Voting in a Rigged Election: Remittance Report

8/6/2019 Voting in a Rigged Election: Remittance Report

http://slidepdf.com/reader/full/voting-in-a-rigged-election-remittance-report 1/11

VOTING WITH THEIRMONEY IN A RIGGED

ELECTIONThe Demand for Alternative Mechanisms for Remittance Transfers from Immigrant

Families and Migrant Workers: A joint report from ACORN Canada & ACORN

International.



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H T H E I R M O N E Y I N A R I G G E D E L E C T

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About ACORN Canada

ACORN Canada is an

independent nationalorganization of low and

moderate income families.

With 30,000 members

organized into 20

neighbourhood chapters

in 6 cities across Canada

we've been organizing to

win a Canada where low

and moderate income

families have their voices

heard and their power feltsince 2004.

About ACORN

International

ACORN International is a

federation of community

based non-profit

organizations working in

countries around the

world. We work on

campaigns as diverse as:affordable housing, living

wages, provision of water

and sanitation, education,

and health care reform.

VOTING WITH

THEIR MONEY IN

A RIGGED

ELECTIONThe Demand for Alternative Mechanisms for

Remittance Transfers from Immigrant Families

and Migrant Workers: A joint report from

ACORN Canada & ACORN International.



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In December of 2010, ACORN International‟s opening report of theremittance campaign, Past Time for Remittance Justice, exposed the trials and

tribulations of migrants around the world who pay exorbitantly high fees to send

small amounts of their hard-earned money back to their home countries to support

their families. The message was clear: the high costs charged by money transfer

organizations were predatory and no one was taking the plight of the remitting

migrant worker seriously. When ACORN International‟s second report, Looking the

Other Way: The Absence of Remittance Regulation, was made public, sadly not much

had changed.

Our calls for regulation and doing away with exorbitant fees are only being

seriously engaged at the provincial and federal levels in Canada, and even there the

response remains grossly inadequate. Elsewhere in the world, the financial

community, aided and abetted by the responsible national banking authorities and

their global counterparts, continues to ignore this scandal. This is easy for them to

do. This is a crisis for poor people, immigrants, and migrants, not a crisis for bankers

and governments. In other words, regardless of their responsibilities to protect and

serve, the people in a position to remedy the situation have no interest and are feeling

no pain.

In both of these reports, ACORN noted that alternatives to formal restraint or

regulation of fees and predatory practices were being sought every day by victims of the system, and in the absence of real progress, people would be voting with their

money for different systems throughout the world. Change will come here. The

party will not last forever.

Informal Money Transfer Systems

Today the largest informal money transfer system is likely “hawala.”

„Hawala‟ is a term that is regionally-specific to the Middle East, but similar systems

exist elsewhere under different names (such as „hundi‟ in Pakistan and India and „fei

ch‟ien‟ in China). Together they all fall under the technical, World Bank-like title of

„Informal Money Transfer Systems‟ (IMTS). Since hawala is the most popular IMTS,and the one that has gotten the most publicity, this report will refer to IMTS as

„hawala‟ with the understanding that it is interchangeable with other regional-specific

versions.

Before discussing more about the size, scope and importance of hawala, we

will examine more closely how hawala works using the following example:



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A migrant worker in country A wishes to send money home to his family in

country B. He has no bank account and is not an excellent speaker of country

A‟s language thus he finds dealing with any bureaucracy extremely

intimidating. In his local ethnic paper, written in his own language (and

perhaps even own dialect if he‟s lucky), he finds an advertisement for cheap

money transfers back to country B through a small local business. The worker

goes and meets hawaladar A, the owner of that business, to whom he gives

$150 to send to his family. Hawaladar A is an importer of handicrafts from

country B and thus he has many business contacts there, one of which will be

referred to as hawaladar B. After receiving the migrant worker‟s money,charging him a commission between .25% and 1.25% and giving him an ID

number that can be used to pick up money in country B, hawaladar A rings up

hawaladar B and informs him of the transaction. Within 24 hours the migrant

worker‟s family can go to hawaladar B in country B and pick up the amount

transferred by the worker.

What is important to note is that this entire transaction has taken place without

any physical movement of funds. The only debt that exists is the one between

the two hawaladars. Sometimes this debt will be settled via a formal bank

transfer or perhaps hawaladar B owes hawaladar A money and this is a

settling of that debt. More likely, however, both hawaladars are in an import-

export relationship and by over/under invoicing for goods shipped between

countries they can settle their debts through manipulation of their balance

sheets.

