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"Dozens of operators have closed," KlickEx chairman Robert Bell said. "In Tonga, for example, there used to be one independent and locally-owned MTO for every 10,000 people or so. Now there are effectively none."

June 15, 2017 | Article from Nikkei Asian Review By MICHAEL FIELD

On the picture above : New Zealand's Finance Minister Bill English said that there were no “radical solutions” that would keep money transfer operators in business. (Getty Images)

Pacific hit as banks abandon remittance business

AUCKLAND, New Zealand -- International banks are shutting remittance accounts in the Pacific islands, in response to global financial regulation aimed at hampering money laundering. But the closures are hitting companies and families that rely on international 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 (MTOs), the financial groups or middlemen through which remittances are sent.

For the islands, this is bad news. The World Bank has estimated that Pacific island countries receive annual remittances of around $470 million. The funds can be crucial -- remittances account for up to 26% of gross domestic product in Tonga and 20% in Samoa, according to the bank. The Reserve Bank of New Zealand says that MTOs handle most of the transfers.

If MTOs were to be unable to operate, families could end up having to pay hundreds of dollars in transaction fees for bank transfers. Mark Flaming, regional project manager for the Pacific Financial Inclusion Programme, a U.N. administered nongovernmental organization based in Fiji, said it would cost Tongan families $950 a year in fees to receive remittances from banks. "This is really bad for [financial inclusion]," he 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. to families in the Pacific.

Ranil Manohara Salgado, the International Monetary Fund's chief of Asia and Pacific regional studies, said the organization was working with international bodies to create an environment where banks would not have to withdraw their services. "There are signs that some of the Western banks could withdraw, and that's raising concerns," he told Nikkei Asian Review.

One of the major surviving MTOs in New Zealand, locally owned KlickEx, said the industry had changed drastically because of de-risking. "Dozens of operators have closed," KlickEx chairman Robert Bell said. "In Tonga, for example, there used to be one independent and locally-owned MTO for every 10,000 people or so. Now there are effectively none."

Early in June, KlickEx learned that it had lost a High Court battle to stop Kiwibank, owned by the New Zealand government, from closing the last of its accounts. E-Trans, another MTO, has also lost its Kiwibank accounts, leaving Western Union as the only MTO still operating through Kiwibank.