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Introduction

The abuse of the financial system for illegal purposes, such as money laundering or financing terrorism, is a concern for law enforcement and government agencies worldwide. This concern has resulted in substantial academic and international debates regarding how to balance two conflicting priorities; safeguarding the financial system and ensuring it remains easily accessible.

The fact that the successful operation of the financial sector is crucial to society, performs many disparate functions (that are often regulated in different ways) and is made up of many different kinds of entities, makes the regulatory function more difficult. At an international level, there is the added complication that countries have different legal systems and traditions and may also have different expectations of their financial systems.

As a result of concerns regarding the prevalence and impact of money laundering, FATF was formed in 1989 to formulate guidelines for the prevention of money laundering and in 1990, issued the 40 Recommendations on money laundering (FATF 2003c). These were revised in 1996. In Australia, the Financial Transactions Reports Act 1988 (Cth) (FTR Act) put in place a reporting regime that requires various financial entities to report suspicious transactions, transactions over a certain financial level and transactions going overseas. However, the events of 11 September 2001 increased concerns regarding money laundering and the financing of terrorism, particularly the latter.

FATF revised its 40 Recommendations in 2003 and between 2001 and 2004 also issued nine Special Recommendations relating to terrorist financing (FATF 2003d). These recommendations and special recommendations now form the internationally-recognised standard for the prevention of money laundering and financing of terrorism and although not binding, are used by FATF as a basis for evaluating of the effectiveness of national programs in addressing these issues. The 40 Recommendations and nine Special Recommendations recognise that it is legitimate for countries to implement these measures with due regard to their own national circumstances.

In 2005, FATF conducted a mutual evaluation of Australia's AML/CTF policies. It was the first evaluation that used the updated 40 Recommendations and nine Special Recommendations as a basis for evaluation. The mutual evaluation highlighted a number of perceived deficiencies in Australia's arrangements that are being addressed by the AML/CTF Act. The aim of the legislation, as defined in s 3 of the Act, is to:

  • fulfil Australia's obligations with regard to combating money laundering and terrorism financing;
  • beneficially affect Australia's relations with foreign countries; and
  • fulfil international obligations.

It is the intention of the Australian Government to introduce this legislation in two stages, with the first stage now complete, and the second being examined at present.

The United Nations Convention Against Transnational Organized Crime (UNODC 2000) and the United Nations Convention Against Corruption (UNODC 2003) place signatory states under obligations to introduce regulatory arrangements that will ensure banks and other financial bodies (the United Nations Convention Against Corruption specifically mentions money remittance businesses) maintain adequate records relating to the transfer of funds; and make effective arrangements relating to issues such as international cooperation and recovery of the proceeds of crime.

The aims of the report

The increased concern regarding how terrorism is financed has led to many countries to expand their financial regulatory systems to include many entities and activities that had previously attracted relatively little attention. One of the areas affected is alternative remittance.

There are a variety of options for the community and businesses wishing to transfer money between themselves. These include cash transactions and the services of financial institutions such as banks. However, money and other forms of value can be transferred through the use of so-called 'remittance services'. These services are provided by a variety of organisations from corporate bodies (eg Western Union) that transfer money to anywhere in the world, to remittance organisations of varying sizes (including sole traders) that specialise in sending money and value from particular communities to specific parts of the world.

Alternative remittance refers to money and/or value transfer systems that have varying degrees of contact with the 'formal' banking system. Although these systems were the subject of some regulatory and academic interest before the events of 11 September 2001, interest increased markedly as a result of the events of that day. This was, and still is, due to a perception that certain aspects of alternative remittance may lead to it being used for criminal purposes, such as money laundering or the funding of terrorism. Particular risks arise from the irregular forms of record-keeping which are often adopted and the possibility that the laws of those countries in which they operate may not be fully complied with. There are also concerns that increased regulation of the formal financial sector may have displaced undesirable and possibly illegal activity into the informal sector, and as a result, various aspects of the informal sector (such as alternative remittance) may require further regulation around AML/CTF issues.

In many countries, alternative remittance is a legitimate alternative to the conventional banking system, especially for people in less developed countries. Remittance systems provide many ethnic communities with the ability to send money and/or goods back to their country of origin, usually to their families who remain there and may be dependent on such transfers. Remittance systems are also used for a variety of other commercial and social reasons.

