The agency for detecting money laundering in Australia says it has refused to register two money remitters over the past 12 months and imposed conditions on the registration of five others.
(Transcript from World News Australia Radio)
Known as AUSTRAC, the Australian Transaction Reports and Analysis Centre passes on intelligence it collects to the Australian Federal Police and the Australian Crime Commission.
Listen to the full interview by clicking on the audio tab above.
AUSTRAC has introduced new compulsory registration requirements for the money remittance sector which it says is particularly vulnerable to exploitation by criminals.
But some in the financial services sector say AUSTRAC - and similar agencies overseas- are over-policing money remitters and are warning of serious humanitarian consequences.
In developed countries like Australia, access to a bank account is something we all take for granted but there are millions of people in poorer nations who don't have bank accounts and that's where the money remittance sector plays an important role.
Many of its clients in the developed world are migrants who send money back to their relatives in developing countries.
They often choose to use money remitters rather than the major banks because the remitters are much cheaper.
Sudhesh Giriyan is the Vice President of Xpress Money, one of Australia's largest money transfer brands.
He explains how the remitters are able to undercut the banks.
"The cost of doing a remittance for banks is much higher compared to a money transfer company. You look at a money transfer company today, a small shop that does remittances, okay, the guy's standing at the counter, he could even be the owner of the company, he himself does the remittance, his cost of operations is much, much smaller compared to a bank. Today, for example, if it costs 8 to 10 dollars to do a remittance internationally for a bank, it might be completely unviable to charge that kind of a fee. They end up charging a much higher fee so in the process the customers stay away from them."
Somalia is one country that's heavily reliant on remittances.
Professor Louis de Koker from Deakin University has a specialist interest in money laundering and terror financing.
"Somalia does receive a significant amount from remittances. It's estimated to be around US$1.3 billion per year. That amount is very significant within the Somali community. It constitutes close on 40 per cent of its GDP and it's a vital lifeline for many Somali people. Any threat to this lifeline, such as the one in the UK, will therefore have very serious humanitarian impact in Somalia."
The threat in the United Kingdom is Barclays Bank which wants to put Somalia's money remitters out of business by denying them a banking service.
Professor Louis de Koker says it's doing this because of what's been occurring in the United States over the past few years.
"There is a significant amount of regulation in this area. What has changed in the past few years is enforcement. We see far more enforcement action being taken with far more serious penalties than ever before. Much of that is being led by the United States and unfortunately the moment that you speak international money flows, most of the large players have a footprint either in the US or a footprint that ensures that US law applies to them extra-territorially. As a result, they are setting their risk appetites on the scale calibrated by the US regulators."
In December last year, US authorities took action against Britain's biggest bank, HSBC, which allowed Mexican drug traffickers to launder millions through its US operations.
HSBC also assisted Sudan, Myanmar, Libya and Iran to circumvent US banking laws.
It resulted in a US$1.9 billion dollar fine under what's called a deferred prosecution deal with the US Justice Department, where the bank agreed to independent monitoring for a five year period.
Former HSBC employee Everett Stern blew the whistle on the bank and told a New York rally HSBC got off lightly.
"I'm the whistleblower here. I reported this to the FBI, I was featured in Rolling Stone. You can read my article and you'll see I've been trying to get this information out and what ended up happening was the government formed a deferred prosecution agreement and they fined HSBC $1.9 billion as a result of their crimes: five weeks of their pay. Their stock went up. That doesn't make any sense; that is not American."
Sudhesh Giriyan from Xpress Money says his company does not do business in Somalia.
And he says he can understand why Barclays is cautious about dealing with Somalia's money remitters.
"There have been banks like HSBC after the 1.9 billion dollar fine last year, they have gone about cancelling all the accounts, closing all the money transfer company accounts. Today Barclays is the only bank, if you really look at it, which still has, you know, those accounts for the MTBs but the fact remains that Barclays is asking a direct question as to who will be responsible if tomorrow the money is laundered if we are, you know, caught at the bank which is involved in money laundering so Barclays has been right in its own way. Yes, you can always take a humanitarian view of the remittances going to Somalia, Somalia depends on remittances."
Joy Geary is a consultant to the financial services sector.
She says Australia has a contradictory approach to money remitters.
She says the federal government has championed the money remittance sector through the G20 but she says its money laundering regulator, AUSTRAC, is over-policing the sector.
"We have another arm of government in law enforcement and financial crime who are not comfortable with the remittance regime and are spending a lot of time over-policing them and creating a situation of high risk for those remitters, regarding them as high-risk, causing their banks to actually de-bank them in order to reduce their risk of their anti-money laundering controls and program."
Joy Geary says one simple reform Australia should impose is a cap on the amount money remitters are able to send or receive on behalf of their clients.
She says this would make them less attractive to criminals such as drug traffickers, terrorist financiers and people smugglers.
"Remitters shouldn't be sending transactions in the millions, they shouldn't be sending transactions much over $20,000. We have a situation where there's no ceiling and that is what's happening and some of that is criminal money."
Sudhesh Giriyan from Xpress Money says it's a practice his business imposes on itself.
"I completely agree with that and if you look at our limits today, typically our international limit is about $5,000 so we don't go beyond $5,000 on an average. By this, we are limiting the chances of someone taking our system for a ride right and there are markets, for example, where you see more and more fraudulent transactions happening so for those markets we have again limited the transaction size to be able to operate within the guidelines laid down by the regulators like AUSTRAC."
In a statement to SBS, AUSTRAC says people can check the registration details of a remitter before doing business with them by using the Remittance Sector Register on its website.
AUSTRAC says it's providing various resources to the remittance sector to help improve its understanding of the current laws and it's putting together a communication strategy to raise public awareness of the register and remitters' obligations.