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The Australian experience of alternative remittance services

Number and value of transactions

AUSTRAC is responsible for maintaining a register of PoDRS. It is obligatory for any person who wishes to provide a remittance service to register with AUSTRAC, who then place their names on the PoDRS register. This registration system also applies to agents who are supplying this service. Under s 74 of the AML/CTF Act, providing a remittance service without registering with AUSTRAC may constitute both a civil and a criminal offence. PoDRS previously known to AUSTRAC as 'cash dealers' under the FTR Act are now required to register under the AML/CTF Act before they continue providing a designated remittance service.

AUSTRAC uses information derived from IFTIs to estimate the level of remittances flowing in and out of Australia. These reports must be made to AUSTRAC under both the FTR Act and from 12 December 2008, the AML/CTF Act.

Since the commencement of the AML/CTF Act, approximately 5,891 PoDRS have registered with AUSTRAC (figure current as at 4 February 2010; AUSTRAC unpublished data). A majority of IFTI reports are submitted through one of 229 principals or stand-alone remittance networks which report to AUSTRAC on behalf of their agents. Both principals and agents are required to register with AUSTRAC.

In Australia, PoDRS are concentrated in Sydney and Melbourne and to a lesser extent in some cities outlying regional areas. There are smaller numbers of PODRS located in Queensland, South Australia and Western Australia and a much smaller number in the Australian Capital Territory, Tasmania and the Northern Territory.

Remittance providers generally employ a number of different methods of sending money or value overseas. These include sending funds to an agent or agents in beneficiary countries through the use of formal banking channels, or sending instructions to an agent or agents in the beneficiary country for customers to be paid. Where this occurs, actual cash does not cross borders. ARS providers currently use a combination of these methods.

IFTI reports are the main source of information used by AUSTRAC to estimate the number of remittance providers operating within Australia. An IFTI is an instruction to transfer money or property in or out of Australia either electronically or through a designated remittance arrangement. When remittance providers receive an IFTI, they are obliged to provide an IFTI report to AUSTRAC. China, India, Vietnam, the Philippines and the United Arab Emirates tend to be the top destinations for remittance flows, in terms of volumes of reports and money sent (AUSTRAC unpublished data).

The size and frequency of remittance transactions—communities' views

Consultations suggested that generally, ARS transactions are relatively small and regularly paid. With regard to the Samoan, Indian and Vietnamese communities, both providers and users of ARS quoted a range of different amounts that were sent overseas in a typical transfer. While some providers were involved in facilitating smaller transactions (ie several hundred dollars), others were accustomed to providing transfers of fairly significant amounts of money (ie several thousand dollars). Specifically:

  • Samoan providers advised that, amounts transferred were typically between $100 and $1,000, but they could be up to $3,000. The mean (average) for the 10 users interviewed was $607.
  • Vietnamese providers advised that typical amounts transferred were generally between $200 and $500, although they could be anywhere from $50 to $10,000 in the one transaction. One provider who was also involved in sending goods to Vietnam mentioned that a limit of $500 had been set for transfers overseas, while in contrast, another provider from this community said that they had the potential to transfer up to $1m. The mean for the 10 users interviewed was $270.
  • Indian providers advised that typical amounts transferred ranged from $50 to $500, but amounts could go as high as $3,000. The mean for the 10 users interviewed was $1,105.

The frequency with which providers conducted remittance transactions differed markedly according to the ethnicity of the communities they generally serviced, as well as the size and nature of their business.

On average:

  • Samoan providers conducted transactions twice a day.
  • Vietnamese providers were considerably busier from November to February, as this coincided with both Christmas and Vietnamese New Year. At other times of the year, some providers reported conducting three to five transactions per week, while others averaged from 10 to 15 transactions over the same period of time.
  • Indian providers conducted anywhere from two to 10 transactions per day.
  • Consultation with both Filipino and Somali community members suggested that there was considerable variation in relation to amounts of monies transferred. Responses included amounts as low as $10 per transfer and up to $3,000 per transfer. The most common responses identified amounts of between $50 and $100.

