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Money Transfer Measures Raise Concerns
By TAVIA GRANT
Toronto, August 6, 2007 – Canada's recent tightening of money laundering rules aims to shine a light on the murky world of money transfer businesses, but it could have the unintended consequence of driving the industry underground, experts say.
The federal government introduced regulations in June requiring financial institutions to more closely scrutinize customers. Money service businesses will also now have to register with the government.
Registration is meant to boost transparency in a sector that's unregulated and little understood. Some estimates peg annual remittances by immigrants sending money home at $8-billion a year. The World Bank estimates that over $232-billion ( U.S.) is transferred globally through formal channels by private citizens each year.
While many welcome efforts to clean up the industry, registries and a lack of clarity render the move costly and ineffective, said academic experts and people who run money transfer firms.
“There are lots of things you can do with remittances other than the preoccupation we have with drug money,” said Don DeVoretz, a professor who specializes in immigration economics at Simon Fraser University. “This is going to drive it underground. The rest of the world is going in the other direction – the U.S., for example, is trying to facilitate and lower costs of remittances.”
The issue highlights a debate over money flows. On one hand, remittances are swelling in an increasingly globalized world and already represent a larger chunk than the world's foreign aid. On the other, financial institutions are under increasing pressure to know precisely where the money's going – and who's sending it.
The United States has made it easier for illegal Mexican migrants to send money home in the past year, starting a federal program to wire money cheaply and letting them open bank and credit union accounts.
Canada 's new rules, which also aim to curb terrorism financing, mean money transfer businesses should register with the Financial Transactions and Reports Analysis Centre of Canada (Fintrac). Financial institutions must also report attempted suspicious transactions and monitor any “politically exposed” persons – former politicians or other trusted officials. Non-compliance could mean fines and jail terms.
Mr. DeVoretz has some suggestions for Canada. Instead of focusing on disincentives, the country could adapt the approach of Germany and Italy and give tax breaks to people who legitimately send money to loved ones or to registered charities overseas. And those funds should be viewed as a form of Canadian foreign aid.
“I think it's an ingenious idea,” he said. “It would encourage people to send voluntary contributions, which is a form of aid, and give an idea of where the money's going. We don't always have to be punitive on this.”
In the meantime, wire transfer businesses say they're struggling with both how to interpret the new rules and the cost of compliance.
“It would definitely have been easier if it was more spelled out and they'd get exactly what they want as opposed to our own interpretation,” said Marie Boivin, managing director at the Ottawa-based money transfer and foreign exchange firm Accu-Rate Corp.
She's happy if the new changes help clean up the industry's image, but predicts some smaller companies will have to close shop.
Ms. Boivin has had to hire one person just to interpret the legislation, along with lawyers to audit her policies. “By 2008, when we're fully registered with Fintrac, we'll probably hit the six digits in fees associated with that,” she said.
Shakir Nur is also worried about costs. He runs Dahabshill Financial Transfer Inc., which he calls the country's largest money transfer business between Canada and his homeland in Somalia.
His business is nestled beside a Chinese grocery store in the Rexdale Market Mall, an area in northwestern Toronto known for its high immigrant population.
He's hired a full-time compliance officer, but he's concerned that the federal, provincial and municipal governments all have different requirements. Costs are spiraling and that may force fees to climb, hurting many of his low-income, mostly female clients.
“This is more than a money business, it's humanitarian,” he said in an interview at his office. “This money is going to pay for housing, food, medical costs – all the basic needs.”
Funds remitted by migrants back to their countries of origin are at least three times the value of global foreign aid. Remittances also are growing at a much faster rate than aid flows and evidence shows they've reduced both the incidence and severity of poverty in developing countries, points out Danielle Goldfarb, a researcher at the Conference Board of Canada who wrote a paper on the topic earlier this year.
Not everyone thinks beefed-up rules are a bad thing. Western Union Corp., the country's largest money transfer business, applauds the new measures because it says they conform to global standards they already employ.
Others look set to expand in the area. Bank of Nova Scotia is moving into the sector, and Interac Association, which runs Canada's national debit network, said sending
Source: Globe and Mail