The Sandstorm that is blanketing the operations of money transfer companies


Access to Banking: Denied.

For the last couple of years, MTOs (Money Transfer Operators) are finding it difficult to have access to banking. Those that had access to banking, are being surprised one fine day, when their bank informs them, that they (the bank) can no longer keep the MTO as a client.

No one is really sure when it started. Some cite the Barclays’ of UK as the pivot point, others say it started much earlier.

See below an actual letter that was received by an MTO for account closure. Money transfer businesses have had their accounts closed in US, Canada, UK, majority of the countries in EU, Australia, New Zealand and Singapore.

Barclays Letter for Termination

Money Transfer Operators are finding is exceedingly difficult to have access to banking today. In Australia (where, barring a few large incumbent players, all MTO accounts have been closed, including that of Travelex). In US, if you declare yourself as an MTO, you literally cannot open a bank account (unless you have some deep pockets backing you up).

The reason for such account closures vary, but it all boils down to risk. Bank inherently see money transfer companies as risky and doing business with companies engaged in money transmission potentially exposes the bank towards risk over which they have very little control.

If a remittance is done from Country A to Country B an intermediary bank like Barclays is used, should the transaction be related to money laundering or terrorist financing, the repercussions by the financial regulator can be crippling / damaging to the bank.

Though there is merit in the perceived threat, the unilateral decision to close bank accounts for MTOs / MSBs is one that is disturbing.

In the United States, the whole closure of MSB accounts started with a phenomenon known as Operation Choke Point.

Operation Choke Point - Money Services Business

As you can see, from the list above. Money Transfer Networks have been included in the banned accounts list. If you have a money transfer business, you will most likely receive a letter from your bank that your account is now being closed down.

The quest for finding a bank in the US for money services business, has now literally become a business. Going price for a guaranteed introduction for a money services business now ranges from US$ 5,000 to US$ 25,000 (subject to prior due diligence).

The problem is not only in the US. It has extended its tentacles to Australia where an uproar was caused by WestPac (one of the leading Australian Banks) that started the process of account closures for all money transfer companies. This was quickly followed suit by other banks. The situation became so dire, that overnight, the money transfer industry was in a spin. A suit was filed in the court to extend the date, but that expired on 30th of March this year (2015). Even giants like Travelex have had their accounts closed. The mid to small MTOs are essentially out of business.

A lot many MTOs have reverted to Hawala or framing the transaction by other commercial means (trading, import/export, services), etc.

When regulatory pressures close down banking facilities for MTOs, money goes underground.

The industry darling term for this is De-Risking. Which does/doesn’t make sense, depending how and where you look. Banks cite the reason that they do not have enough visibility into the transaction and hence cannot be party to it. MTOs counter-argue that banks do not upgrade their systems to allow APIs to connect so that the much needed visibility to banks can be provided.

In some instances like Somalia, where the entire nation depends on Remittances, the situation is more complex. The beneficiary who claims the end credit of the remittance cannot be identified with certainty. Because even the sending MTO cannot guarantee the person cashing out the money in Somalia is who they claim to be, the risk, goes back to the transaction originator, which includes the MTOs and the Banks. Consult Hyperion did a study on this for the British Government (a must read report, see below) on how to solve this complex problem and what are some of the alternatives.

The closure of bank accounts for MSBs in the United States has reached such a level, that FinCEN actually issued a notice, regarding the non-cooperative attitude of banks towards MSBs.

Department of Homeland Security also has a huge say in this matter. Notices have been issued via FinCEN, via Consular Services and by other LEAs to banks in other countries, asking them to shut down bank accounts of certain MTOs. Financial institutions that receive such notices comply, without question. Who would want to fight the US Government / Banking system, for a couple of measly money transfer accounts. Answer as you might have guessed it, no one!

The only way out seems to be deep pockets. With enough money, you can counter-balance the financial risk and also provide essentially free funds to the bank as deposits, whilst at the same time, implementing a very thorough AML / BSA / KYC compliance program. One that exceeds even the bank’s most stringent requirements.

The movement has not stopped. Bank accounts are closing on a daily basis. MSBs/MTOs are finding it exceedingly difficult to operate (unless you’re well funded and backed), and lots of small remittances are being closed down. Small time players for Corridors like US-Somalia, UK-Ghana, UK-Pakistan, France-Egypt, US-Bangladesh, etc. (to name a few) are being affected if not being driven out of business. Who is picking up their business? The giants like Western Union, RIA Financial, MoneyGram, et. al.

It would be interesting to see how all this plays out with crypto-currencies. If access to banking becomes a hurdle, my bet is money will definitely go underground and more innovative ways would be conjured up to do remittances (read: from grey to downright illegal).

The federal regulators in the receiving countries can’t do much. How does a dwarf challenge the US Goliath in the form of FinCEN, et. al. or UK’s FCA? The sad reality is: They cannot!

The MTOs and MSBs are fighting back. It remains to be seen, how much stamina is left. For the closures have been financially painful.

For Further Reading:

1 thought on “The Sandstorm that is blanketing the operations of money transfer companies”

  1. Good morning,

    A topic that has caught my attention recently is Western Union television advertisements seen in the Miami area. These advertisements promote Western Union services throughout 140 municipalities in Cuba. The Cuban Assets Control Regulations (CACR) allows authorized remittances as defined in CFR 515.314.

    Considering Western Union’s BSA/AML compliance program history:

    -Dec. 2002 $8million penalty violating BSA, Patriot, and New York Banking Laws.
    -Mar. 2003 $3 million civil money penalty.
    -Feb. 2010 Arizona Attorney General $94 million criminal investigation.
    -2015 it appears Western Union remains under supervision of a Monitor and could face new penalties by Arizona Attorney General. Deadline October 31, 2015 implementation primary recommendations report.

    My attention is directed concerning the “Due Diligence” process performed by Western Union. I am not aware of how Western Union recruits its agents, although I suspect the company would say it does the proper due diligence so that if there is a challenge it can claim to be unaware of any issues. It would be interesting to know how Western Union effectively performed due diligence on approximately 140 agent offices in Cuba in such short time since the implementation of the CACR.

    Are you aware of any recent writing I could reference covering Money Services Business due diligence process on the selection of their agents?

    Thank you

    Miguel Pacheco

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