It is important to note that the consultations suggested that while the majority of remittance carried out in these communities is between individual family 'units', it is also common for extended families to pool money together to send overseas. These usually involve larger amounts, but are not differentiated or identified in the transfer process. One community member commented:

We are building a big family home in the Philippines for all of the family. My sister and I send money together every month for the building to be done (Filipino ARS user personal communication 2008).

The consultations suggest that the Filipino and Somali communities have similar reasons for sending remittances. Both groups have collectivist cultures that operate via strong family or 'clan' bonds where individuals contribute heavily toward community.

Responses in relation to amounts transferred differed between Filipino community members but were generally higher than the amounts suggested by the Somali community. This may be due to the fact that higher amounts reflect those who remit less often and lower amounts reflect those who send more often.

The average remittance sent by the Somali community ranged from an average of $100 to $200 per month per family. However, some representatives of the remittance companies interviewed asserted that the amount remitted may range from as low as $10 to $20 per month.

With regard to the Filipino community, specific responses from community members included '[t]he average amount is $500 to $1,000', '[t]he amount would be between $100 to $3,000', '[w]e send small amounts between $2,000–3,000 to our family twice a year' and '[w]e usually send between $100–150 a month' (Filipino ARS users personal communications 2008).

Filipino community members often joined together to send a large amount back to the Philippines to be used for community purposes such as a religious festival or wedding or funeral—such a payment may be made by a trusted individual. A regulator may therefore gain the impression that an individual (who may in fact not be a high income earner) has sent a large amount of money overseas on their own behalf, when in fact, it has been sent on behalf of a community. Legitimate payments can vary considerably in size and regularity.

The consultations suggested that with regard to these five communities, remittances are generally modest in size and regular in nature. This may have implications for the potential for alternative remittance to be used for activities such as money laundering. The Australian regulatory system is reasonably comprehensive and large amounts stand out, which might make the use of the alternative remittance sector for money laundering purposes reasonably difficult. This conclusion is a tentative one, however, due to the small number of participants involved in the consultations. Sending large amounts could be the basis for increased regulatory and law enforcement targeting of a community, but this decision would need to take into account the possible impact of cultural events, natural disasters and one-off celebrations.

Reasons for using remittance in Australia

People send remittances for a variety of reasons and these reasons differ between individuals and communities. Nevertheless, the consultations suggested that there were a number of common trends.

Generally, across all five communities the single most frequently reported reason for sending remittances was to assist immediate or extended family.

Filipino community

With regard to the Filipino community, reasons for sending remittances included:

  • to assist family members pay for food;
  • assisting with community projects such as the building of churches;
  • to help the poor;
  • to fund micro-businesses such as milk bars, tricycle transportation firms etc;
  • to assist with family emergencies such as funerals or to pay for family ceremonies such as weddings;
  • to assist with community emergencies such as floods;
  • to pay for the education of family members; and
  • to pay the costs of someone who wishes to travel to Australia (eg to be a temporary worker).

Somali community

Patterns of remittance within the Somali communities are strongly influenced by culture and religion, family networks and a commitment to relieving financial hardships for families left in Somalia.

The range of reasons for sending remittances that were provided by Somali participants included:

  • to support family living expenses;
  • for the education of family members (apparently a high priority);
  • to send parents or other close relatives on pilgrimage;
  • to help the extended clan group;
  • to pay for occasions such as marriage;
  • to assist families with funeral expenses;
  • to assist with hiring guards for the protection of property;
  • to repair shelters destroyed in the civil war; and
  • to help build/rebuild family homes and increasingly invest in land and property on the migrant's behalf.

Almost everyone in the Somali community is expected to send money overseas. All members are expected to support their families back home or wherever they may be geographically located. Community members in Australia constantly receive pleas for help and those who can, usually do respond by sending money.

Given that a large percentage of the Somali community also follow the Islamic religion, it is a requirement for followers of the faith to support their immediate and extended family in times of need. Apart from relatives, if a community member requests financial assistance, it is unlikely that they will be refused support. Interviewees commented that any community member who fails to support their family and relatives can be ostracised and even disowned by the community. One Somali community participant noted:

You will find that many people in our community do not answer their mobile, if it is a private call, after 3 pm Australian time, which is 9 am Somali time. This is to avoid inconvenient calls from overseas asking for money (Somali ARS user personal communication 2008).

