Remittance firms sue Australia’s Westpac as banks shun money transfer firms

A worker at a Dahabshiil money transfer office in Mogadishu, Somalia. Regulatory scrutiny has led banks to close money-services business’ accounts in recent years. But now one regulator is suggesting that banks might need to rethink that approach.

The U.S. Treasury Department’s Financial Crimes Enforcement Network on Monday urged banks to use caution when broadly cutting the accounts of money-services businesses, or MSBs, which can face a higher risk of money laundering.

“Fincen does not support the wholesale termination of MSB accounts without regard to the risks presented or the bank’s ability to manage the risk,” the agency said in a statement meant to “reiterate expectations” for banks. “MSBs present varying degrees of risk, and not all money services businesses are high-risk.”

As U.S. authorities have stepped up scrutiny of banks’ anti-money laundering controls in recent years, many banks have started to shy away from MSB customers, which include money transmitters and check-cashing firms.

These MSBs and similar firms can face a higher risk of money laundering for a number of reasons, including a lack of ongoing customer relationships, an official anti-money laundering manual says. Banks are turning away from the businesses in part because they don’t want to take on the potential money-laundering risk posed by having the firms as customers.

Barclays BARC.LN +1.95% PLC, for instance, has said it moved last year to close the accounts of about 250 MSBs, which accounted for about 75% of all MSB customers. This decision generated controversy because one of these accounts belonged to Somali money transfer firm Dahabshiil, which fought the closure.

Barclays and Dahabshiil earlier this year said the money-transfer firm’s account would be closed as a part of a settlement.

Some in the industry, including a former head of Fincen, have expressed concern that closing potentially higher-risk accounts could backfire on banks. For one, the move could drive dirty money underground where authorities could have a more difficult time monitoring it.

The agency nodded to this concern in its statement. “Refusing financial services to an entire segment of the industry can lead to an overall reduction in financial sector transparency that is critical to making the sector resistant to the efforts of illicit actors,” Fincen said.

 




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