Perhaps I’ve been reading this wrong, but I think that the British government is recommending suitcases full of cash as an alternative to using the international banking system.
I was talking to a client about some of our work in Africa (at the absolute leading edge, I am proud to say, of the mobile payments sector) and he asked me about Barclays “problems” with remittance payments to some countries. I realised that I hadn’t blogged on this interesting topic, so here’s a quick overview of where we are. In a Parliamentary debate on the subject on 22nd January 2014, Kevin Brennan (the Labour MP for Cardiff West) made extensive reference to the problems caused specifically by Barclays’ decision to withdraw banking facilities from a number of remittance businesses who send money to Somalia.
Anthony Jenkins, the chief executive officer of Barclays, said that it was stopping offering bank services to such business because they “don’t have the proper checks in place to spot criminal activity and could unwittingly be facilitating money laundering and finance terrorism”.[From House of Commons Hansard Debates for 22 Jan 2014 (pt 0001)]
As I said at the time, don’t blame the international payment system and don’t blame Barclays. Blame American regulators. Barclays doesn’t want to be hit with a $2 billion fine because one of the customers of a remittance business that it provides services for turns out to be chief cook and bottle washer for Al Qaeda in Somalia. Rushanara Ali (Labour MP for Bethnal Green and Bow) made exactly this point.
Companies such as Barclays, HSBC and others have said that they will be fined. Companies will have their motives, reasons and deep concerns about being clobbered with a big fine by US regulators.[From House of Commons Hansard Debates for 22 Jan 2014 (pt 0001)]
Once again, the law of entirely predictable consequences has been proved accurate. It is the poorest people who are hit the hardest, while the rich will find other ways to flash money around the globe using SWIFT or Bitcoin or suitcases full of $100 bills.
Banks and money transferrers say that the new remittance rules have created the biggest compliance challenge ever faced by the industry. Many have described them as unworkable and some companies have threatened to stop providing international wire transfers altogether.[From US banks warn on money transfer rule – FT.com]
Despite the Financial Action Task Force (FATF) putting forward largely sensible recommendations on risk-based approaches (which I wrote about at dreary length three years ago), unless the regulators act to either exempt low-value transfers from CDD entirely, or at least limit liability arising from CDD problems with low-value payments, there is no way out of this. No business is going to try and make money on a £100 transfer if they risk punitive damages. The remittance business will be driven underground and money laundering, terrorist financing and the proceeds of crime will go with it. As Sir Peter Bottomley (Conservative MP for Worthing West) pointed out later in the debate:
Nearly everything that goes outside the ordinary banking system has a much higher cost and no audit trail.[From House of Commons Hansard Debates for 22 Jan 2014 (pt 0001)]
So, in other words, not only does this make crime worse, it also pushes up the costs for the honest. Why is this government policy?? Somalia is a poor country and it depends on the slightly more than $2,000 per annum that the average Somali emigre sends home. Well, as Sajid Javid (Financial Secretary to the Treasury) noted:
The Government cannot prevent UK banks from facing supervisory and enforcement action from other jurisdictions. Hon. Members know that this is not just about rules in the UK, because European Union rules, and especially rules in the US, affect many money transfer businesses[From House of Commons Hansard Debates for 22 Jan 2014 (pt 0001)]
He went to say
First, we believe that cash couriers, if structured properly, can play a sensible and legitimate role in expanding provision for MSBs. That can work if it is done in a certain way.[From House of Commons Hansard Debates for 22 Jan 2014 (pt 0001)]
This sounds rather like the government recommending Hawala over the international banking system. Get your uncle to stuff as holdall full of $100 bills and put him on plane so he can hand it out to the family back in Addis or Dacca or Nairobi. Well, not Nairobi because you can use Barclays PingIt to send money from the UK down to M-PESA in Kenya.
Stalemate. Let them eat Bitcoin! Actually, I’m just joking about that – it isn’t a solution.
But on a worldwide basis, despite the technical suitability for Bitcoin to disrupt remittance, most recipient countries don’t have enough local demand for Bitcoin to sustain a meaningful remittance business.[From Bitcoin isn’t ready for prime time as a world wide remittance replacement. — Tech News and Analysis]
I think there are both moral and financial imperatives on us (ie, the payments industry, in this case) to do something and we should start by putting forward a consistent position to the regulators that is based on the FATF recommendations. Exempt low-value transfers from full CDD immediately.