Remittance industry under stress as banks withdraw support

Remittance providers have warned that their industry will be forced to either close down or "go underground", as Australian banks decline to provide them with clearing access because of money laundering fears.

Many are worried after discovering that Westpac and Bank of Queensland plan to terminate their relationships with remittance providers. This follows decisions by the country's other major banks to withdraw from the market over the past four years on anti-money laundering and counter-terrorism financing grounds.

A group of remitters have formed a new industry association to represent their interests but some in the industry say it is too little too late.

Ramanathan Karuppiah, managing director of Remittances and Money Exchange (Remox) in Queensland, said he was on the verge of losing a business that he had built up over the past eight years. Remox has eight offices across Australia and employs 25 people.

Karuppiah raised the alarm on this issue in 2012 when Commonwealth Bank closed his company's accounts. Despite his concerns, the government, banks and regulators said there was little they could do.

The banks said that they were responding to regulatory pressure, while regulators said they were not in a position to dictate to banks how they should conduct their risk assessments under the Anti-Money Laundering and Counter-Terrorism Financing Act.

"The hardest part for us is that we have been doing everything we were told to do by [the regulator] Austrac. We registered on the register of remitters and were spending A$80,000 a year on AML compliance," Karuppiah said.

"We're conducting a legitimate business, so to be told that we can no longer bank in Australia is just devastating."

The remittance sector has long been identified as one of the more high-risk areas regulated by Austrac. In 2011, to address these concerns, the Federal Government introduced legislation to tighten the oversight of remitters, under the guise of combating people smuggling.

The people-smuggling legislation ushered in amendments to the AML/CFT Act to tighten up controls on the remittance sector. Remitters were required to comply with a new licensing scheme and provide information about their suitability for accreditation.

Austrac was given power to refuse, suspend, cancel or impose conditions on this registration, along with power to issue infringement notices and penalties for non-compliance.

The Government and Austrac have both stressed that the goal of these legislative reforms was not to drive remitters out of business or, worse still, underground. Rather, they wanted to introduce a framework for better compliance and oversight in the industry. Around 5500 remitters ultimately registered, although an estimated 1000 went out of business.

A group of remitters has joined together to form an industry association: the Currency and Remittance Providers Association of Australia. Membership so far includes Raiyyan Exchange, Money Transfer Pty Ltd, Speed Remit Australia, Ceylon Money Exchange, Lotus Foreign Exchange, Best Forex, I-pay Australia, as well as Remox.

Many fear it may be too little, too late, however, for an industry that is just weeks away from being "de-banked", having found itself unable to find a bank which will accept its business.

The members of CRPAA also fear the Austrac register of remitters may have backfired. Despite their efforts to comply with the AML/CTF Act by registering, they believe banks are instead using the register as a "red flag".

In practice, banks are checking the register and will not provide banking services to entities that appear on the list as they are deemed to pose an excessive risk.

The CRPAA said this was a complete corruption of the register's initial purpose, which was to legitimise the remittance industry, not to ostracise it.

In Australia there is no right to the provision of financial services. The AML/CTF framework allows a risk-based approach to be used to deny provision of designated services where the money laundering or terrorism financing risk exceeds the risk appetite of the reporting entity. This raises the prospect that remitters might in effect be shut down by AUSTRAC-regulated institutions.

The remitters have voiced their concerns to Austrac but the regulator has said its hands are tied, and that under the AML/CTF Act each institution is required to make its own risk-based decisions on the customers that it will service.

When the issue first emerged in 2012, Austrac said: "Under the AML/CTF Act reporting entities are required to undertake risk assessments within their organisation and implement appropriate policies and procedures for dealing with those risks. The level and nature of the money laundering and terrorism financing risk that a reporting entity should be prepared to accept is not specified in the AML/CTF Act and is a matter for the reporting entity's own determination."