These systems are popular because many ARS users have had unsatisfactory experiences with the formal banking system (eg language barriers, high costs and slow and unreliable delivery of remittances), or originate from countries where the formal banking system may be limited in its operation (particularly rural areas) or corrupt.

In view of the importance of alternative remittance to many people, any regulation of the system has to maintain a balance between minimising the flow of illicit funds and permitting its continued use as a legitimate system. The issue of what constitutes an appropriate level of regulation is complicated by the lack of definitive knowledge regarding to what extent the alternative remittance system is actually misused.

The specific aims of the ARS research project were to:

  • determine which alternative remittance systems are used by individuals in Australia, why and to what extent;
  • determine to what extent ARS is used for money laundering and the financing of terrorism and how this risk can be minimised; and
  • determine how compliance with the current regulatory framework surrounding ARS providers can be increased.

Scope of report

In this report, the following will be examined:

  • the current evidence available regarding possible links between ARS and money laundering and terrorist financing;
  • comparisons and contrasts of regulatory systems and law enforcement experiences in a number of jurisdictions with regard to ARS (including Australia);
  • a summary of the results of consultations carried out in a number of ethnic communities within Australia regarding issues relating to the use of PoDRS; and
  • findings concerning future research directions.

The report is divided into six sections. The first section contains the aims of the report and the issues addressed, definitions of terminology, a summary of relevant international initiatives, the methodology used in consultations conducted for this report and the limitations of the report.

The second section outlines the historical background of ARS, academic literature regarding ARS, the forms that ARS currently takes internationally and a comparison of the relative costs of banks, corporate remitters and ARS providers in a particular sample transaction.

The third section outlines the Australian ARS situation, with particular emphasis on the extent of use and the experiences of five members of Australian ethnic communities in the provision and use of ARS. It also examines whether recent regulatory change has led to a displacement of criminal activity from the formal to the informal financial sectors.

The fourth section outlines national and international cases of where the use of ARS has been linked to money laundering or terrorism-funding activity. An assessment is then made regarding the extent to which ARS is at risk of being used by criminal or terrorist elements and whether the regulatory response to ARS has been proportionate to the risk posed by the practice.

The fifth section outlines the Australian and international experience of regulating ARS. It also describes the results of research conducted into the current Australian regulatory system using members of five different ethnic communities as participants.

The final section summarises the findings of both the literature and consultations and suggests various issues relating to ARS that merit further study.

Definitions

The term 'ARS' is one of a number of phrases used to describe the practice of transferring money and/or value from one country to another and is used by FATF (Passas 2006; Keene 2007). However, other international bodies, such as the International Monetary Fund (IMF) and the World Bank use acronyms based on the phrase informal funds transfer (Keene 2007). Other names include underground banking. However, none of these terms are very accurate. First, there is no clear distinction between the 'formal' and 'informal' banking systems and, in this context, neither 'formal' or 'informal' have been properly defined. In the remittance industry, the formal system includes institutions such as Western Union. Such institutions carry out remittance work worldwide, are not tied to any particular ethnic group and state that they follow AML/CTF regulations (if any) in every jurisdiction in which they operate.

Second, the work of ARS providers is often linked to the formal banking system, in that ARS providers generally have bank accounts and are subject to regulation. Since 1988, ARS providers in Australia have been required, under the FTR Act, to report various transactions including suspicious transactions (or, to be more accurate, transactions that they suspect to involve laundering) and transactions over a certain monetary level.

The use of the term alternative is also problematic because it implies that there are other financial systems available to be used besides a formal one. But in a number of jurisdictions, 'informal' systems are the only ones available, a fact which has been recognised by international aid organisations (Maimbo 2003). Further, in many jurisdictions, informal systems are not in any sense 'underground' or illegal, that is, they trade quite openly and are legally recognised. However, in some jurisdictions such as India and Pakistan, alternative remittance is illegal.

Informal transfer systems can take a number of forms. An informal funds transfer system (IFTS) usually transfers the value of currency of some kind—although no physical transfer of currency takes place—with the trader at some stage 'netting out' the sum of transfers to and from particular jurisdictions. A transfer system can also be an informal value transfer systems (IVTS; Passas 1999). An IVTS does not transfer the value of a cash amount (or at least not cash alone); it transfers anything of value. In fact, such systems often fulfil the definitions of both IFTS and IVTS, where they may transfer cash and/or the value of goods, depending upon which is more convenient. Passas (2003) has further distinguished between IVTS and informal value transfer mechanisms (IVTM). With regard to IVTM, Passas (2003) emphasises the sort of methods used to transfer value. IVTM is seen as far more prone to illicit use because, by their nature, they are unregulated and involve practices such as invoice manipulation, trade diversion, internet-based systems, stored value, and debit and credit cards.