We could substitute a thousand other examples from neighbours to personal

business acquaintances or family friends and relatives. This example highlights many

of the attractive features of IMTS; It‟s cheaper, faster, and often more accessible than

formal systems which the World Bank claims cost an average 10% worldwide (ascompared to .25%-1.25% of the informal sector and the over 20% found through

ACORN International‟s own surveys), and it often takes several days for transactions

to go through.1

However, it is also very important to note that no paper trail is left and

1World Bank Global Remittances Working Group

(http://siteresources.worldbank.org/FINANCIALSECTOR/Resources/282044-

1257537401267/RomeConferenceRemittances.RathaAndCirasino.pdf)



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the balance-book manipulation makes the transaction untraceable and therefore illegalin many countries, including India where it is widely used.

So How Important is the Informal Sector Anyway?

In Past Time for Remittance Justice, ACORN International estimated that if

quantified, volumes of money going through hawala (and other equivalent informal

money transfer systems around the world) may add 20-40% to the value of worldwide

remittances. Having looked further into informal money transfer systems, we now

have reason to believe that this amount may be much larger. Official figures, such as

those referenced by national governments and the World Bank among others, do not

take informal money transfers into account when quantifying remittances. Evenacademic attempts to measure the size of hawala (and other equivalent mechanisms)

admit that the best that can be done is to simulate rather than estimate. From our

example above it becomes very clear why such difficulties exist. The most reliable

estimation that our research has come across is a 2002 estimate of the United Nations

Department of Economic and Social Affairs (DESA) that $100-$300 billion flow

through Informal Money Transfer Systems each year.2 In 2010, the World Bank

estimated that global remittance flows would reach $440 billion by the end of the

year, $325 billion of that going to developing countries.3 If both of these estimates are

valid then the importance of the informal sector is much greater than we had

anticipated. Rather than 20-40% of formal remittance figures, it could be anywherefrom 25-75%.

$440 billion in remittances and transfers is a huge amount, but the importance

of this figure is dwarfed by something that the banking authorities and others are

missing. When we take estimates of informal remittance flows into account, the real

values of remittances worldwide can be conservatively calculated to be at least $550

billion and more aggressively to be $770 billion. When we apply the .25%-1.25%

range of fees charged by the informal sector, the $44 billion in fees paid on

remittances, using the 10% figure used by the World Bank as a global average,

increases as well. At the lower fee level of .25% the range in additional money is

2United Nations Department of Economic and Social Affairs

(http://www.un.org/esa/desa/papers/2002/esa02dp26.pdf)

3World Bank

(http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:22757744~pagePK:64257043~

piPK:437376~theSitePK:4607,00.html)





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migrants around the globe who are using it for perfectly legal means.5

For this reasonit is important that any attempts to combat terrorism and crime through the hawala

system take the importance of legal activities carried out through the hawala system

into account. Paradoxically, the global and developed world concerns for increased

security in these times has not tempted them to trifle with the more than $40 billion in

transfer fees in the formal section in order to compete with the hawala system or

create a more efficient system for immigrants, migrants and others.

The anonymity and absence of a paper trail that are hallmarks of the hawala

system are enough to cause great concern to national security. It is also enough for

ACORN International to remain wary, despite all the benefits the hawala system

presents to migrant workers. Just as we can never quantify the volumes of remittances

that flow through these informal channels, we will never be able to know when, and

how often, the system breaks down to the misfortune of migrant workers and their

families. Even though anecdotal evidence leads us to believe that hawaladars are

typically honest, since their customers would “vote with their feet” presumably, with

any system as opaque and off-the-record as hawala, one must always remain vigilant.

It is here that ACORN International and national security workers find

common ground: the desire to bring hawala and similar systems into the open. Given

the World Bank‟s only argument for reducing the fees to G8 targeted 5% by 2014 is

“competition,” moving the informal system towards the formal would finallyintroduce real competition rather than the nodding and yawning between banks and

MTOs that exists now. In a joint World Bank-IMF paper, the recommendation was

made that hawala operations existing parallel to the formal remittance channels be

brought into light „without altering their specific nature‟.6 This paper cannot ignore

one of the most important points about hawala: it is an extremely attractive and

efficient option for remitting money!

