An Australian court case is set to throw a spotlight on a steady retreat by Western banks out of the $435 billion global remittance business, a trend thatthreatens to erode the livelihoods of hundreds of millions of the world’s poor.
Almost 20 remittance firms sued Australia’s second biggest lender, Westpac Banking Corp, this month to prevent the lender from becoming the last of the country’s major banks to quit the business, arguing that this would cripple them.
They want more time to find an alternative bank before Westpac shuts their accounts. Westpac declined to comment on the case but Australia’s banking lobby says rising regulatory compliance costs make it difficult for banks to support remittance firms, which help foreign workers from developing countries send money home.
That trend risks undermining a plan by the Group of 20 leading economies to cut the cost of remittances to around 5 percent of the value of each transaction, down from the current 8 percent estimated by the World Bank. The remittance firms argue that without access to the global banking system, the costs of transferring money become substantially higher.
“It’s a big worry, if their accounts are closed there will be black marketing and they will charge more to send money,” said Hussein Haraco, chairman of the Somali Remittance Action Group in Australia, which is supporting the remittance firms’ court action.
Banks including HSBC, Standard Chartered and BNP Paribas have paid billions of dollars to U.S. regulators in fines to settle cases of money laundering and sanctions breaches. That’s led many of their peers to the view that the risks of dealing with remittance companies that send money to developing countries are too high for them to bear.
In Britain, Barclays is the only large bank still in the remittance business, and it attracted a wave of complaints from charities last year when it said it was going to close the account of Somalia’s largest remittance agent, Dahabshiil, due to regulatory concerns.
Dahabshiil was eventually able to block the move temporarily on competition grounds in the courts and settled with the bank in April, agreeing to shift the accounts to another institution by a certain date.
Migrant workers globally use remitters to transfer money back home to help family members, to pay for education, medical treatment, or to fund a micro business.
Asia and Oceania receive more than $113 billion in remittances annually – the highest regional total in the world, according to the International Fund for Agricultural Development, a U.N. agency. India and China are the top recipient countries.
Banking sources say remitters will find it hard to find a solution any time soon given the compliance costs facing banks, and will be forced to shift to more cumbersome, expensive ways of transferring money.
“At least giving a reasonable period of time to allow the remittance providers to explore alternatives to stop the industry coming to a halt is what we are seeking,” said Richard Mitry, who is acting on behalf of the remitters in the Westpac case. ($1= 1.1652 Australian dollar) (Reporting by Swati Pandey; Editing by Rachel Armstrong and Mark Bendeich)