Credit limit: banks are turning their backs on money transfer outfits

Lesley Curwen

Money laundering regulations are causing banks to close their doors to companies that provide money transfer services to avoid the risk of heavy fines if ill-gotten gains are passing through their accounts. Yet hundreds of legitimate firms could go out of business in the UK alone, leaving migrants with no safe way to send money home to relatives

Moshadur Rahman Choudury is unlucky. He has fallen foul of a trend for the world’s biggest banks to pull out of operations which risk breaking rules against money laundering. Choudury’s small company, based in Shadwell in east London, remits money between the UK and Bangladesh. In August its bank account was closed down by Barclays bank. He has been unable to find another bank and has given notice to four staff members that the money-transfer business will fold, unless alternative banking can be sourced. 

He is not alone. In the UK, Barclays took the decision to close the business accounts of 250 money service companies, many of which provide links to countries such as Somalia, Bangladesh and Pakistan. It raised a storm of controversy in diplomatic and NGO circles. Why did Barclays take this unpopular route? The bank suggested some money transfer companies “may be without the proper checks in place to spot criminal activity” and thus could “unwittingly be facilitating money laundering and terrorist financing”. It was the last UK bank willing to provide services to this sector and its decision was heavily influenced by the $1.9 billion fine imposed on HSBC in the USA last year. A Senate investigation alleged that HSBC had been a conduit for drug barons and nations such as Iran, where sanctions made it illegal to do business. HSBC admitted to having poor money laundering controls. 

Earlier this year Barclays reviewed the eligibility criteria for small money service customers – but these are deemed to be internal policy and thus remain confidential. Moshadur Rahman Choudury said Barclays gave no details of the criteria used when it decided to close his account. “If they’d told us and we’d failed to maintain those criteria, then they could stop our banking,” he complained. 

Critics of Barclays’ move say if there is no evidence of wrongdoing, it is unfair to end the banking relationship. And they argue that if it does destroy money transfer businesses, this will deprive migrant workers of cheap and familiar channels for remittances. 

The Bangladesh High Commissioner in the UK, Ambassador Mohamed Mijarul Quayes, told me his government encourages the Bangladeshi diaspora to send money home “through regular channels” but if the small remitters close down, he fears people will turn to “informal arrangements” such as the traditional exchange mechanism known as hawala or hundi. “No one would have control of that,” he added, and, perversely, such an action might bring increased risk of money laundering and terrorist financing. He is still trying to find ways to allow some of the small Bangladeshi companies to survive, though they might be forced to operate under the umbrella of larger organisations. 

The fiercest opposition to Barclays’ move has come from the Somali community. Somali money transfer companies are in a unique position for two reasons – the country lacks a formal banking system after years of conflict and is heavily reliant on remittances. Research by Oxfam suggests Somali migrants in the UK send US$162 million back to Somalia every year, providing an essential lifeline in a nation where a million people rely on humanitarian aid. The Somali Money Services Association, which represents the transfer companies, warned the closures would “have dire consequences in Somalia, where no alternatives to the money service businesses exist”. Mo Farah, the Somali-born Olympic gold medallist joined the campaign against Barclays and was among the 25,500 people who signed a petition to the UK government against the account closures. 

In fact, Barclays has been involved in talks with financial regulators, the UK Treasury and the money transfer companies and it has extended deadlines for account closure, in some cases several times. At the time of writing, four Somali companies including the largest, Dahabshiil, had until the end of September to find new banking. But just how likely is it that any of the 250 money service businesses involved in this story have dangerously lax standards? Barclays has not accused any of them of this. Indeed, in a letter to Abdirashid Duale, CEO of Dahabshiil, Barclays said it was a commercial decision and “not a negative reflection on your anti-money laundering standards nor a belief your business has unwittingly been a conduit for financial crime”. So perhaps it is not about what is actually happening, but what might happen. 

Let’s step back. The truth is that all global banks, not just Barclays, are under pressure to reduce their risks of being caught up in money laundering. Much of this is driven by the attitude of the US regulators and it has had consequences for other types of business too. In the Middle East and parts of Asia, some of the biggest commercial banks are retreating from what are called ‘correspondent banking relationships’, where the banks team up with local lenders to offer services such as trade finance. The problem is that the global banks based in the UK and US are unwilling to spend time and money checking out the local bank to ensure its anti-money laundering policies are robust. This results in impeding the flow of trade finance – the short-term loans which make up a vital part of the global economy. 

Some senior bankers in trade finance are now lobbying for a relaxation of the regulatory crackdown on money laundering. They fear its unintended consequences. There’s a certain irony here. Banks are widely held to be primarily to blame for events that led to the recession. They are urged to behave more responsibly as global citizens with a social purpose. And yet it seems some of the post-crisis regulation may discourage them from providing vital services to communities. 

There are competition issues too. The customers of Moshadur Rahman Choudury in London may have to turn elsewhere to send money home, perhaps to a more costly money channel. Choudury talks darkly of small companies being edged out, because “big fish want to play the market”. High Commissioner Mohamed Mijarul Quayes worries that Barclays’ withdrawal of services might contribute to “an oligopoly” of the big boys, the largest remittance houses. Barclays’ deeply controversial move ought to make us reassess what banking is for and whom it serves. 


About the author:

Lesley Curwen is a financial journalist, regularly presenting programmes on BBC television and radio


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