A money-laundering crackdown hurts Pacific communities

June 30, 2016

International banks are shutting remittance accounts in the Pacific islands in response to global financial regulations aimed at preventing money laundering. But the closures are hitting companies and families that rely on cross-border money transfers.

Westpac Group, one of two Australian banks that until recently dominated banking in the Pacific, said in April that it would cut business ties with the government of Nauru, having ceased operations in five other Pacific island countries last year. Australia and New Zealand Banking Group, the other Australian bank with major operations in the region, is also thought to be considering reducing its exposure — a move that would mark a significant backward step for the islands. ANZ did not respond to a request for comment.

Anti-money laundering laws have been tightened globally, in part to reduce the flow of funds to terrorist groups. As part of these efforts, banks have been reducing their exposure to potential risks, a procedure known as “de-risking.” In the Pacific, this has included closing the accounts of money transfer operators, or MTOs, the financial groups or middlemen through which remittances are sent. This is bad news for the islands. The World Bank has estimated that Pacific island countries receive annual remittances of over $500 million. The funds can be crucial — remittances account for up to 27% of gross domestic product in Tonga and 17% in Samoa in 2014, according to the bank. The Reserve Bank of New Zealand says MTOs handle most of the transfers.

If MTOs were unable to operate, families could end up having to pay hundreds of dollars in fees for bank transfers. It would cost Tongan families $950 a year in fees to receive remittances from banks, said Mark Flaming, regional project manager for the Pacific Financial Inclusion Programme, a U.N.-administered nongovernmental organization based in Fiji. “This is really bad,” Flaming said. Pacific MTOs, which range from global groups such as Western Union to small village and island-based suppliers, handle most of the remittances from Australia, New Zealand and the U.S.

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