Passas (2005a) emphasises that those who use IVTM often differ from those who use IFTS. It is contended that IFTS users often use such systems to move small regular amounts of money back to countries of origin, however, users of IVTM tend to be small groups who often use such systems to move large sums or amounts of value for illegal purposes (the sums being moved being far larger than could easily be transferred using an IFTS system). However, the fact that IFTS users also often move value (which qualifies the system as an IVTS), and may even use some of the methods that Passas (2005a) ascribes to IVTM, can complicate the picture. The boundaries between these systems are not clear cut as

an IVTS operator may engage in both types of IVTS, and a particular informal fund transfer may travel through several distinct IFTS and IVTM transfers before reaching its recipient (Shah 2007: 205).

The acronym for an informal money transfer system (IMTS) has been used as a way of resolving the problem, but this is perhaps a simplistic abbreviation as it does not place enough emphasis on the transferring of value (Charan & Aiken 2005).

The FATF definition of this practice included in Special Recommendation VI (SR VI; which deals specifically with money/transfer businesses) attempts to be as broad as possible. The definition is:

A money or transfer value business refers to a financial service that accepts cash, cheques, other monetary instruments or stores of value in one location and pays a corresponding sum in cash or other form to a beneficiary in another location by means of communication, transfer or through a clearing network to which the money/value transfer service belongs. Transactions performed by such services can involve one or more intermediaries and a third party final payment.

A money or value transfer service may be provided by persons (natural or legal) formally through the regulated financial system or informally through non-bank financial institutions or other business entities or any other mechanism either through the regulated financial system (for example, use of bank accounts) or through a network or mechanism that operates outside the regulated system. In some jurisdictions, informal systems are frequently referred to as alternative remittance services or underground (or parallel) banking systems. Often these systems have ties to particular geographic regions and are therefore described using a variety of specific terms (FATF 2003a: 1).

The FATF definition is broad enough to include IFTS, IVTS and IVTM. This practice has also attracted a number of colloquial descriptions as outlined in Table 1.

Table 1: Colloquial terms for ARS
NameOrigins
Hawala Indian subcontinent/India
Hundi Indian subcontinent/Pakistan
Fie ch'ien China
Black Market Peso Exchange South America
Phoe kuan Thailand
Hui/hui kuan Australian Vietnamese
Padala Philippines

Source: Passas 2005a

Although all these terms are employed in various contexts, hawala appears to be the most common colloquial term relating to alternative money/value transfer in the United Kingdom, particularly when referring to remittance services that specialise in meeting the requirements of specific ethic communities. It is also a term often used in academic literature when discussing remittance. In Australia, the term ARS is generally used to describe such businesses (although hawala is also employed) and is used in this report.

The term ARS has been selected because it emphasises that people in Australia use ethnic-based remittance providers instead of alternatives such as banks. Corporate remitters who are not ethnically-based are a third alternative and, where necessary, they are distinguished from ethnic-based ARS providers.

However, AUSTRAC, as the regulatory body for providers of remittance services, describes registered remittance providers as PoDRS by virtue of them providing designated services 31 and 32 as listed in Table 1 of s 6 of the AML/CTF Act.

The operation of alternative remittance systems

The simplest variant of ARS involves a sender, a beneficiary and two ARS providers as seen in Figure 1.

The first ARS provider charges a commission for organising the arrangement. This provider will owe the second ARS provider a debt that can potentially be satisfied in a number of ways, such as postal orders, a transfer through a conventional account or a transfer of goods (Buencamino & Gorbunov 2002). The alternative remittance process can become far more complicated and involve a large number of intermediaries but the crucial factor is that money does not leave the jurisdiction as part of each transaction.

