The world makes much ado of people and organizations – and even governments – assisting militant, fringe organizations engaged in nefarious schemes against the larger humanity. These include ter  rorists, pirates, drug dealers, and human traffickers.  Among these the three most sought after, most publicized groups are terrorists, pirates and drug cartels. And the world is right to explore ways to stop organizations of this elk sell human lives cheap down the drain – each in accordance to its own, heinous code of operations.  The world is also right to wage a relentless offensive against these enemies instead of hiding behind defensive measures that invariably show the chinks in the armor through which infiltrators creep in into the system to compromise it or wholly destabilize its effectiveness. Examples abound.


Realigning Policies

On occasion, good intentions open floodgates of disaster, misery and deprivation that is far worse than acts they set out to curb or prevent from happening.  The May decision of the Barclays Bank to close the accounts of some 250 Money Services Businesses (MSBs) serving millions and millions of needy beneficiaries in developing countries presently tops the list of good intentions turning awry. The down turn in the Barclays decision is that it creates untold of, immeasurable agony and deprivation among millions of innocent recipients of remittances  who are punished not on solid grounds but on the dictates of ‘preventive measures’ against perceived crimes that may or may not have happened at all.

The short term gains of decisions such as that of Barclays cannot balance or justify the far-reaching ramifications of residual consequences that will yet prove far more alarming than that which the Bank seeks to cover. For one, millions and millions of people who depended on relatives and friends, and made a honest living on remittances will take up the begging bowl at best joining the hordes of stateless, humiliated masses of international refugees – a state that the world can do without. Secondly, money transfer will disappear from a certifiable transaction to an unaccountable underground labyrinth of channels, driving hard earned cash right into the hands of a ruthless, manipulating underworld.

Far more thoughtlessly, decisions such as that of the Barclays denigrate the usefulness of paper trails in money transfers as it severely punishes the conscientious, law abiding practitioner for negligible oversights – if any, whilst opening limitless opportunities for shady deals and trail-less transactions.

On the other hand, it indirectly scoffs at financial regulations designed to combat money laundering and terrorist financing by exerting unbearable pressure on compliant companies that are not of western origin. The words ‘double standards’ glare out – for better or for worse.

Major MSBs that have been adversely affected by recent events, such as the Somali-origin – Dahabshiil, vigorously comply with international regulations combating terrorist financing, proliferation of weapons and the proceeds of crime. MSBs of this genre should be rewarded for fulfilling FATF expectations such as Recommendation 15 below, and not punished on the pretext of the flimsiest of reasons.  The aspersion implied in the Barclays decision and the dark smudge it leaves on the shining record of blameless MSBs should be immediately retracted, and especially in the light of the decision’s ominous connotations and impact.

Recommendation 15 points out:

Countries should take measures to ensure that natural or legal persons that provide money or value transfer services (MVTS) are licensed or registered, and subject to effective systems for monitoring and ensuring compliance with the relevant measures called for in the FATF Recommendations. Countries should take action to identify natural or legal persons that carry out MVTS without a license or registration, and to apply appropriate sanctions.


Any natural or legal person working as an agent should also be licensed or registered by a competent authority, or the MVTS provider should maintain a current list of its agents accessible by competent authorities in the countries in which the MVTS provider and its agents operate. Countries should take measures to ensure that MVTS providers that use agents include them in their AML/CFT program and monitor them for compliance with this program.


The only consideration that governments, financial regulators, banking institutions, money transfer businesses and individuals should all keep uppermost in mind is to abide by the laws as best as can be implemented giving adequate allowances to cultural and geographical contexts.

Legality of Mobile Money Transfers

The UN estimates that there are around 300 million adults that would have been able to receive remittances from relatives who have currently no access to conventional money services, and have never seen the inside of a bank or another MSB for one reason or another. The system is user friendly, accessible to anybody connected to a telecommunication network, and offers the user innumerable outlets that he or she can send and receive money. It is virtually as easy as topping up mobile accounts.