Glimmers of Hope

One country that has had great success in formalizing remittances is the

Philippines. Their official remittance figures show $3 billion having been remitted in

5World Bank

(http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:22757744~pagePK:64257043~

piPK:437376~theSitePK:4607,00.html)

6Joint World Bank – IMF Commissioned Paper

(http://johnfwilson.net/resources/Hawala+Occasional+Paper+_3.24.03_.pdf)



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January and February of this year (2011) alone. This is a 6.2% increase from thesame period last year.7 Following from the discussion above, official statistics do not

necessarily reflect the total flow of remittances into a country due to the non-

quantifiable nature of informal remittances. The increases seen in the Philippines

have been greatly influenced by their pro-remittance policies. ACORN International

has found that the Philippine government now trains migrant workers in the smartest

ways to send remittances home before they leave the country for work. The Banker‟s

Association of the Philippines has even encouraged banks to innovate and replicate

the advantages of the informal sector. One company, SwiftCash (UK) in cooperation

with a Philippine bank has offered another incentive not to use informal channels by

using the receipt from the transaction to enter the customer in a raffle where amultitude of prizes can be won ranging from a sack of rice to medical services (For

an example visit: http://www.suremoney.swift-cash.com/promo-mmp.php).

Bringing the informal money transfer systems into the light is advantageous

for many:

Migrants will enjoy greater transparency and protection through the

documentation of their transactions;

National Security Workers will be able to target illicit operations occurring

in the informal sector without the worry of severely damaging the financiallife-lines migrant workers send to their families;

Governments of the remittance receiving country will benefit from the

knowledge of the true capital flows in their economies and thus will better be

able to construct economic policy.

Learning Lessons

While hawala operations often occur illegally and without documentation, we

can learn from them how to best serve migrant workers and immigrant families.

Perhaps the biggest lesson to be learned from hawaladars is that overhead costs to send remittances need not be large at all as ACORN International has consistently

argued. The reason why a hawaladar can charge only .25%-1.25% to send a

remittance is because it does not cost much to carry out the transaction! Many banks

7The Philippine Star

(http://www.philstar.com/Article.aspx?articleId=676699&publicationSubCategoryId=200)



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have high overhead costs (for example, heavy-duty safes, large, expensive buildingsand highly trained and paid staff), but all a hawaladar needs is some form of

communication (often a telephone). He or she doesn‟t even need an official location

for hawala as many hawaladars are already business owners with small shops. If your

average small business owner can operate a small scale remittance business and

charge less than 2% in fees then it further drives the point home that it is completely

indefensible for organizations that enjoy economies of scope and scale to charge

fees that are much higher.

Logically in a computerized and electronic world, the same hawala principle

of cash received in one place and cash turned over in another would work easily

within different branches of the same bank, different offices of Western Union,

MoneyGram, and other MTOs, and even between banks in the developed world and

their correspondent banks in the developing world. In fact for all we know similar

adjustments may be already happening between a Citibank and a Banamex for

example and simply adjusted with real dollars or pesos on a quarterly or annual basis

and done as entries on accounting ledgers at other times.

Recently for example, ACORN International‟s own US-based bank ran a test

run on its international transfer system and inadvertently used our “live” account

number and moved unimaginable (to us!) sums between our account supposedly and

our payees. The bank was apologetic of course, since it was their error, andfurthermore they needed our help to potentially recover their money. In difficult

cases like those in India and Kenya, they sent electron “messages,” as our banker

described it to the recipient bank where our payee had an account saying that the XX

amount was mistakenly sent, and asking for it to be routinely transferred back. We

all fretted for a day or two, and our bank was less than thrilled with how quickly their

correspondent bank was able to assist them when it seemed to be taking too long in

Nairobi, but it worked out well for our bank, no harm, no foul. We cannot have a

hawala system for banks managed digitally and electronically, and a paper, cash,

hope and a prayer system for immigrant families and migrant workers, but that is

exactly what “look the other way” national banking regulators and “everything myway” financial institutions are maintaining today.

Other Alternatives to Money Transfer Organizations

Besides hawala, ACORN International has identified several other methods

that can be used to remit money abroad and avoid the predatory money transfer

organizations.





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them (and with charges on global remittances exceeding $44 billion USD it is easy tosee why they face no pressure to feel otherwise!)

We have seen both the formal and informal alternatives to using banks and

Money Transfer Organizations to remit money and our argument remains strong:

The only true solution today is regulation and cost cutting. We have seen that both

are possible and there is no defensible reason to continue brushing the plight of the

migrant worker aside.

There can no longer be any doubts about the importance of remittances

worldwide and the severe injustices that migrant workers face every time they attempt

to send their hard-earned money home to their families. With this report we haverepeated the irrefutable case that costs do not have to be as high as they are. All the

pieces of the puzzle are exist to create a better alternative for immigrant families and

migrant workers and their families.

ACORN International is committed and determined to put these pieces

together. It is past time for the world financial community and governmental banking

systems to join us!

Documents

Voting in a Rigged Election: Remittance Report