Many send money back to families in Somalia and to family members in places such as Ethiopia, Djibouti, Kenya and Yemen. The remittances are intended to help with basic living expenses. Most Somali migrants cannot send enough for business or community investment. Some remittances are intended to be capital for shops, import and export businesses, and taxi, bus or trucking businesses. The emphasis of these remittances is on retail and wholesale trade and services, rather than industrial production. There were a small number of large transfers that were intended for investment in housing, as apparently some more stable parts of Somalia are experiencing a housing boom.

Remittances could be used in ways that reinforce social networks such as weddings, chewing qaad with friends, clan compensation—this involves clan-based compensation for injury or death; it is a traditional mechanism for assisting a victim's family and also preventing the escalation of conflicts—purchasing food for poorer neighbours or financing the emigration of relatives. Remittances can be sent for use in connection with religious and social practices such as sako (zakaat or compulsory alms), sadaka (voluntary alms) and qaraan (clan-based collection). All these practices are intended to help people in need.

A recent report has noted that with regard to the Somali diaspora, the:

[p]erceived obligation to send money to the family and relatives left behind poses economic and social stresses and strains for members of the community [who] also face major challenges in their country of residence. These include limited employability due to lack of skills, lack of transferability of qualifications gained elsewhere in the world, race factors and a sense of alienation (Sheik & Healy 2009: 19).

Nevertheless, these commentators do suggest that at least with reference to the United Kingdom, there is little sign of 'remittance fatigue' and that Somali expatriates believe that their remittances are being responsibly used and that the level of accountability for these remittances is much higher than that obtained by international donors (Sheikh & Healy 2009).

Vietnamese/Indian/Samoan community

With regard to the Vietnamese and Indian communities, remittances are usually sent to support particular individuals or families and for specific occasions, such as birthdays. However, there are other motivations. Members of the Indian community sometimes remit back to India so that family in India could purchase local items that could then in turn be sent to Australia. Members of both the Vietnamese and Indian communities use ARS for business-related purposes such as paying off home loans overseas, purchasing items for an Australian-based business, or sending money to an employee's family overseas (in lieu of a salary). Research suggests that such investments do not require significant funds, with estimates of the financial investment required ranging from several thousand dollars to $20,000, although most would not be more than $5,000 to $6,000. In some cases, the line between investment and supporting family was blurred. Members of the Vietnamese community may transfer money in order to purchase or build housing on their relatives' land and this offers benefits to the family living in Vietnam, as well as providing investment opportunities for the sender.

Among almost all users in the Vietnamese, Samoan and Indian communities, motivations for using ARS were to provide financial support or gifts to family and/or friends overseas. Specific examples were given in terms of providing financial support to assist in general living expenses and caring for relatives, for school fees (especially among Samoan users), for overseas students and for medical/hospital costs. Several key events were also mentioned, including weddings, funerals, birthdays and anniversaries.

The obligation to help family appeared to be pronounced in the Samoan community and the researcher commented that in some cases, the obligation to send money to Samoa was so great that it was a higher priority than having adequate funds in Australia for their immediate family. In one interview, a parent commented that their first priority was to send money to Samoa, and their second priority was to consider whether they have 'enough to eat'. The woman's 15 year old daughter was present during this interview and she agreed that this was the case and commented that her family 'sends money every week and they can't even give us $2' (Samoan ARS user personal communication 2008). Other comments from Samoan community representatives included:

I support my sister and her children and help them pay their school fees; and

I send [money] to my parents to help them pay their electricity bills.

For many of these participants, there were strong social expectations in their community and within the family that this type of support was necessary. Relevant comments included:

If I don't send money before the end of the month, my mother rings reverse charges and demands money for her church donations;

I feel obligated to send money to help my brother who looks after the family; and

I bought a water tank and helped pay for the materials to renovate the extended family's kitchen.

Within the Samoan community, there were also some users of ARS who transferred money overseas to provide financial assistance for community development, and in most cases, this involved donations to local churches/church groups as well as schools. This was not mentioned by users in the Vietnamese and Indian communities, where the purpose of financial assistance was generally to assist specific individuals.

