An Australian court case is set to throw a spotlight on a steady retreat by Western banks out of the US$435 billion global remittance business, a trend that threatens 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. At a hearing on Friday, a court provided a temporary reprieve by asking Westpac to postpone closing the accounts until December 22, when a full hearing of the matter is scheduled.
Westpac, however, argued in court that the matter is beyond their control as it cannot guarantee making payments on behalf of remitters as a correspondent bank overseas may refuse to accept the transaction.
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 per cent of the value of each transaction, down from the current 8 per cent 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 US 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.
Source: South China Morning post