On the other side of the spectrum, regulators have always had issues with mobile banking. In conventional banking and money transfer systems, financial regulators have levels of reports and documents available to them to inspect giving them the necessary base to influence these institutions’ operations. In mobile banking this is not available.

The eleventh FATF recommendation on record keeping stipulates:

Financial institutions should be required to maintain, for at least five years, all necessary records on transactions, both domestic and international, to enable them to comply swiftly with information requests from the competent authorities. Such records must be sufficient to permit reconstruction of individual transactions (including the amounts and types of currency involved, if any) so as to provide, if necessary, evidence for prosecution of criminal activity. (FATF Recommendations, p.17)


Presently, this recommendation has no apparent effect on mobile money transfers. The recommendation further establishes that all records obtained in a transaction through the customer due diligence (CDD) measures must be available to ‘domestic competent authorities’ at all times.

This makes present-day mobile money remittances marginally legal. If the system remains unchecked and unfettered for such long, mobile money transfers will predictably take the place of conventional money transfer businesses, unfairly edging them off the market. Instead of combating crime, such systems, experts believe, are more likely than any other to replenish dried up terrorist coffers and used up ammunition belts of active terrorist combatants by transferring money right into the cell phones of militants on the move.

Regulators are understandably worried that any amount of money can be sent from any mobile in the outside world to a phone number of a terrorist in Pakistan, Yemen and Somalia, for instance, with no intermediary, checking systems in place.  No sender has to go to an office to register details of sender and receiver, and no fighter has to leave his ditch to collect money to buy ammunition, assemble bomb parts or forward costs to another commander on the front. Imagine a group of people sending to the mobile phones of 100 militants $2000 each. This is a cool $200 000. A whole city can be captured in certain parts of the world. Trainloads of people can be bombed out of their tracks. A fleet of school buses can be blown off into smithereens with a far less amount of money… A paper trail to trace origins, senders and recipients will be available to no one.

With popular hawala MSBs nothing if this kind can ever happen. They represent the only safe, legitimate access to subsistence, health, education, and investment costs to hundreds of millions of people that western banking institutions can never ever reach even with the full cooperation of local conventional banking facilities.



Regulations miss out

In their haste to come up with iron-tight shields against money laundering and the proceeds of crime, high-street banking institutions, international financial regulations and regulators seem to have missed a few crucial turns. As a result:

  1. Anti-money laundering regulations fail to address or understand the operational mechanics of Money Service Business (MSB) that are much older than some ‘countries’.   In many cases, the MSB has all the qualities, the operational strength, the network, the AML/Compliance regimes and hierarchical structure to combat laundered money, terrorism and the proceeds of crime passing through systems as legitimate earnings. And yet, much feted financial regulations such as the FATF recommendations, assume that the UK or the US is a typical, apt model that all nations should strive to emulate. Better still, nothing short of the centuries’ old financial systems said countries have adapted to through the years must  be tolerated in all nations, without exception, automatically –and fully – manifested in,  for instance, countries like Somalia and South Sudan instantly.  Every recommendation begins with ‘countries should..’.
  2. Mobile bank service providers are not fully regulated as electronic money issuers or as MSBs. This state leaves them wide open for a variety of abuses on the part of users.
  3.  It had not been adequately taken into account that in mobile banking, there is a failure of high profile schemes – in other words total network failure, relaxed security, absence of KYC regulation, relaxed sim card ownership, and the near total absence of due diligence and record-keeping measures which may compromise the security of the money transfer industry as a whole where, in reality, players in sector itself exercise different security regimens and, so, should be viewed each (hawala, mobile transfers, banking institution, etc. ) by merit and level, instead.
  4. Regulators and regulations tailored to rigid cultural and geographical confines have not fully comprehended that in some parts of the world, the hawala is the only legal channel to send and/or receive money, thus becoming the only lifeline for millions of people around the globe, and that the legitimate continuation of business is to the interest of all stakeholders. Major money transfer businesses originating from non-western countries apply international anti-money laundering measures as robustly as western hawalas such as the Western Union.

S H Balbal

Nairobi, Kenya