Remitters threatened by banks' attempts to protect themselves from money launderers

Money remitters are pleased the Reserve Bank’s speaking out, as trading banks withdraw their services in a bid to meet tougher anti-money laundering laws.

Some remitters are having trouble accessing banking services, and are having their accounts closed.

Banks say they’re simply meeting their obligations under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009.

Yet the Reserve Bank says although the Act requires banks to mitigate money laundering and terrorism financing risks posed by their customers, they don’t need to stop providing services to an entire category of customers.

It recognises banks have concerns about their profitability and reputation.

They also have to meet the requirements of international correspondent banks.

Yet the Reserve Bank says, “Money remitters play an important role in providing a specialised financial service that many people wouldn’t otherwise access conveniently and affordably.”

They’re particularly important in New Zealand, as a significant number of people use them to send money to family members in the Pacific Islands.

It notes, “The recent New Zealand experience reflects an international banking trend known as “de-risking”.”

'One size fits all approach'

Lotus Foreign Exchange national operations manager, Murray Broadmore, says banks are taking a “super-conservative one-size-fits-all” approach to the industry.

Since the Act came into force in June last year, Lotus has spent a considerable amount of money upgrading its systems to mitigate risks.

Broadmore says it’s had to collect more information from its customers – identification, addresses, the source of funds and reason for remittance.

This has required new software and staff training.

It’s also upgraded its part-time compliance role to one that requires four full-time staff members, and created an internal auditing position.

He says Lotus’s compliance programme has received a big tick from both the Department of Internal Affairs and an external auditor.

Yet following the law doesn’t appear to be good enough for the banks.

Broadmore won’t specify which banks Lotus is having trouble with, as the industry’s attempting to secure relationships with them.

But he points out Kiwibank is no more understanding of the situation, than the big Australian banks.

He recognises there are dodgy operators, but says a large proportion of Lotus’ customers are simply sending money to family in the Pacific Islands and throughout Asia.

In fact the average amount transferred is around $300.

'Banks won't cope'

If money service businesses are forced out of the market, Broadmore says banks won’t cope with the needs of customers.

He maintains they wouldn’t be able to handle the volume.

“Big banks aren’t set up to have long queues of people.

“If we’re not in the business, it will force this type of business underground, which defeats the point of the Anti-Money Laundering Act.”

He says money service providers will lose visibility if they go underground.

Broadmore says the situation has driven money service businesses to recently form an association, that has eight core members so far. He says it's early days for the association, which is still in development.

The New Zealand Bankers’ Association denies taking a blanket approach to money remitters.

Chief executive Kirk Hope says, “We agree with the Reserve Bank that the law does not require banks to cease providing services to a whole class of customers such as money remitters. Banks instead have applied their obligations on a case-by-case basis, and will continue to do so.”

He says banks will only stop working with remitters, if they cannot manage their money laundering and terrorism-financing risks.

"Banks operate in a very competitive environment and are in the business of attracting and retaining customers. That’s balanced by the need to take their compliance obligations very seriously. If they can continue to bank a customer within the bounds of their AML obligations, they will."

Wynyard's pitch

Wynyard Group has developed software, designed for organisations subject to anti-money laundering regulations, including remitters, banks, insurers, credit unions, forex exchanges, gaming operators and brokerage firms. 

It recognises how important it is for remitters to keep a clean slate, to stay on side with the banks.

It says taking on high risk customers, without generating profits, often doesn’t make good business sense for banks that have spent millions on anti-money laundering systems.

“If a low-earning client is high risk, the cost of due diligence can outweigh the cost of keeping that client.”

The Department of Internal Affairs advises remitters to meet with their bank and discuss their situation, and to provide the bank with information about their compliance with the AML/CFT Act.

“However, the decision to close or open accounts remains at the discretion of the bank”, a Department of Internal Affairs spokesperson says.

“Other channels available to remittance service providers include the Banking Ombudsman, Commerce Commission or their own bank’s complaints service.”

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3 Comments

What a joke, Banks are businesses, RBNZ is a regulator, if a business doesn't want to take a risk then it shouldn't be forced to by the regulator who will then crucify them if one of these risky customers is a money launderer, and lets not forget the reputational risk to the bank.
Does the risk pass the front page of the herald test?

"Chief executive Kirk Hope says, “We agree with the Reserve Bank that the law does not require banks to cease providing services to a whole class of customers such as money remitters. Banks instead have applied their obligations on a case-by-case basis, and will continue to do so.”"

Another person who doesn't unerstand how money and economics works?  Where is he employed??

Kirk, if you make a whole class of services uneconomic OF COURSE business aren't going to offer it. FFS.

I wonder what the view of the IMF would be on this, as MTO's do tend to service the unbanked / underbanked and when considering the size of the average transaction to send funds to family is quite low the fixed fee's associated with the typical banking services are far too high for this section of the community to be able to afford/ or even consider using as that may see over 25% of their money taken as a fee.
The question posed at the moment is really are the banks willing to work with legitmate providers and be satisfied that all AML requirements are being met, and will allow this section of the industry to be banked? If not, are they then operating in a position of power that unfairly undermines a significant section of the community who simply can not afford bank services in the traditional format and are possibly seeking to increase to increase their own profits as that community will have no other legitmate avenues to send funds?