The advantages of ethnic-based remittance

Research suggests that the decision about what sort of remittance provider to use involves a mixture of commercial, cultural and religious factors. In this context, organisations such as corporate non ethnic-based organisations (eg Western Union and MoneyGram) may behave in similar ways to that of the formal sector in that they claim to follow the relevant regulations of the jurisdictions in which they operate. The ethnicity of the corporate remitter can also be a relevant factor when members of an ethnic community make the decision to use them. Anecdotal evidence derived from consultations suggests that a major issue for corporate remitters is how to deal with the administrative complexities and expense of ensuring that all their agents fully abide by all relevant laws, including those relating to registration and/or licensing, reporting of various kinds of transactions and the implementation of AML/CTF programs. The consultations suggest that major corporate remitters are often perceived as more expensive than ethnically-based alternative remittance providers, even though this may not be accurate.

Samoan/Indian/Vietnamese community

Approximately half of Samoan users sent remittances via corporate remittance providers such as Western Union or MoneyGram. The remaining 50 percent used ethnic-specific ARS providers. Almost all Vietnamese ARS users utilise ethnic-specific ARS providers; only one participant used banks or organisations such as Western Union. Indian community ARS users largely used Western Union, or to a lesser extent MoneyGram, but approximately half the users consulted stated that the corporate agents they used were members of the Indian community. Nevertheless, it should be noted that within some communities, users may use either system, with those who use corporate remitters (particularly within the Indian community) citing a perception that the corporate remitters are more secure.

With regard to the Samoan community, a minority of Samoans interviewed believed that ethnicity was an important factor in the choice of an ARS provider. However, the majority of Samoans interviewed expressed some distrust of Samoan-based providers:

Their processes are too slow and complicated...the money has to go through their other agents, for example from Blacktown to Guildford and then to Samoa (Samoan ARS user personal communication 2008).

With regard to the Indian community, two-thirds of the Indian users interviewed believed that the ethnicity of the corporate remittance agent they used was unimportant (or had never considered the issue). For the minority who believed that the ethnicity of the corporate remittance agent was important, most believed the element of trust was relevant, particularly if they were new to the process.

Most of the interviewees from the Vietnamese community believed that the ethnicity of the ARS provider was an important factor, with all but one interviewee saying that it was important to deal with someone who spoke Vietnamese. Researchers suggested that English language proficiency is lower in the Vietnamese community than in the Samoan or Indian community and this may account for Vietnamese users placing greater emphasis on the ethnicity of the ARS provider.

With regard to the Filipino and Somali communities, there were a number of common reasons why people used ethnic-specific alternative remittance providers as distinct from banks or large corporate remitters. These included:

  • Most people who do not choose formal channels do so because fees are too high. In some cases, fees charged are as high as 20 percent of the amount transferred and currency conversion rates can be as high as six percent.
  • Migrants may not have access to formal transfer services, specifically banking services, because of their legal status in the host country and lack of required documentation. Further, formal transfer agents may not offer services to recipients in rural or hard-to-reach areas overseas.
  • In some remittance corridors, banks offer comparatively less expensive transfer services, but transfer procedures which are perceived to be complicated and involve delays of several days or weeks for money to arrive at its destination may discourage increased use of banking services. Mistrust of banks can also be a factor in some communities.
  • Transferring money through a bank or other formal institution is complicated and/or intimidating for many migrants. Migrants are attracted to alternative remittance systems because they are rapid and reliable. The primary motivation is that the systems of alternative remittance provide a cost-effective and efficient method for transferring money to family or for business reasons.
  • Migrants send remittances for charity or community development purposes. These are usually coordinated by migrant associations abroad, in the form of collective donations, which usually help pay for improvements in basic physical infrastructure such as roads, electrical or water service, schools and medical clinics. They can also be used for ecological or cultural projects, again contributing to local development.
  • ARS is perceived as a fast, safe and cost-effective way to transfer funds both domestically and internationally without using formal financial institutions.
  • ARS is frequently more trusted by customers, especially when the service is offered by a member of the same ethnic or immigrant community.
  • ARS can provide services in geographical locations that conventional banking channels often cannot reach (either at the location of the originator and/or at that of the recipient).
  • Fees may be significantly lower for ARS than conventional banking systems.
  • ARS provides a versatile and rapid service (many locations are served, there is no need to open accounts, different and delayed means of payments may be used).
  • ARS is considered as the most practical and cost-efficient means of supporting family members left behind, most likely in poorer areas with limited economic opportunities.

