such records
must be sufficient to permit reconstruction of individual transactions
(including the amounts and types of currency involved, if any) so as to
provide, if necessary, evidence for prosecution of criminal activity. (FATF
Recommendations, p.17)
Presently, this
recommendation has no apparent effect on mobile money transfers. The
recommendation further establishes that all records obtained in a transaction
through the customer due diligence (CDD) measures must be available to
‘domestic competent authorities’ at all times.
This makes present-day
mobile money remittances marginally legal. If the system remains unchecked and
unfettered for such long, mobile money transfers will predictably take the
place of conventional money transfer businesses, unfairly edging them off the
market. Instead of combating crime, such systems, experts believe, are more
likely than any other to replenish dried up terrorist coffers and used up
ammunition belts of active terrorist combatants by transferring money right
into the cell phones of militants on the move.
Regulators are understandably
worried that any amount of money can be sent from any mobile in the outside
world to a phone number of a terrorist in Pakistan,
Yemen and Somalia, for
instance, with no intermediary, checking systems in place. No sender has to go to an office to register
details of sender and receiver, and no fighter has to leave his ditch to
collect money to buy ammunition, assemble bomb parts or forward costs to
another commander on the front. Imagine a group of people sending to the mobile
phones of 100 militants $2000 each. This is a cool $200 000. A whole city can
be captured in certain parts of the world. Trainloads of people can be bombed
out of their tracks. A fleet of school buses can be blown off into smithereens
with a far less amount of money… A paper trail to trace origins, senders and
recipients will be available to no one.
With popular Hawala MSBs
nothing if this kind can ever happen. They represent the only safe, legitimate
access to subsistence, health, education, and investment costs to hundreds of
millions of people that western banking institutions can never ever reach even
with the full cooperation of local conventional banking facilities.
Regulations
miss out
In their haste to come up
with iron-tight shields against money laundering and the proceeds of crime,
high-street banking institutions, international financial regulations and
regulators seem to have missed a few crucial turns. As a result:
- Anti-money laundering regulations fail to address or understand the operational mechanics of Money Service Business (MSB) that are much older than some ‘countries’. In many cases, the MSB has all the qualities, the operational strength, the network, the AML/Compliance regimes and hierarchical structure to combat laundered money, terrorism and the proceeds of crime passing through systems as legitimate earnings. And yet, much feted financial regulations such as the FATF recommendations, assume that the UK or the US is a typical, apt model that all nations should strive to emulate. Better still, nothing short of the centuries’ old financial systems said countries have adapted to through the years must be tolerated in all nations, without exception, automatically –and fully – manifested in, for instance, countries like Somalia and South Sudan instantly. Every recommendation begins with ‘countries should..’.
- Mobile bank service providers are not fully regulated as electronic money issuers or as MSBs. This state leaves them wide open for a variety of abuses on the part of users.
- It had not been adequately taken into account that in mobile banking, there is a failure of high profile schemes – in other words total network failure, relaxed security, absence of KYC regulation, relaxed sim card ownership, and the near total absence of due diligence and record-keeping measures which may compromise the security of the money transfer industry as a whole where, in reality, players in sector itself exercise different security regimens and, so, should be viewed each (hawala, mobile transfers, banking institution, etc. ) by merit and level, instead.
- Regulators and regulations tailored to rigid cultural and geographical confines have not fully comprehended that in some parts of the world, the hawala is the only legal channel to send and/or receive money, thus becoming the only lifeline for millions of people around the globe, and that the legitimate continuation of business is to the interest of all stakeholders. Major money transfer businesses originating from non-western countries apply international anti-money laundering measures as robustly as western hawalas such as the Western Union.
S H Balbal
Nairobi, Kenya
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