At a recent training session, when I was explaining the mechanics of Hawala banking, someone asked, “Why don’t we just make it part of the AML regulations?”. Well. Quite. I had gone through the usual stuff about alternative remittance systems having their positive points – supplying financial services to the unbanked, allowing money to be repatriated to unsophisticated communities – and had then quoted from Interpol, FATF et al to demonstrate how such systems are being hijacked for criminal ends. To those who work in the regulated sector (which to me means any business activity governed by AML regulations), it seems incredible that such an efficient money-moving system should be (here in the UK and in most other jurisdictions) totally unregulated.
The truth of the matter is, of course, that indeed alternative remittance systems should be regulated for the purposes of AML. Those who provide such services should be required to conduct some level of due diligence on their clients, and keep records that might assist in investigations, and warn their staff about the activities of criminals and what to do if they’re suspicious. The difficulty is that once you bring someone under the AML umbrella, you have to provide them with a supervisory body to give them guidance on what to do to comply – and to punish them if they don’t comply. And therein lies the problem: which supervisory body is going to step forward to take responsibility for thousands of mostly one-person businesses, traditionally run on informal, trust-based, ethnically-linked lines – and, more importantly, take it in the neck when it turns out that the vast majority of their new entities are not doing what they should? You don’t get to be an AML supervisor without learning a little something about the risk-based approach – and when to turn down extremely risky business.