Figure 1: A simple variant of ARS

Figure 1: A simple variant of ARS

Source: McCusker 2005

International context: Increasing concerns regarding the use of alternative remittance

Since the 1980s, there has been concern over the possibility of criminal elements and/or terrorist groups making use of ARS. This concern predates the events of 11 September 2001, although the events of that day have raised the level of interest substantially. A number of commentators reviewed information received from law enforcement bodies regarding possible links between ARS and criminal activity (Carroll 2000; Howlett 2001; Jost & Sandhu 2000; Passas 1999).

A study involving a survey of 31 Interpol members in the Asia–Pacific region determined that two systems of alternative remittance (hawala/hundi and fie-ch'ien) existed in the region. Staff from 13 of the 31 countries contacted expressed concern that ARS was being used as a money laundering tool (Carroll 2000). Some jurisdictions commented that ARS was also used to facilitate capital flight and tax evasion. The single most common offence linked with ARS was the smuggling of drug profits and drug operating funds. With regard to some particular jurisdictions, ARS was cited by Indian Interpol staff as being used for the smuggling of precious stones, corruption and the financing of terrorism; by Pakistani Interpol staff as being linked to gold smuggling and corruption; and by Sri Lankan Interpol staff as being linked to terrorism, blackmail and arms/drug smuggling (Carroll 2000). The study did not provide many details regarding how ARS was actually used in these activities and was primarily intended to demonstrate which forms of ARS operated in the Asia–Pacific region and where regulators should direct their attention.

The nature of ARS operations can attract suspicion, whether or not this is always justified (Jost & Sandhu 2000). Whether ARS operations are considered illegal can depend on perspective. For example, what may be foreign exchange rate speculation in one jurisdiction can be black market currency dealing and illegal in another. Jost and Sandhu (2000) use the term black hawala to describe the illegal use of ARS. They provide a number of typologies and actual cases where ARS was used for illegal purposes, including those involving narcotics, terrorism, people smuggling, welfare fraud, insider trading, customs and tax violations, and transferring money for gambling purposes. The term black hawala has not been universally adopted, although it may be a potentially useful in distinguishing illicit use from legitimate hawala activity.

In 2003, FATF revised the 40 Recommendations concerning money laundering and produced a number of special recommendations regarding terrorism financing (FATF 2003c, 2003d). Further special recommendations have since been added. The crucial recommendation regarding ARS is SR VI which specifically addresses issues raised by ARS. Other recommendations relevant to the operation of ARS are Special Recommendation VII (SR VII) which relates to wire transfers, Special Recommendation VIII (SR VIII) which relates to non-profit organisations and Special Recommendation IX (SR IX) which relates to the operation of cash couriers.

In SR VI it is noted:

Each country should take measures to ensure that persons or legal entities, including agents, that provide a service for the transmission of money or value, including transmission through an informal money or value transfer system or network, should be licensed or registered and subject to all the FATF Recommendations that apply to banks and non-bank financial institutions. Each country should ensure that persons or legal entities that carry out this service illegally are subject to administrative, civil or criminal sanctions (FATF 2003d: 2).

SR VI has three main provisions. First, it requires that jurisdictions should institute a licensing or registration system for those who provide money transfer services (formal or informal). Second, it requires that jurisdictions ensure that those who provide such services are subject to the 40 Recommendations (particularly those that apply to all bank and non-bank financial institutions and the eight Special Recommendations (as of 2004 there are now nine Special Recommendations).

In this context, SR VI also places emphasis on SR VII, which recommends that originator information be attached to all wire transfers and related documents throughout the payment process and that financial institutions (including remitters) should conduct enhanced scrutiny of wire transfers that do not have originator information attached to them.

Finally, SR VI requires that jurisdictions have a system in place that provides for the sanction of those providing money or value transfer services who do not abide by the jurisdiction's regulatory arrangements. In SR VI, FATF recommended that jurisdictions should designate a competent authority with the responsibility of ensuring compliance with any regulatory regime and monitoring the compliance of money or value transfer companies with the 40 Recommendations and the nine Special Recommendations.

FATF has expanded upon the implications of SR VI in three publications:

  • Interpretative Note to Special Recommendation VI: Alternative Remittance
  • Combating the Abuse of Alternative Remittance Systems: International Best Practice; and
  • Risk-based Approach: Guidance for Money Services Businesses (FATF 2009, 2003a, 2003b).

