Treasury urged to look at shifting remittance flows to determine if it can still ‘follow the money’ to ‘fragile countries’

Treasury should assess whether shifts in remittance flows to non-banking channels for “fragile countries” may affect the department’s ability to monitor for financial crimes and, if necessary, identify corrective actions, according to a report issued Thursday.

The Government Accountability Office (GAO), in a study, said that recent reports have found that some money transmitters have lost access to banking services due to de-risking—the practice of banks restricting services to customers to, in part, avoid perceived regulatory concerns about facilitating criminal activity.

“Stakeholders, including money transmitters, banks, and U.S. Department of the Treasury (Treasury) officials, reported a loss of banking access for money transmitters as a key challenge, although remittances continue to flow to selected fragile countries,” GAO said in its highlights of the report.  “All 12 of the money transmitters GAO interviewed, which served Haiti, Liberia, Nepal, and particularly Somalia, reported losing some banking relationships during the last 10 years.

“As a result, 9 of the 12 money transmitters reported using channels outside the banking system (hereafter referred to as non-banking channels), such as cash couriers, to move funds domestically or, in the case of Somalia, for cross-border transfer of remittances,” the GAO report stated.

The report stated that several banks have reported closing the accounts of money transmitters because of the high cost of due diligence actions they considered necessary to minimize the risk of fines under Bank Secrecy Act (BSA) regulations. Treasury officials noted, the report stated, that despite some money transmitters losing bank accounts, they see no evidence that the volume of remittances is falling.

However, according to the report, the Treasury Department cannot assess the effects of money transmitters’ loss of banking access on remittance flows because existing data do not allow Treasury to identify remittances transferred through banking and non-banking channels.

“Remittance data that U.S. agencies collect from banks do not include transfers that banks make on behalf of money transmitters,” the report stated. “Additionally, the information Treasury collects on transportation of cash from U.S. ports of exit does not identify remittances sent as cash. Therefore, Treasury cannot assess the extent to which money transmitters are shifting from banking to non-banking channels to transfer funds due to loss of banking access.”

The report noted that non-banking channels are generally less transparent than banking channels and thus more susceptible to the risk of money laundering and terrorism financing.

GAP Report: Treasury Should Assess Risks from Shifts to Non- Banking Channels

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