There is no paper trail. There is no public oversight. There are no clear rules. Yet the cash flow is staggering: roughly $200 billion a year.
That is how much immigrants and migrant workers send home though a makeshift network of traders and couriers. Canada’s share — approximately $7.5 billion a year — dwarfs the country’s foreign aid budget.
Although these untraceable remittances do a tremendous amount of good in poor countries, they also pose serious risks for both the sender and the state.
Immigrants have no guarantee their earnings will actually reach their families. The money could be pocketed by greedy middlemen, stolen in transit or whittled down by bribes to corrupt local officials.
Governments have no way of telling how much dirty money from drug dealers and terrorists is circulating in the system. It is certainly conducive to both.
But no one is stepping forward to regulate this trouble-prone business. More surprisingly, almost no one knows much about it. The statistics are all estimates. The academic studies are all based on fragmentary knowledge and conjecture.
A Toronto-based citizens’ group is working to change that. Acorn Canada, made up of up low- to moderate-income families, is conducting a multi-year campaign to make remittances safe and transparent.
It has taken on this ambitious task because its members — many of whom support families in Asia, Africa and Latin America — are tired of choosing between being gouged by the banks or swindled by greedy couriers.
Acorn just released an easy-to-read report outlining the extent of “hawala” (the colloquial term for the hand-to-hand system and the way it works).
A typical chain of transactions looks something like this: An immigrant or seasonal worker wants to send money to his family back home. His English is rudimentary. He is intimidated by big institutions, paperwork and costly service charges.
So he checks an ethnic newspaper and finds an advertisement for cheap money transfers to his homeland. He visits the establishment, usually a small export-import business, and arranges to send a small amount — say $100 — to his family. The owner charges a commission ranging from 25 cents to $1.25 and gives him an identification number that can be used to pick up the money.
The merchant then contacts one of his suppliers or agents in the immigrant’s home country and arranges to get the money to its destination. The two traders settle their debt by manipulating their balance sheets.
When the system works, it provides a cheap way to send money overseas. When it doesn’t, the immigrant is out-of-pocket and powerless.
There are safer ways to transfer funds, but they are extremely expensive. Acorn tracked the cost of sending a $100 remittance to Mexico, using recognized financial institutions, last fall. It found the fees could run as high as $50.
The cheapest option was MoneyGram, which charged between $3 and $10, depending on the speed and level of service. The highest priced was HSBC (Hong Kong and Shanghai Banking Corporation), which charged $50.84. The only Canadian bank willing to divulge its fees, Toronto-Dominion, fell in the middle at $35.91.
“These rates are predatory,” says Kay Bisnath, president of Acorn. They drive people to use the underground system. They force them to take unwanted risks.
This week, a delegation from Acorn met Deputy Finance Minister Michael Horgan hoping to convince him it would be in Canada’s interest to cap remittance rates and require banks to disclose their fees. It made the case that Ottawa needs to get a handle on this multi-billion-dollar business and immigrants need a safe, affordable way to send money home. The next step is up to the government.
It is unlikely that “hawala” will ever be eliminated. But in a 21st century financial system where money can be moved with the stroke of a computer key, immigrants deserve a better alternative.