FATF made a number of important points in these publications. The Interpretative Note emphasises that SR VI defines money or value transfer systems broadly and that it also defines licensing as an arrangement whereby a competent, designated authority granted permission to a person or organisation for them to legally operate as a money or value transfer operator. It defines registration as the requirement to obtain permission from a designated government authority in order to operate a money/value business before it can legally trade. The Interpretative Note recommends that any licensing or registration requirement also apply |to agents (defined broadly to include licensees, franchisees or concessionaires) of a money or value transfer business and that, as a minimum, a principal should be obliged to maintain a list of such agents which could be made available to the competent authority upon request.

In Best Practice, FATF noted that ARS provides a legitimate and efficient service, particularly where access to the formal sector is difficult or prohibitively expensive (FATF 2003b). It suggests that government oversight should be 'flexible, effective and proportional to the risk of abuse' and should avoid the risk of increasing the compliance burden to the point where ARS providers might be tempted to go 'underground' (FATF 2003b: 3). It also states that regulation should be functional rather than excessively legalistic in nature. Best Practice states that regulation should, at a minimum, involve registration with a designated competent authority such as a financial intelligence unit (FIU) or a financial sector regulatory body. With regard to licensing, Best Practice recommends that there be background checks for owners, owners of a significant interest in an ARS or the managers of an ARS, although it is up to individual jurisdictions to decide what would make an individual unsuitable for such a role (FATF 2003b). Best Practice recommends that jurisdictions

put systems into place which bring any conviction of an operator, shareholder or director following licensing or registration to the attention of the appropriate authorities (FATF 2003b: 9).

This recommendation has been adopted by a number of jurisdictions in the form of a 'fit and proper' person test.

Best Practice also advocates that ARS businesses be obliged to keep a list of all bank account(s) that they maintain (FATF 2003b) and that they be obliged to comply with FATF principles regarding both customer identification and record keeping (although Best Practice notes that, with regard to record keeping, the regulator would need to bear in mind commercial practicalities). Best Practice suggests that, as a minimum, ARS operators should be obliged to maintain records for five years and that they be kept or be retrievable in an intelligible form (FATF 2003b).

Risk-based Approach discusses in detail what constitutes a risk-based approach when applied to MSBs. It notes that a risk-based approach is not mandatory and that in some jurisdictions, a rules-based system may be appropriate. It also notes that a risk-based approach does not necessarily lower costs, although it suggests that it should lead to a more cost-effective use of resources (FATF 2009). The guidelines accept that the adoption of a risk-based approach may involve increased costs, such as more training for staff, and may also mean that a regulator has to accept that MSBs are likely to adopt a broad variety of approaches (FATF 2009). Risk-based Approach comments that the application of a risk-based approach to the prevention of terrorism financing is difficult because of the small sums of money involved, but it does not attempt to provide comprehensive guidance on how this issue can be resolved (FATF 2009).

Risk-based Approach places a considerable onus on regulators, suggesting that they need to provide MSBs with reliable information, that they place an emphasis on cooperation with the regulated sector and that they accept that the adoption of a risk-based approach will not eliminate all risk (FATF 2009). SR VII, SR VIII and SR IX are also of relevance to ARS. In SR VII, it is noted:

Countries should take measures to require financial institutions (including money remitters) to include accurate and meaningful originator [information] (name, address and account number) on funds transfers and related messages that are sent, and the information should remain with the transfer or related message through the payment chain.

Countries should take measures to ensure that financial institutions, including money remitters, conduct enhanced scrutiny of and monitor for suspicious activity funds transfers which do not contain complete originator information (name, address and account number) (FATF 2003d: 2).

SR VII may pose difficulties for ARS due to the potential number of intermediaries involved in an ARS transaction, particularly when a number of payments are consolidated together. It is stated in SR VIII that:

Countries should review the adequacy of laws that relate to entities that can be abused for the financing of terrorism. Non profit organisations are particularly vulnerable, and countries should ensure that they cannot be misused:

  • by terrorist organisations posing as legitimate entities;
  • to exploit legitimate entities as conduits for terrorist financing, including for the purpose of escaping asset freezing measures; and
  • to conceal or obscure the clandestine diversion of funds intended for legitimate purposes to terrorist organisations (FATF 2003d: 2).

Many ethnic communities use charities to send money back to communities in their countries of origin. From SR IX:

Countries should have measures in place to detect the physical cross-border transportation of currency and bearer negotiable instruments including a declaration, including a declaration system or other disclosure obligation.

