Stakeholders Identified Money Transmitters’ Loss of Banking Access as a Key Challenge, Although Remittances to Fragile Countries Continue to Flow

Money transmitters serving Haiti, Liberia, Nepal, and especially Somalia  reported losing bank accounts or having restrictions placed on them,  which some banks confirmed. As a result, some money transmitters have  relied on non-banking channels, such as cash couriers, to transfer  remittances. All of the 12 money transmitters we interviewed reported  losing some banking relationships in the last 10 years. Further, in our  interviews some banks reported that they had closed the accounts of  money transmitters because of the high cost of due diligence actions they  considered necessary to minimize the risk of fines under BSA/AML  regulations. Treasury officials noted that despite information that some  money transmitters have lost banking accounts, Treasury sees no  evidence that the volume of remittances is falling or that costs of sending  remittances are rising. As a result of losing access to bank accounts, several money  transmitters, including all of the Somali money transmitters, reported that  they were using non-banking channels to transfer funds. Officials acknowledged that U.S.-based money transmitters  transferring funds to Somalia have lost accounts with U.S.-based  banks. U.S. agencies, including Treasury, Federal Deposit Insurance  Corporation (FDIC), the Federal Reserve, and National Credit Union  Administration (NCUA), have issued guidance to the financial institutions  they regulate to clarify expectations for providing banking services to  money transmitters. Existing U.S. Agency Information on Remittances Does Not Allow Treasury to Assess the Effects of Money Transmitters’ Loss of Banking Access on Remittance Flows to Fragile Countries

Treasury 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. Recent efforts to collect international remittance data from  banks and credit unions do not include transfers these institutions make  on behalf of money transmitters. Finally, while  Treasury has a long-standing effort to collect information on travelers  transporting cash from U.S. ports of exit, this information does not to  identify cash transported for remittances. The Call Reports do not require a bank to report remittances for which the  bank is providing such service to business customers, including money  transmitters. Due to a lack of reporting on money transmitters’ use of banking channels  to transfer remittances, Treasury cannot assess the extent of the decline  in money transmitters’ use of banking channels to transfer remittances to  fragile countries, including the four we selected as case-study countries:  Haiti, Liberia, Nepal, and Somalia. Non- banking channels are generally less transparent than banking channels  and thus more susceptible to the risk of money laundering and terrorist  financing. The Secretary of Treasury should assess the extent to which shifts in  remittance flows from banking to non-banking channels for fragile  countries may affect Treasury’s ability to monitor for money laundering  and terrorist financing and, if necessary, should identify corrective  actions. Appendix I: Objectives, Scope, and Methodology

This report examines (1) what stakeholders believe are the challenges  facing money transmitters in remitting funds from the United States to  selected fragile countries, (2) what actions U.S. agencies have taken to  address identified challenges, and (3) U.S. efforts to assess the effects of  such challenges on remittance flows from the United States to fragile  countries. To obtain insights from money transmitters, we used the World Bank’s  Remittance Prices Worldwide database to select U.S.-based money  transmitters serving our case-study countries.
Why GAO Did This Study

The United States is the largest source of remittances, with an estimated $67 billion sent globally in 2016, according to the World Bank. Many individuals send remittances through money transmitters, a type of business that facilitates global money transfers. Recent reports found that some money transmitters have lost access to banking services due to derisking—the practice of banks restricting services to customers to, in part, avoid perceived regulatory concerns about facilitating criminal activity.
GAO was asked to review the possible effects of derisking on remittances to fragile countries. This report examines (1) what stakeholders believe are the challenges facing money transmitters in remitting funds from the United States to selected fragile countries, (2) actions U.S. agencies have taken to address identified challenges, and (3) U.S. efforts to assess the effects of such challenges on remittance flows to fragile countries. GAO selected four case-study countries—Haiti, Liberia, Nepal, and Somalia—based on factors including the large size of U.S. remittance flows to them. GAO interviewed U.S.-based money transmitters, banks, U.S. agencies, and individuals remitting to these countries and also surveyed banks.

What GAO Found

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. 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 (see figure). Several banks reported that they had closed 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 regulations. Treasury officials noted that despite some money transmitters losing bank accounts, they see no evidence that the volume of remittances is falling.
Example of a Cash-to-Cash Remittance Transfer Using a Cash Courier
U.S. agencies have taken steps that may mitigate money transmitters' loss of banking access. For example, several agencies have issued guidance to clarify expectations for providing banking services to money transmitters. In addition, Treasury is implementing projects to strengthen financial institutions in some fragile countries. However, U.S. agencies disagreed with other suggestions, such as immunity from enforcement actions for banks serving money transmitters, since those actions could adversely affect goals related to preventing money laundering and terrorism financing.
Treasury 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. 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. Non-banking channels are generally less transparent than banking channels and thus more susceptible to the risk of money laundering and terrorism financing.

What GAO Recommends

Treasury should assess the extent to which shifts in remittance flows to non-banking channels for fragile countries may affect Treasury's ability to monitor for financial crimes and, if necessary, should identify corrective actions. GAO requested comments from Treasury on the recommendation, but none were provided.