Another Australian Bank De-Risks and Exits Remittance Business Over Terrorist Financing Regulatory Risks; Financial Inclusion and Shadow Banking Seen As Repercussion

By Christine Duhaime | November 20th, 2014

Fourth banks closes remittances businesses

Another bank in Australia, the Westpac Bank, has announced it will close its remittance business division next week over the difficulty of complying with counter-terrorism laws. By de-risking and closing its remittance division, the Bank is terminating the bank accounts of all of its business customers who operate money services businesses.

Westpac is the fourth major bank in that country to withdraw from remittances over reputational concerns and business risks. Those risks are mounting exponentially in the face of the realization that the civil and regulatory liability facing banks has the potential to bankrupt them (as a result, in part, of the Arab Bank case) for current and historical cases in which they participated in the funding terrorism by processing transactions that benefitted terrorist groups or persons, knowingly or not, or as a correspondent bank or otherwise.

Annually, 80 million remittances are sent from Australia worth approximately $30 billion and most of it goes to families in Asia and the Pacific region.  In the remittance business, banks in Australia, Canada and elsewhere provide services to money services businesses (MSB) who deal with the clients directly. Then, larger banks, usually a correspondent bank, process transactions on behalf of the localized banks. In the money services business regime, banks must not only know their clients, but the clients of the MSB as well.

ISIS making banks more cautious

Banks are becoming more concerned with banking MSBs, even those that are regulated and subject to anti-money laundering laws, and correspondent banks are typically refusing to bank the accounts that they know come from MSBs because of the fear of terrorist financing involving the Islamic State.

The remittance association in Australia noted that if another bank de-risks an entire sector of remittances, the movement of funds will move to shadow remittances, potentially causing more of a terrorist financing threat to national security and worsening the financial inclusion problem.

You can read the original article on the Westpac Bank here.

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