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By Jeanna Smialek
For almost two decades, Hersi Suleiman’s relatives in Somalia have used the $100 to $500 he usually sends them each month for food, shelter and other basic needs.
Now, he’s worried that their lifeline will be cut as banks close accounts of money-transfer companies for fear of running afoul of U.S. regulations intended to staunch illegal flows of money to criminals and terrorists.
“If I did not send the money at the end of this month, it would be a huge, huge problem,” said Suleiman, 55, who lives in a Chicago suburb. For his brothers, sisters, nieces and nephews in an east African nation torn by civil war, “it’s a matter of life and death.”
Concerned that money-laundering regulations are unintentionally having a chilling effect on banks, the U.S. Treasury Department is trying to convince them they can comply with the rules and still provide services to businesses that handle the transfers. Doing so could be crucial to maintaining an affordable flow of money to needy families in countries with few banking options.
“The challenge is finding a way to meet the demand and minimize the risk,” said Robert Rowe, vice president and associate chief counsel at the American Bankers Association, a Washington-based trade group that represents the nation’s $15 trillion banking industry.
Failure to strike a balance might have another unintended consequence: driving cash underground, further from regulatory oversight.
‘Black Market’
“Not sending money home is not an option,” said Timothy Ogden, managing director of the Financial Access Initiative, which is housed at the graduate school of public service at New YorkUniversity in New York City. “Those families are going to turn to black-market options.”
Money transfers to other countries haven’t been interrupted yet, Ogden said. Still, as fewer banks work with cash-sending companies, it could drive up the cost of sending money or even choke off transfers to some far-flung and conflict-stricken regions that have limited banking access.
Flows from migrant workers in developed countries to relatives back home, known as remittances, accounted for 21.1 percent of the gross domestic product of Haiti in 2013, 24.9 percent in Moldova and 28.8 percent in Nepal, according to World Bank data.
Worldwide, such flows are projected to climb to $454 billion in 2015 from $435 billion last year, making them more than three times the size of all official development assistance to impoverished countries, based on World Bank research.
The U.S. is the largest sender, with $52 billion in outflows in 2013, the highest since 2008.
Treasury’s Reaction
That makes anything which threatens U.S. remittances a humanitarian concern. According to a notice released by the Treasury’s Financial Crimes Enforcement Network in November, banks may be “indiscriminately terminating” accounts of all money services businesses in order to avoid regulatory scrutiny.
The services issue, sell or redeem money orders or traveler’s checks, cash checks and transmit money, among other functions. Banks see them as particularly risky to work with, because it can be difficult to determine where money comes from and where it’s headed.
Prominent fines, including a $1.9 billion money-laundering charge against HSBC Holdings Plc in 2012 and a $1.7 billion settlement in 2014 for JPMorgan Chase & Co. related to money-laundering controls, have reinforced the perception of danger.
‘Shrinking Number’
“Just the fact that we’re dealing with remittances — that’s what we’re judged by,” said Aden Hassan, compliance manager at Kaah Express in Minneapolis, whose company sends money to countries including Somalia, Kenya and Ethiopia. “All of these companies are having to rely more and more on a shrinking number of banks that will do business with them.”
Money services such as Kaah Express need banks to deposit funds they receive and to wire the money, Hassan said. Because the smaller companies are the only ones that send remittances to places such as rural Kenya and Somalia, shutting down their U.S. bank access could leave swaths of the region without money transfers from the world’s largest economy, he said.
Last year, the bank that handles the wiring of almost all Somalian flows informed some remittance companies that they could lose their accounts, Hassan said.
The company, Merchants Bank of California NA, has kept the accounts open for now, he said, though it hasn’t indicated its future plans. The Carson, California-based bank didn’t respond to an e-mail and a voicemail requests for comment.
Roundtable Talks
The Treasury is taking note of banks’ reluctance. This week it hosted a roundtable to swap perspectives with the industry.
Remittances pose “real money-laundering and terrorist-financing risk,” David Cohen, undersecretary for terrorism and financial intelligence, said at the Jan. 13 meeting. “But we believe emphatically that risks such as these can and should be managed, not simply avoided altogether.”
Treasury officials “take very seriously concerns that banks have been indiscriminately” terminating or refusing the accounts of all money-service businesses, he said.
The department is reaching out to money transmitters to explain the rules so that they don’t have an unnecessary chilling effect. It has told banks that it’s possible to comply with the Bank Secrecy Act, which requires financial institutions to assist the government in detecting money laundering, while providing money-transfer services, Daniel Glaser, the Treasury’s assistant secretary for terrorist financing, said in an October blog post.
Who’s Responsible?
Finding the balance could prove challenging. Banks remain unsure whether they’re responsible for knowing their customers’ customer and ensuring that the money stays in safe hands, said Rowe from the American Bankers Association.
In 2013, London-based Barclays Plc was involved in a U.K. legal case after it said it would end its business with a Somali company that provided remittance services. A court found that the bank must maintain its relationship with the company while money-laundering concerns were reviewed.
For Suleiman, who moved from Somalia 33 years ago and has spent years working in banking — including 3 1/2 at the money-transfer business Amal USA Inc. — more certainty about the process can’t come soon enough. He’s become a spokesman on the issue, even testifying before Congress in 2012.
“I’m worried about it right now: They might shut it down entirely,” he said of the money channel to Somalia.
Source: Bloomberg
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