Shostack + Friends Blog Archive


The Remittor and the Money Launderer

Ethan Zuckerman has a great post about the practicalities of international workers sending money ‘home,’ “Remittance – the big business of sending money home:”

It’s difficult to overstate the importance of remittance income to most African nations and many developing nations. Nworah cites a figure of $300 billion dollars sent from diasporas to developing nations via remittance. In Africa, the amount of money remitted by diaspora workers – $17 billion per year – is larger than the amount of foreign direct investment in Africa, and rivals official development assistance grants or loans ($25 billion per year). In some African nations, remittance represent as much as 27% of the gross domestic product of some nations.

This is something dramatically new and different. The ability to reasonably easy send money from place to place is a product of modern networking, the freedom to move to a better place and earn money, and the references are to ‘home,’ rather than ‘the old country.’ I’ve never heard any of my family members who picked up and moved back when that involved getting on a boat refer to where they came from as anything but the old country.

As Zuckerman discusses, the cost of sending money has long been an issue. Many entrepreneurs, from E-Gold to more traditional hawala businesses, have found that undercutting fees like Western Union’s 6% to be a great business. Such transfers come under attack from our friends the anti-money laundering community. They have big and powerful allies, like Western Union, who would be happy to take $1 billion of those transfers to Africa. Some of the simplest requirements of anti-money laundering programs, such as “know your customer” requirements, impede the flow of money. Being required to show government issued ID, and have that ID photocopied, is either hard or worrisome (or both) when you’re in a country illegally. (This is another market driver keeping the cost of fake ID down.) Easier still is to use a hawala dealer, or your friend’s cousin, and not worry about it.

Regulations like ‘anti-money laundering’ impose large costs on a set of people who are formally excluded from political debate (or at least from voting.) Their costs are pernicious and distributed, and blur boundaries that ought to be clear. What is illegal ought to be clearly immoral and uniformly frowned upon. Absent such a line, people will find themselves either breaking the law, or strongly tempted to do so, undermining the rule of law, and giving legitimacy to organized crime.

The bounds of what is licit are blurred. We support, or at least we hire, immigrants without checking their papers too closely. We’d like them to send money through legal, taxed, registered channels, but the same facilitators who can start laundered cash on its path to the global banking system will send your cash to Africa or Mexico for a smaller fee. After all, they run a volume business.

Those seeking to send cash home know what a difference $12 can make to the recipient, and they should and will seek out the lowest cost providers.