Migrants’ money channels are a murky world
July 26, 2011
There is no paper trail. There is no oversight. There are no clear rules. But the cash flow is staggering: roughly $200 billion a year.
This amount, sent home by immigrants and migrant workers through back channels, dwarfs global foreign aid. Canada’s share — approximately $7.5 billion a year — is more than double the country’s official development assistance.
Although these hand-to-hand remittances do a tremendous amount of good in poor countries, they pose serious risks for both senders and governments.
Immigrants have no guarantee their earnings will actually reach their families. The money could be pocketed by greedy middlemen, stolen enroute or whittled down by bribes to corrupt local officials.
Financial authorities have no knowing whether this informal financial system is being used by drug dealers to launder dirty money or terrorist groups to finance international operations. It certainly has the potential to do both.
Yet few governments are taking steps to regulate this trouble-prone business. More surprisingly, they know almost nothing is known about it. All of the available statistics are ballpark estimates. All of the current knowledge is based on anecdotes and regional fragments.
A Toronto-based citizens’ group aims to spur reform. Acorn Canada, made of up low-to-moderate-income families, is conducting a multi-year campaign to make remittances safe and transparent.
It has taken the lead because its members — many of whom support families in Asia, Africa and Latin America — are tired of choosing between exorbitant bank fees and unreliable couriers.
Acorn has just released a report outlining the magnitude of “hawala,” as it is called, and the way it works.
A typical transaction unfolds something like this: An immigrant or seasonal worker wants to send money to his family back home. His English is rudimentary and he is intimidated by bureaucrats and paperwork and incomprehensible 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, efficient way to send money overseas. When it breaks down, 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 cost could run as high as $50.
The cheapest option was MoneyGram, which charged between $3 and $10, depending on the speed and the 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 they underground system. They induce risky behaviour.
This week, a delegation from the grass-roots group will attempt to convince deputy finance minister Michael Horgan that it would be in Canada’s interests to cap remittance rates and require banks to disclose their fees. Ottawa needs a window on this multi-billion cash flow and immigrants need a safe, affordable way to send money home.
It is unlikely that “hawala” will ever be eliminated. But in a 21st-century financial system that can move money securely around the globe with the push of computer button, immigrants deserve a better alternative.
Carol Goar writes for Record news services.