Slideshow Remittances: Lifeline, Business Line, Under Attack

Published
  • March 05 2015, 7:30am EST
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Banks process billions of dollars in international remittances, and the business is growing. But complex competing forces — namely anti-laundering rules and pressure from humanitarian groups — will make it a hard business to stay in.

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Business Has Been on the Rise …

The World Bank estimated that remittance flows would grow by an average of 8.8% per year, between 2013 and 2015, to a worldwide total of $515 billion.

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… Benefiting a Number of Banks

Many banks, both large and small, have reported double-digit increases in the value of remittances they handle, according to data they reported for the first time last year.

Source: Call reports


Looming Regulatory Concerns

However, the international remittance business is problematic. Regulators are worried funds are being redirected to terrorist groups. The intensity of examiners' focus on anti-laundering controls is apparent with companies like BancorpSouth, Discover Financial Services and M&T Bank singled out for weakness in Bank Secrecy Act compliance.

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Merchants Bank Exits

Unfortunately for the war-torn African nation of Somalia, its vital flow of remittance funds from the U.S. has been cut off. Merchants Bank of California, the only remaining bank known to handle remittances to Somalia, exited the business to comply with a consent order.

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Too Aggressive?

Regulators are far more aggressive in enforcing anti-money-laundering laws than necessary, said Scott Paul, who monitors international remittances for Oxfam America. "Bank examiners are incredibly risk-averse, probably more than they need to be to enforce the Bank Secrecy Act," Paul said.

Preserving a Lifeline

Humanitarian groups and elected officials have asked regulators to approve a compromise, to allow remittance funds to continue to flow to Somalia. Many Somalians depend on remittances as their only source of money.

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Which Countries Are Next?

Some humanitarian groups are worried banks may exit other countries that are deemed high-risk by U.S. regulators, like Iraq, Syria, Ethiopia and Kenya. "Both [Ethiopia and Kenya] have large refugee populations dependent on these funds and are at risk of being cut off," said Liat Shetret of the Global Center on Cooperative Security.

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'Remittances Are Important to Families'

Problems notwithstanding, some banks still tout their work in handling international remittances, even to nations where terrorist groups have caused trouble. "We know that remittances are important to families all over the world," Daniel Ayala, Wells Fargo's head of global remittance services, said in a press release about a recent promotion for remittances in the Philippines.

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