Recent extent of spread of COVID-19

Published on 11 April 2020

Migrant Remittances are associated with Money Services Businesses (“MSBs”), where the migrant in question delivers cover for the payment order in cash, and the MSB transfers the proceeds to the beneficiary, typically friends and family in the country that is home to the counterpart community of the one in the sender’s country to which the sender identifies.

Senders are frequently at the bottom of the income tree, where work is insecure and liable to be paid for in cash. The sender may not have a bank account. These things do not add up to illegality.

Nevertheless the AML lobby has identified MSBs as being businesses that contain an elevated risk of being used for laundering money. This began at the FATF level and has been echoed by, amongst others, the Wolfsberg Group, the Bank for International Settlements, the US’ Financial Crime Enforcement Network of the US Treasury, the UK’s Joint Money Laundering Steering Group, the Royal United Services Institute, the National Economic Crime Centre and many more.

Such is the illustrious bandwagon that the anti-cash lobby have jumped aboard, and why not go with the flow, especially if you can earn a fair few brownie points along the way?

What is noticeable is the lack of primary source evidence that is in the public domain. Instead these authority bodies quote one another, building a case that looks convincing because of the number of authority bodies cited. This is secondary source evidence, however. It then gets regurgitated by the anti-cash lobby to become a seemingly convincing case, with irrefutable backing.

The upshot has been the well-recognised but not solved issue of De-risking: by the major correspondent banks of their customers (particularly if they are in designated “high-risk-countries”), by secondary correspondent banks of their customers, and finally the wholesale ejection of MSBs from their banking relationships, particularly if the MSB in question accepts cash.

The World Bank, the IFC and others have gone into print bewailing these developments, and the Financial Standards Board has had a project running for several years on de-risking in correspondent banking, with a substream on Remittances. Results? Zero.

In the UK we had the “Simplifying Access to Markets” stream of the Payment Strategy Forum from 2015-17, and then we had the “Liability under Indirect Access Models” successor stream under UK Finance. Results? Zero.

And we have RTGS Renewal, ISO20022 adoption, and New Payments Architecture to look forward to, which could/might have some tangential impact on the situation, but as of today no UK bank will open a new relationship with a Small Payment Institution that comprises both operational and safeguarding accounts. One bank will service an Authorised Payment Institution, as long as it handles no cash, and as long as it can live with a payment service that comprises solely domestic Faster Payments in GBP in the UK, and cross-border Euro through TARGET2. This is because the bank has direct clearing system access in both cases and need not risk being de-risked by a correspondent because the correspondent does not wish to handle Payment Institution traffic.

Several “authority” initiatives have made a fan dance of addressing this issue and all have failed. This leaves Payment Institutions – especially the ones accepting cash – in a situation of being de-banked. In turn that means that migrant communities are not being serviced in the way they would wish to be serviced. So let’s here it for the cash-bashers: you have added your voice to the drivers of these developments and so bear a measure of responsibility for the outcome.