Westpac closes door on money transfer operators as terror laws bite

Westpac will shut down the accounts of money transfer operators on November 24, due to growing fears about breaching strict terrorism financing and anti-money laundering laws, leaving hundreds of legitimate remitters to developing countries in the lurch.

Westpac is the last of the four major banks to withdraw from servicing remitters as concerns about reputational risk grows and pressure from big global banks who clear transfers steps up as conflict rages in the Middle East.

The Australian Remittance and Currency Providers Association (ARCPA), has been formed to represent 5,000 registered remitters who facilitate more than 80 million transfers into and out of Australia each year worth in excess of $30 billion. Most of this money goes to families and communities in developing countries in Asia and the Pacific.

ARCPA met with government agencies on Monday to warn them of the national security risks that will be presented if the regulated remittance industry is shut down. This will force international money transfers into the shadow banking sector, where transactions would not be reported to AUSTRAC, and police and intelligence agencies would no longer receive the “suspicious matter reports” that flag potentially illegal transfers.

An emergency meeting with representatives of the Attorney-General’s department, AUSTRAC, the Australian Crime Commission, ASIC, the Reserve Bank of Australia and the Department of Foreign Affairs and Trade was convened at short notice on Monday and ARCPA is expecting the government to broker further discussions this week with the banks to resolve the situation.

ARCPA is hoping to meet with Westpac to convince the bank to reconsider the November 24 deadline. Dianne Nguyen, the director of ARCPA, said there was little appetite among the mid-tier banks to bank remittance businesses so money transfer operators would be forced to shadow banks.

“If the regulated industry is forced to shut down, money transfer activity will go underground and law enforcement agencies authorities lose any ability to track the money trail offshore. That presents a national security risk,” she said.

At the Monday meeting, Ms Nguyen presented a plan for money transfer operators to be certified to meet standards that would satisfy the banks that they could meet legal obligations. “Our members have close and co-operative relationships with the regulator and law enforcement agencies, which value the financial intelligence and data that our members provide as a matter of course,” she said.

But a banking source said that even if the Australian banks became satisfied that particular operators are trustworthy, their correspondent banks would still be unlikely to clear the trades given the heightened level of regulatory scrutiny since the rise of Islamic State.

After Westpac’s full year results on November 3, CEO Gail Kelly said the potential shut down of remittance business was “a serious issue”.

“The regulatory requirements for anti-money laundering are you need to you know your customer, and in the case of remitters, you need to know your customer’s customers. That’s quite a responsibility. You do millions of these transactions and if one goes wrong, and is connected with terrorism financing, that’s a real problem.”

Ms Kelly said Westpac was “working very closely with the government and regulators to see if there are some solutions that can be found – because for the most part, it is millions of people trying to remit wages back to families, and you want to be able to support that type of activity. But we need to do that in a way that protect the bank and protects the country.”

Global remittances to developing countries are expected to reach $436 billion in 2014.