Filipino community

The Filipino community provided considerable feedback in relation to the reasons why they use ethnic-based ARS. When asked to provide feedback in relation to why there is a preference to use ARS within the Filipino community, interviewees consistently referred to being attracted to the low cost, ease of access, quick delivery and in-language services offered by these providers. ARS providers are able to ensure the money reaches its destination within the hour if there is an urgent need and money can also be accessed outside business hours. Some relevant comments included:

When my sister's son was in a bad accident they had to transport him to the city urgently. They had to pay before they could take him and they do not have any money. If I went to a bank it would have taken too many days to send the money and it would have been too late. I quickly called XX and my brother in law went to their office in the Philippines and picked up the money straight away. I always use XX to send money to my family and because they know me I could arrange it straight away and then take in the money the next day to pay them back.

Someone dies at home and people need help. The money for the funeral can get there quickly (Filipino ARS users personal communications 2008).

Filipino ARS providers are able to speak the community language that makes dealing with them simpler and more efficient. It is usually older women in the community who are responsible for sending money overseas and many of them have little or no English language proficiency. Dealing with banks can be difficult due to language barriers. Filipino community members usually send very small amounts of money on a regular basis. They reported that Filipino ARS providers offer a much cheaper service, thereby allowing a greater portion of the money to reach family rather than being swallowed up in the transfer process. Negative and costly experiences when using mainstream systems, such as banks, have increased the use of alternative remittance providers. ARS providers also charge a flat fee that does not increase when larger amounts of money are being transferred. Filipino ARS providers made the following comments:

Most people in our community send about $50 to $100 at a time. A bank would charge $20 just to write a cheque. The agents here usually charge about $5 to $12 which is much cheaper and they make sure the money gets there much faster.

First time I did it, was through the Commonwealth bank, it was slow and expensive. It was only $200 and I had to pay $55 and it took so long to get to them. It would take one week. I had to let family know and so that was expensive for me and my family to chase up a bank and make sure that it got there.

No matter how much you send, it is the same price. Even with Western Union, if you send money it will range in cost—it is more expensive the more you send. It only costs us $8 door to door and it always gets there. (Filipino ARS providers personal communications 2008).

Many Filipino ARS providers offer door-to-door service options which are the only way some people can get money to their families. This is likely to be the only option available to those whose families live in rural regions with no infrastructure that allows for money transfers. Communities also prefer door-to-door service when they are sending larger amounts of money as there is a fear of carrying large sums of money in public. However, some older participants saw door-to-door delivery as a risk in itself in terms of neighbours noticing that money was being delivered to a household. Some ARS providers can send an agent to the customer's home to collect the money to be transferred. This is helpful for older members of the community who experience mobility difficulties.

Older people in our community can't really afford to send much. Also it is too hard for them to go to a bank or office to send the money so they have to rely on others. They like the services where they can come and pick the money up from the house (Filipino ARS user personal communication 2008).

ARS providers are considered to be highly reliable and consistent in ensuring money reaches its intended destination within agreed timeframes. There was very little mention of negative experiences using ARS but negative experiences using formal banking systems were common. Many of the limitations involved in using banks are also due to problems at the receiving end.

The main problem is not the Australian end, it's the Filipino end where most of the 80 million people either are not close to a bank or they don't have, or can't afford, a bank account (Filipino ARS user personal communication 2008).

Somali community

The research found that ARS use is also widespread within the Somali community. While ARS providers used by the Filipino community are also members of the Filipino community, ARS providers used by the Somali community are generally not ethnic Somali. The research found that almost all remittance organisations operating outside Somalia that service the Somali community are owned and operated by citizens of the respective countries in which they operate. ARS providers used by Somali community members usually come from a range of countries within the Horn of Africa or Egypt.

