> Posted by Matt Collin, Research Fellow, the Center for Global Development
The following post was originally published on the Center for Global Development blog.
In a few weeks’ time Australia’s Westpac bank will start closing down the accounts of money transfer organizations used by immigrants to send money home. Westpac is the last major Australian bank still offering services to organizations in the country’s US$25 billion remittance sector.
Two weeks ago, Merchant’s Bank of California also decided to close the accounts of all money transfer organizations (MTOs) sending money to Somalia. The source of Merchant’s decision appears to have been a cease-and-desist order issued by the Office of the Comptroller of Currency (OCC) in June, purportedly due to the bank’s failure to appropriately monitor the destination of remitted funds.
Unfortunately, we’re seeing a trend here. In 2013, Barclays’ closed the accounts of nearly 90 percent of its U.K.-based MTOs, despite being the last large bank in the country willing to do business with remitters. HSBC made the same decision the previous year, following a nearly US$2 billion penalty handed down by U.S. regulators.
Regulators gone wild
This ‘de-banking’ is a response to growing pressure from national and international regulators to comply with rules on anti-money laundering and combating the financing of terrorism (AML/CFT). Since 2010, the Financial Action Task Force (FATF) has placed 23 countries on its ‘blacklist‘ of nations seen as high risk for money laundering or terrorist financing, or as not doing enough to comply with international standards. That’s more than double the number from the previous five years.
Local regulators have responded by drastically increasing the fines they hand out. In the U.K. data shows the size of fines issued by the Financial Conduct Authority (formerly the FSA) skyrocketed in 2011, up to almost £10 million in some years. That might not seem like a lot of money, but it highlights a trend in which banks now increasingly run the risk of large penalties. Last year, South Africa’s Reserve Bank fined its top four banks approximately $10 million for AML violations. Just last week, the U.S. Financial Crimes Enforcement Network (FinCEN) handed down a $20 million fine to Oppenheimer & Co. for similar problems with compliance.
To read the rest of this post, visit the Center for Global Development blog.
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