Countries should ensure that their competent authorities have the legal authority to stop or restrain currency or bearer negotiable instruments that are suspected to be related to terrorist financing or money laundering, or that are falsely declared or disclosed.

Countries should ensure that effective, proportionate and dissuasive sanctions are available to deal with persons who make false declaration(s) or disclosures. In cases where the currency or bearer negotiable are related to terrorist financing or money laundering, countries should also adopt measures, including ones consistent with Recommendation 3 and Special Recommendation III, which would enable the confiscation of such currency or instruments (FATF 2003d: 2–3).

Many ARS dealers use cash couriers to repay debts to one another. In a large number of jurisdictions, including Australia, this practise is legal as long as the cash is declared to border authorities if the amount being transported exceeds a certain limit.

Overall, it is apparent that FATF Special Recommendations VI–IX impact on a number of organisations and activities that are, in themselves, legal (and often interlinked), but are arguably subject to misuse (although the degree of actual misuse is difficult to gauge).

The APG Typologies Working Group on Alternative Remittance and Underground Banking Systems: Alternative Remittance Regulation Implementation Package (APG 2003) was designed to complement the broad principles set out by FATF. It suggests that with regard to the issue of regulation of ARS, for any regulatory system to be effective, it must address issues such as whether to license or register, how long any licensing or registration is valid, how information relating to registration or licensing of a business should be conveyed to customers, whether any register should be accessible to other government authorities or the public, how to ensure compliance with any registration system and how to sanction non-compliance (APG 2003). This document emphasises that if a minimum standard is not applied by all jurisdictions, then there is the risk that criminal and terrorist organisations might take advantage of this lack of harmonisation of regulation (APG 2003).

While there is no doubt that different types of regulation can produce anomalous and sometimes undesirable results, FATF has noted the need for regulation to be sensitive to local and industry conditions. It has also commented that the regulatory regime should not to be excessively burdensome (FATF 2003b); and a risk-based program may not be suitable for all jurisdictions and that, in some cases, a rule-based regulatory framework may be more desirable (FATF 2009). In view of the fact that ARS operates in a wide variety of jurisdictions which have different cultures, different law enforcement and regulatory priories, and are at different stages of economic development, it will always be very difficult to achieve harmonisation of law between jurisdictions and expectations of obtaining uniformity should not become unrealistic.

Broadly speaking, the adoption of either a registration or licensing policy means that, at a minimum, a relevant regulatory body must be informed of the existence of the ARS business. A registration-based system in its simplest form involves a designated, competent authority compiling a list of registrable businesses, with registration involving no cost to the business. A licensing program could be interpreted to mean that a designated, competent authority has evaluated the performance and compliance standards of the business in question and is prepared to vouch to the public that it meets the requirements set out by the regulating body. Whatever variant of these two basic regulatory systems is adopted, FATF recommendations involve a higher level of government involvement in alternative remittance than has previously occurred, however, are being used as the basis for regulatory arrangements in many countries. Depending on how such systems are enforced, they may be expensive to administer and risk alienating the providers and users of alternative remittance.

The topic of alternative remittance has also been the subject of a number of international conferences held in the United Arab Emirates. In 2004, in the conference statement of the Second International Conference on Hawala, the importance of any regulatory response relating to ARS being proportionate to the risks posed by such systems, and not be so burdensome as to drive ARS underground, was emphasised (Central Bank of the UAE 2004). The conference statement recommended that the best methods for achieving these objectives would include dialogue with providers and users of ARS and the removal of any impediments that would hinder people in using the formal financial sector. It recommended that jurisdictions should put in effect registration and/or licensing of ARS and then other AML/CTF measures as appropriate (IMF 2005). The conference statement thus attempted to support FATF initiatives, as well as the possibility of working with the providers of alternative remittance and the communities that make use of their services, without fully acknowledging that these strategies have the potential to conflict with each other.

It was noted that ARS providers preferred not to attract unwanted attention by attending public conferences and gatherings (IMF 2005). The question of how to contact and obtain information from ARS providers is potentially a difficult one to resolve, particularly where, as is the case in Australia, they are not represented by any industry body.

Methodology

This research was approved by the AIC Human Ethics Research Committee. It involved a review of current literature and current international agreements that are relevant to the regulation of ARS providers. It also involved consultations with a number of stakeholders including the AFP, AUSTRAC, the NSW Police Force, Victoria Police, the ACC, the Australian Customs and Border Protection Service, the NSWCC and APG.

