The problem

We can’t say that the access to banking accounts problem is new in the Money Transfer Industry, not in the USA or a number of other countries. It was one of the reasons why the NMTA was formed back in 1996, David Landsman, Executive Director, reminds us every now and then. So why is this a such an urgent issue in 2014? I think the answer is that in the last decade a large number of small money transfer companies, with very little capital and minimal compliance structures were the first to go, now is the medium sized, larger companies, well funded, with large investments in technology and compliance the ones that are feeling the brunt. What should the industry do?
Not only money transfer companies are loosing their bank accounts in their own countries, but some banks that bank them or are money transfer service providers, are loosing their US and UK bank accounts. The alarm rang loud with the Barclay’s Bank account closures in the UK and the World Bank identified this problem as one of the most important to solve, since this issue has prevented the lowering of remittance costs and the increase competition, one of World Bank’s objectives. In the XIII Meeting of the Global Remittance Working Group in Washington, D.C. on October 11, 2013 the issue was first discussed and a document, Barriers to Access to Payment Systems in Sending Countries and Proposed Solutions was published by the Group. This document was drafted with the assistance of Developing Markets Associates Ltd. as an external consultant.

Large banks are cutting off all types of clients and retreating from markets for fear of offending US regulators (So widespread is the practice that there is now an accepted term for it: “derisking”).. In just 10 years Correspondent Banking relationships have decreased by 50% signaled a recent article in the Economist. The article points out that an “unintended” consequence is the cost of remittances to Africa where fees have reverted to prior levels in many markets as small,remittance firms that had introduced competition and driven prices down have lost access to banking services in the rich world.

The stigma and the shame

But the information about bank account closures is still something that most companies don’t want to discuss in public. Most CEOs feel that a bank account closure or a refusal of a bank to open an account is a judgement call on their compliance structures which is clearly not the case anymore. So CEOs need to go into the open and get together with other CEOs and share heir concerns, compile information and speak loud. The World Bank is listening and we at IMTC are committed to help.
We will have a panel session at IMTC USA 2014 on the issue but we are also coordinating meetings throughout the 3 days in San Diego so we can come up with ideas, solutions, task forces, etc. We also want to be supportive of the efforts of Banks such as Merchants Bank, CBW Bank, and others who will be at San Diego and they are providing services to the industry to make sure we can all work together and show regulators that we, as a team, can minimize risks and provide a safe and sound money transfer service in the US and all over the world.

The “Reputational Risk” for Banks

Not only the Money Transfer and all Money Service Businesses have been infuriated with the constant use of Banks of the infamous “Reputational Risk” as a reason for denying services or closing accounts. A May 22, 2014 letter from the US House of Representatives Jeb Hensarling from Texas’s 5th congressional district, goes directly into the heart of the matter. The letter states that the Representative has “become concerned that in conducting their safety-and-soundness [bank] supervision, some regulators may be relying not only on the largely objective CAMELS indicators but also on subjective judgments of what constitutes “reputation risk.” It goes on to say that ” reputation risk could ostensibly be invoked to compel a depository institution to sever a customer relationship with a small business operating in accordance with all applicable laws and regulations but whose industry is deemed “reputationally risky” for no other reason than that it has been the subject of unflattering press coverage, or that certain Executive Branch agencies disapprove of its business model“.  The letter was sent sent to Janet Yellen from The Federal Reserve System, Thomas Curry, Comptroller of the Currency, Martin Gruenberg, FDIC, Debbie Matz, National Credit Union Administration, giving them until June 12, 2014 to answer three questions to “better understand what “reputation risk” is and how regulators use it“.  It will be interesting to see the answers.

Operation “Choke Point”

Compliance Expert Carol Van Cleef has stated regarding the letter from Jeb Hensarling mentioned above: “This letter is the direct result of a very well organized and funded lobbying effort on the part of the (online) payday lending industry. This group has been hard at work for more than a year on the issues facing it – including DOJ’s Operation Chokehold against third party payment processors (that DOJ now believes bear the burden to demonstrate how they are not money transmitters). This coalition of companies and associations have worked tirelessly over the last year, meeting with many members of Congress and the various government agencies and coordinating with PR firms. One by one, the coalition has attacked the various issues that it has faced. The decision of most, if not all, banks to close the accounts of third party payment processors handling much of the payments stream for the payday lending industry is what led to this letter. The banks have faced intense pressure from their regulators to do so.”

The May 29 Staff Report entitled”The Department of Justice’s “Operation Choke Point”:Illegally Choking Off Legitimate Businesses?” written for the U.S. House of Representatives Committee on Oversight and Government Reform chaired by Darrell Issa (CA-49) is a must read. Andrew Ittleman’s article on Operation “Choke_Out”  it is also a must read in order to see the big picture of why this is happening as well as Justice Puts Banks in a Choke Hold

UPDATE: FDIC REVERSES OPERATION CHOKEPOINT MERCHANT RULINGS:(7/29/14) – A New Chapter of the operation starts now, with the FDIC changing its guidance trying to stop the closing of bank accounts of legitimate businesses that have rallied against the Operation. The Money Transmitter industry is one of the industries that “have complained that they are seeing their access to banking services evaporate as financial services institutions determine they would rather close accounts than face the combined wrath of the Justice Department, FDIC and CFPB”.

The Solutions

Besides exposing the problem and crying foul we need to come up with ideas, solutions. In the World Bank Document there is a first approach to solutions that we should work towards:
a) Creation of country-level task forces
b) The improvement of enforcement/supervision/ Monitoring
3) The need for common AML/CTF standards
4) The establishment of specialized MTO-focused banks (MSB Friendly Banks).
Let’s explore these and other options. Any ideas?

The Actions

Of all the emails and communications recently received by IMTC on this issue, these stand out.

  • The help from our colleague Anthony Rodriguez who in his position in ACAMS has been using ACAMS boards and publications to push the issue in front of ACAMS large community of compliance professionals.
  • The work that ABANCORD and ADOCAMBIO in Dominican Republic are doing to represent their members and voice their concerns on the situation in that country.
  • We want to hear more of your efforts and we will post them here as well as channel them to the World Bank in an orderly fashion.