Bernardo M. Villegas
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Threat to Number One Engine

           The number one engine of the consumer-led growth the Philippines has enjoyed for the last five years is, without doubt, the remittances of the Overseas Filipino Workers sent to their relatives at home.  My own estimate is that in 2015 the total remittances could be as high as $28 billion if we take into account the informal channels, although there has been a constant increase of flows into financial institutions as international banks, domestic banks and money remittance service providers have increased their cooperation over the last few years.  This happy state of affairs is being disrupted by a recent decision of international banks to literally “throw the baby with the bath water.”   Under the pretext of combatting money laundering and other criminal activities, international banks in countries like the UK, Australia, the US, and Hong Kong, have closed the accounts of money transfer firms, effectively denying them access to banking services and the use of international fund transfer facilities.  OFWs now are forced to send money through international banks who charge higher service fees.  This would result in reduced remittance amounts and less frequency of sending money.  The net receipts of the families of OFWs will also be reduced because of the generally inferior foreign exchange rates used by international banks.

          The Philippines shares this problem with other countries highly dependent on remittances of their overseas workers.  One of the first to suffer this crisis was Somalia in which about 40 percent of the population owe their survival to the so-called “economy of compassion”, the diasporas that send remittances to their relative at home.  In 2013, Barclays Bank decided to withdraw its banking services from over 250 money transfer operators in the United Kingdom.  Some members of the British Parliament have written to Barclays Bank to reconsider its decision, thus contributing to bring the issue to the public’s attention.  Dahbshii, Africa’s biggest money transfer company eventually won an injunction from the British High Court effectively stopping Barclays from closing its account which it had maintained for 15 years.  The interim injunction has the effect of preserving Dahbshii’s banking arrangements with Barclays until the conclusion of a full trial.

          In my opinion, this drastic move of international banks is tantamount to throwing the baby with the bathwater.  Denying banking services to money transfer agents runs contrary to the continuing efforts of the global community consisting of governments and financial regulators to promote the adoption of laws and regulations that would minimize the risks of money laundering and the financing of terrorist activities.  Independent money operators have in general been exerting efforts to be compliant with the antimony laundering/counter-terrorism financing (AML/CTF) in the countries where they operate.   The vast majority of those sending remittances to their home countries are legitimate workers who are not engaged in crime or terrorist activities.  They do not deserve to be inflicted with the higher service fees that will be charged by the giant financial institutions.  This move ostensibly goes counter to the promotion of the theme of the last APEC meeting of leaders in Manila, which was the nurturing of small and medium scale enterprises.  The remittance companies are mostly SMEs who will now be displaced by the big multinational banks.

          Representatives of independent and bank-owned remittance or money transfer companies, through their respective industry organizations, the Association of Private Remittance Service Companies (APPRISE) and the Association of Remittance Officers(ABROI), have brought this matter up to the attention of the BSP, key officials of the executive and legislative branches of the Philippine government and international multi-lateral agencies.  On April 8, 2015, the representatives of these organizations were summoned to a meeting by the Governor Amando M. Tetangco, Jr., who requested them to recommend measures to address the cause and consequences of this controversial move of international banks.  Subsequently, Deputy Governor Nestor Espenilla reported to these associations that the inputs they provided were taken up in one of the high level meetings of the International Monetary Fund (IMF) in Washington, D.C.    APPRISE and ABROI have also brought this matter to the attention of the Office of the Vice President, the Department of Finance, the Department of Foreign Affairs, and some key officials of the executive and legislative branches of the Philippine governments, as well as international multi-lateral agencies.

          In helping the international banks to avoid “throwing the baby with the bath water,” our government officials will find useful the following arguments used in Australia by the remittance companies in appealing to their Parliament for assistance in countering this drastic move.  They pointed out that the move was a veritable barrier to the efforts of the industry and enforcement agency to tackle ML/TF within the sector as regulated money transfer operators rely on banks to operate settlement accounts to hold funds for and on behalf of the consumers using their service.  Thus, de-banking leads to an increase in informal remittance transactions that do not fall under proper regulatory supervision—transactions go ‘underground’ and the associated information and intelligence are lost.  Beside, the move could be considered anti-competition, handing monopolistic control to the big banks of money transfers, clearly detrimental to the consumers.  Because of additional service fees to be paid by OFWs to foreign commercial banks, the estimated loss of remittance payments to the Philippines, using 2012 figures, is $804,366,754 or using the average forex rate in 2012, P35,953, 263, 424.  Just consider the negative impact on our international reserves and the purchasing power of Philippine households of such massive figures!

          Our legislators may find some enlightenment from the following recommendations of representatives of the money transfer agencies in Australia to their Parliament:  “We submit that banks and other financial institutions should be satisfied that the appropriate due diligence is conducted when a remittance provider is registered on the Remittance Sector Register.  The regime should also be amended so that the due diligence conducted when affiliates of remittance network providers are registered, is considered by banks and other financial institutions when assessing the ML/TF risk of that business as a bank customer.  This permits banks and other financial institutions to bank customers from the remittance sector whilst still taking an appropriate risk-based approach as recommended by the appropriate regulating agency.

          I have no doubt that the BSP—considered the best managed central bank in Southeast Asia—will be able to work out with our next Congress an appropriate response to this serious challenge faced by the Number One Engine of the Philippine Economy.  By not delaying the solution to this problem, we prove to OFWs that we really consider them as national heroes for all the sacrifices they make to sustain their respective families and at the same time serve as an engine of growth of our economy for many years, and decades to come.  For comments, my email address is