Consultations conducted with AUSTRAC suggested that many quantitative issues, such as total levels of remittance by various Australian ethnic communities, the size of the average remittance and the number of instructions used to send remittances, had already been assessed by AUSTRAC in its role as regulator.

However, previous overseas research has identified qualitative research methods, particularly focus groups and phone interviews, as more effective when investigating the motivation and behaviour of users of ARS (Hilgert et al. 2005, IADB Multilateral Investment Fund 2006). Specifically, a qualitative approach has been used to address the experiences of ethnic communities with the banking industry, the role of women in decision-making regarding remittances and the role of the relevant community in policing the behaviour of ARS providers. These issues are primarily of a subjective nature and not able to be addressed by quantitative research. For example, previous research on the use of ARS by the Tamil community in Canada used a combination of focus groups and in-depth interviews to obtain information regarding ARS. Some ARS providers were reluctant to talk due to post-11 September 2001 experiences with Canadian authorities and there was difficulty on some occasions in using focus groups to obtain information from ARS providers because providers were not prepared to discuss commercially-sensitive information when competitors were present (Charan & Aiken 2005).

The primary aim of this research was to explore the experiences and attitudes of both providers and users of ARS in a number of Australian ethnic communities—with regard to both the ARS system itself and the current regulatory arrangements in place in Australia. The consultations examined the experiences and perspectives of both providers and users of alternative remittance to determine which factors had formed those perspectives and to assess the relative importance of factors relating to both the provision and the use of ARS and whether recent government initiatives have altered them (Minichiello et al. 1990). While adopting a qualitative approach, simple quantitative analyses were also undertaken where the data permitted.

It should be noted that although one aim of the research was to explore the extent to which ARS is used for illegal purposes, the voluntary nature of the research meant that it was more likely to attract businesses and consumers who believed that they were currently behaving in accordance with the law.

Sampling

The following criteria were used to select communities:

  • length of time established in Australia—ranging from relatively well-established communities, to communities whose members had only recently started to arrive in Australia in large numbers;
  • size—as determined in the statistics on Australia's migration compiled by the Australian Bureau of Statistics (ABS 2008);
  • representativeness of parts of the world from which Australia has recently received immigrants—South Pacific, southeast Asia and Africa; and
  • the community's active use of remittance as a method of sending currency or value back to their country of origin.

On the basis of these criteria, the five communities selected were India, the Philippines, Samoa, Somalia and Vietnam.

India was chosen for a number of reasons, including the size of the Indian community in Australia (population recorded as 199,696 in 2007; ABS 2008), the important role of remittances in the Indian informal economy (despite their being banned due to possible links with domestic terrorism and exchange rate manipulation) and the possible link between funds provided through ARS and various internal struggles occurring within the country (which have led to the practice being banned in India, although it continues to be widely used).

The Filipino and Vietnamese communities were chosen because of their geographic position in southeast Asia and their relative proximity to Australia, the size and prominence of their respective communities in Australia (in 2007, estimated population of 144,340 persons for the Filipino community and 188,038 persons for the Vietnamese community; ABS 2008) and their relatively high level of involvement in the remittance industry.

The Vietnamese community was considered to be of particular interest because of media reports regarding law enforcement investigations into allegations that members of the Vietnamese community were involved in the misuse of remittance services and that they were using remittance services to move money that was the product of criminal activity relating to drugs (McKenzie 2006).

The Somali community was chosen because of its relatively recent arrival and community establishment in Australia (numbering 4,314 persons in 2007; ABS 2008), the high level of use of ARS by the community and the fact that it has gone through an extended period of civil war which may have potentially had a profound effect on the financial behaviour of Somalis.

The Somali community was also seen to be of interest because of concerns expressed by senior members in the media regarding possible use of remittance services by other members of the Somali community to send money overseas to fund al Qa'ida linked terrorist networks in Somalia and possibly other African countries (Stewart 2007).

Samoa was chosen because of the crucial role remittances play in its economy. In 2007, the size of the Samoan community in Australia was 17,739 persons (ABS 2008). The APG estimated that in 2004, remittances amounted to about 24 percent of Samoa's gross domestic product (APG 2006).

