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In 2016 the U.S. Government-Accountability-Office undertook a study on Remittance Services and whether compliance in this sector requires further stringency. The primary reason to undertake this study was the emergence of reports highlighting Remittance Agencies' vulnerability to money laundering efforts. During this study, GAO reviewed laws and regulations, analysed data and interviewed stakeholders. The stakeholders' list included the Financial Crimes Enforcement Network, Regulators, Remittance Providers, Law enforcement, and industry and other associations.
Barring disruptions due to the COVID-19 pandemic, cross border money transfer volumes were constantly on the rise. Along with this rise arose the risk of money laundering efforts by criminals. Hence GAO had to understand the viability of lowering the $3000 threshold for submitting specific identification proofs by remittance senders. The primary objective remained to understand whether this decrease will help the U.S Anti-Money Laundering (AML) efforts.
During this study, GAO realised the following aspects of International Remittances:
Financial Institutions providing cross border money transfers are subject to Anti Money Laundering requirements under the Bank Secrecy Act (BSA). Under this requirement, the service providers need to report suspicious and other transfers. Furthermore, it is mandatory to obtain and maintain records of all cross border transfers over $3000.
Remittance service providers who participated in the study shared challenges related to BSA compliances. This task's complexity further enhanced given the maintenance of large amounts of data and everchanging criminal behaviours. Financial criminals are getting vicious in their attempts towards committing violations and scams.
Furthermore, several banks ended their relationships with remittance service providers. Having a bank account is a fundamental requirement for such agencies to conduct their business.
It is not conducive for money transfer agencies to go out of business for enforcement agencies. It may lead remittance senders to informal channels that are difficult to detect.
Remittances are vulnerable to money laundering risks. This threat is primarily due to the execution of multiple transactions in a short time. Furthermore, there is a risk of oversight by any of the agencies involved in the process.
Stakeholders of the Remittance eco-system acknowledged that money laundering poses a threat based on multiple aspects. These threats arise from the potential lack of BSA compliance requirements by Customers, Geographic Locations, Products and Agents.
Criminals can launder money earned from illegal activities by the structuring of remittance transactions. Here-in, a sender may break-down a transaction in multiple amounts less than $3000 to escape scrutiny.
Many stakeholders said that a lower dollar threshold would benefit agencies' AML efforts, but verifying remitters' legal immigration status might not benefit such efforts.
Stakeholders believe that lowering the dollar threshold will be incremental in AML efforts. However, verifying the remitters, legal immigration status might prove detrimental primarily because it will push them towards informal channels.
Law Enforcement Officials support a centralised cross-border transaction database at a low dollar threshold. They believe that such a system will prove beneficial for AML efforts.
Lowering the fund transfer threshold generated a mixed response from the remittance service providers, bank regulators and some stakeholders.The more prominent players in the remittance business had no objection to the lowering of thresholds. It was primarily due to the reason that they had already imposed this regulation onto themselves voluntarily.
Bank regulators opined that a lower threshold would enhance record-keeping volumes, resulting in higher expenses for smaller service providers. This increase will further enhance the cost for their customers.
Finally, stakeholders shared a common concern that checking the remittance sender's legal status will prove detrimental towards AML efforts. It will lead them to cross border money transfer channels that the agencies will find challenging to identify.
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Deepika has completed her post-graduation from Guru Nanak Dev University, Amritsar, India. She is presently living in Kolkata, India. Her interest areas include academic research, writing articles and journalism.
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