That’s Money Service Businesses — bureaux de change, cheque-cashing services… money remitters.
That makes them sound small. But remittances are a big deal for unbanked economies like Somalia. (About £100m from the UK alone, says Oxfam.)
Although the fact that a particular MSB definition comes from UK money-laundering laws demonstrates where a problem can lie. Or as the FCA put it in July: MSBs overall are “assessed by law enforcement as being at particularly high risk of abuse by those seeking to launder money or finance terrorism”.
The Hon. Mr Justice Henderson of the High Court also struggled with definitions of MSBs on Tuesday. But he also granted an interim injunction to prevent Barclays withdrawing banking services from Dahabshiil, a large MSB which remits money to Somalia:
There is no dispute that Barclays is contractually entitled to terminate its provision of banking services to each of the claimants. Like any other private business, Barclays is entitled to choose its customers. Although heavily regulated in the public interest, banks are under no public law duty to make their services available to particular categories of customer. The injunctions which the claimants seek do not depend on any actual or threatened breach of contract by Barclays…
In fact, they depended on competition law. According to the judge, a full trial should argue whether Barclays has or had a ‘dominant’ position in the MSB market, and whether it has been abusing that position through the very act of trying to leave it. It’s an unusual set-up for potential market abuse in any event.
But it also shows how complicated it seems to be to gauge risks to banks from poor money-laundering controls.
If you’ve listened to Barclays at any point during this affair — which has sucked in charities, Somali state officials, and eventually HM Government– regulation is the problem. Money transfer businesses are apparently just too a high a risk for UK banks in the new climate of financial crime-fighting. You know: the post-“Holy Shit, Bank Corrupt!” climate.
No surprise then that Barclays began its own internal review of MSB exposure after HSBC left the market in late 2012, pilloried as “pervasively polluted” in its approach to AML compliance. Not least, HSBC’s exit would have pushed even more MSBs to bank with Barclays. The bank already had some presence in the market. Barclays provided services to some 11 per cent of the 3,600 or so MSBs registered with the HMRC as of March 2011, the court heard.
You can even sympathise with the review’s findings that there would have to be a “strategic tightening” of risk controls on MSB business. Or that remittances might be especially hard to screen: they are often combined in bulk transfers, potentially obscuring both the origin and ultimate destination of funds.
But where it starts to get surprising is that Barclays didn’t tell customers (including Dahabshiil) about the review until it was finished, and had effectively concluded that a broad swathe of MSB business was no longer commercially viable. That included dropping 88 per cent of remittance business.
Clients also weren’t told of the reasoning behind the new eligibility criteria until it came out in court: money remitters would have to show a minimum £10m in net tangible assets for a start. While plans to also require a minimum £100k income were dropped as criteria, “it remained a consideration”. Only MSBs of “sufficiently large scale, and… large enough turnover” would be regarded as low enough risks.
Nota bene incidentally: Barclays “has never raised any concerns or made any complaint” to Dahabshiil about its AML compliance, as the judge observed.
But the real mystery is the share of the UK market that particular banks have. We would have thought that they’d be little obscure about this information, especially if one bank really did have a dominant position. AML regulators must be constantly breathing down banks’ necks regarding exposure, and they must be insatiable for information about how the market works.
And yet here is Mr Justice Henderson discussing the implications of one factoid from a 2010 DFID report that 70 per cent of UK MSBs “bank with one bank”:
The figure of 70% is clearly a figure based on the number of money remitters, not the value of their business. But for present purposes a high market share of 70% or more, whether in number or value, is generally considered as strong evidence of a dominant position… Barclays has chosen to reveal nothing at this stage about its share of the relevant market. I think I am entitled to infer from this reticence, at least on a provisional basis, that Barclays is indeed the “one bank” referred to in the DFID Report, and that in May 2013 Barclays provided banking services to approximately 70% of UK-based money remitter MSBs…
…Barclays’ strongest point, in my judgment, is the apparently modest number of MSBs for which it provided banking services when compared with the total number registered with HMRC. But the position in terms of value may turn out to be very different, and in any event the question is ultimately one that requires a multi-factorial evaluation rather than the application of crude market share statistics.
Hence the move to a full trial to find out more.
Interestingly enough, after another pop at “Barclays’ refusal, no doubt for tactical reasons, to disclose anything at this stage about its relevant market share” — the judge also cast doubt on whether the bank is ultimately going to win this case:
I am satisfied that Barclays’ defence of justification needs to be fully examined at trial. It is not so clear that I can say with confidence that it is bound to succeed. On the contrary, the claimants have drawn attention to a number of points which raise serious questions about Barclays’ proposed solution to the perceived problems in the MSB sector which led to the internal review…
Those points included the “apparently unfettered discretion” which Barclays gave itself to override its minimum standards — and questions over the objectivity of those income and tangible-asset tests.
At any rate, a case to watch.
We must clean up our act on money laundering – FT (2012)