Data collection process

The researchers decided that ethnic ARS users in Australian communities did not have the necessary contacts within the chosen study communities to be able to correctly identify all relevant community leaders/representatives or ARS providers. It was decided that expert consultation was required to engage each of the five communities in a positive and culturally-sensitive manner. The latter was seen as particularly relevant with regard to issues such as the role of women in general financial management of households and communities and their role in deciding whether remittances should be paid and how much money should be involved.

Two consultants were contracted to undertake the data collection via consultations in Sydney, Melbourne, Brisbane and a number of regional centres. The consultants were chosen on the basis that they had done previous work with one of the chosen communities, or similar communities, and had the appropriate language skills. They employed a variety of qualitative research techniques tailored for each community including:

  • roundtables with key peak bodies;
  • representative bodies and community elders;
  • focus groups with ethnic community members who used or had knowledge of ARS; and
  • phone and in-depth personal interviews with community members who used, or had knowledge of, ARS and ARS providers.

Specifically, a number of approaches were used to identify ARS providers from the Vietnamese, Indian and Samoan communities:

  • Respondents were recruited through community networks identified by bilingual researchers or via community organisations such as the NSW Chapter of the Vietnamese Community in Australia.
  • Vietnamese providers were identified through newspapers such as The Vietnamese Herald and The Sunrise.
  • Samoan and Indian ARS providers were identified by ARS users from their respective communities.

With regard to the Somali community, previous research in Canada on Somali ARS providers and users had been conducted through a combination of interviews and workshops. Given the success of this approach, a number of Somali community leaders and professionals were initially contacted and they, in turn, provided researchers with contacts for people in the general Somali community as well as ARS providers (who were members of 6 large ethnic-based firms, rather than individual providers). Such snowball sampling can be effective in making contact with populations who are taking part in activities that they may not wish to be made widely known. The researchers distributed questionnaires to those taking part in the workshops and interviews several weeks before the sessions occurred. Because the remittance situation in Canada was seen as being public knowledge, Somali participants did not feel at risk of any kind of official sanction and were willing to provide the requested information (Hamza 2006).

The distribution of a written survey to ARS providers or ethnic community users of ARS was not appropriate. There were concerns that the ARS provider response rate would not be sufficiently high to facilitate meaningful results due to the possibility that language barriers and cultural factors, such as distrust of government, might lead to a very low response rate by ARS providers or users to any written instrument.

The consultants used draft questions that had been supplied by the Australian Institute of Criminology (AIC) which the consultants modified as required. A copy of the questions provided to consultants is provided in Appendix A. All participants were provided with a plain language statement and a copy of this document is in Appendix B.

Sample size

All participants in this research were volunteers. The sample included a range across age, gender and location; all ARS users interviewed had used ARS within the last two years.

In-depth interviews were conducted with 10 (n=4 men, 6 women) individual Sydney-based Vietnamese community members via telephone and personal interviews. Eleven interviews (n=3 in Sydney, 8 in Melbourne) were conducted with ARS providers servicing the Vietnamese community. Nearly all providers were small business people of Vietnamese background. Of the 11 interviews with ARS providers, seven were conducted face-to-face and four were conducted via telephone.

For the Indian community, there were 10 (n=5 men, 5 women) in-depth interviews of Sydney-based community members. There were three interviews with Sydney-based ARS providers who service the Indian community. These providers were all agents of Western Union and money transfers were a small part of their primary business which included a post office and a newsagency. The three interviews with ARS providers were conducted as telephone interviews.

Ten in-depth interviews (n= 6 men, 4 women) were conducted with Sydney-based Samoan community members. There were two interviews with ARS providers who serviced the Samoan community (1 in Sydney and 1 in Brisbane). One was an agent of a larger non-Samoan organisation and the other was an operator of a Samoan-owned business. Both of these interviews were conducted in person.

Fifty-two members of the Filipino community (n=19 men, 33 women) were consulted through either focus groups or individual interviews. Eight ARS providers servicing the Filipino community were interviewed.

Fifty-four Somali community members (n=13 men, 41 women) were consulted and there were nine interviews with ARS providers who serviced the Somali community. ARS providers were initially identified and later approached with the help of community leaders and other Somali representatives. The ARS providers preferred to take part in informal interviews.

The relatively small sample size of ARS providers and consumers means that caution has been exercised in making comparisons regarding the behaviour of communities.