The most common method used for sending money is through Somali money transfer enterprises that charge a fee of around four to six percent. Community members in some locations sometimes send money through traders or friends, but given the efficient service and wide coverage of the money transfer enterprises, this is uncommon. When asked to provide feedback in relation to why there is a preference to use ARS within the Somali community, interviewees also consistently referred to being attracted to the low cost, ease of access, quick delivery and in-language services offered by these providers. However, they also highlighted cultural and religious requirements as critical in influencing the level of remittance transfer that takes place within the community.

Consultants noted that international events impacted on community willingness to speak openly regarding alternative remittance. Somali money transfer enterprises, known as xawilaad, came under scrutiny in 2001 when the largest enterprise, Al Barakaat, was closed based on US allegations of links to Al Qaida. Those allegations have not yet been substantiated. However, it has impacted on the way in which community members spoke about remittance practices during focus groups.

The range of responses provided by the Somali community participants included:

Community members are regularly contacted to send money to family members for urgent situations. They consider ARS the only alternative as they perceive that banks require lengthy delays to arrange transfers.

Our money has arrived before we even get back home. Banks take 10 days (Somali ARS users personal communications 2008).

Many members of the Somali community need to transfer remittances to reach family members in cities destroyed by war, refugee camps and remote rural areas. This is only likely to succeed by using door-to-door services. Many of these areas do not have any services available, let alone banking institutions or branches.

Even if I send to my family a cheque, what good is piece of paper when there is nowhere they can go to make it cash? It is worthless. Some people in our community cannot send anything in the mail because there are areas with no post services. They have to depend on the local agents who know who the community members are (Somali ARS user personal communication 2008).

Most remittance transactions consist of relatively small amounts, sent regularly to provide for a family's or individual's basic needs. The typical amount sent is $100 and is used for a family's monthly living allowance. It is important to note that some of the remitters send money to more than one person at a time.

We have many family [members] we have to help. My mother waits for me to send money to Somalia so she can help the family and I also send for my brothers and sisters from my father's other wife who live in Kenya. There are many family [members] that wait for us to send to them (Somali ARS user personal communication 2008).

The most common method of sending money is through ARS providers who charge a four to six percent fee. Migrants in certain locations sometimes send money through traders or friends, but given the efficient service and wide coverage of the money transfer enterprises, this is uncommon.

Similar to the Filipino community, ARS providers used by the Somali community speak the community language which makes dealing with them simpler and more efficient. Again, it is usually older women in the community who are responsible for sending money overseas and many of them have little or no English language proficiency, preventing them from confidently approaching banks.

When I use this service I can explain what I need in my language. I can't do this when I go to a bank (Somali ARS user personal communication 2008).

ARS providers who service the Somali community are well-known by the community who understand how they work and have largely had positive experiences in dealing with them. This is not the case with banking institutions. Many refugee communities arrive in Australia totally unfamiliar with the concept of banks or banking and do not understand where their money is when it is banked or how safe it is. Banking processes may also serve to diminish community confidence and may trigger memories of past trauma.

Alternative remittance providers are doing a better job than banks. People are scared of being asked personal information (Somali ARS user personal communication 2008).

Lower service usage costs were also cited by the Somali community as a factor influencing their preference for using ARS. Interviewees referred to costs being as little as $5 as compared with the bank average of $20.

The Somali community had numerous experiences involving delays and problems associated with the use of formal banking systems. This was usually the result of spelling errors in documenting people's names. Many commented that this was unlikely to happen when they used ARS. ARS providers were more likely to have the ability to deliver money to a greater number of locations. Banks were limited to locations where they had branches or agents.

The ARS system is favoured because it usually costs less than moving funds through the formal banking system, it operates 24 hours and seven days a week, it is almost always reliable and it requires minimal paperwork. The system is built on a relationship of trust and therefore can flourish in an environment characterised by the absence of oversight or regulation such as that found in Somalia.

In summary, researchers concluded that ethnic-based ARS systems will remain an integral part of the Somali economy because remittance organisations have the trust and confidence of their customers. Further, remittance organisations have an extensive network of agents who service almost all the towns and villages in Somalia, as well as all major cities and towns in other countries populated by members of the Somali diaspora. In addition, remittance operations are far more efficient and cost-effective than other financial services and there are social and historical factors (which in turn are tied to extended family, geographic and clan factors) that reinforce a relationship of trust between individuals doing business.

The following quotes represent common responses from Somali community members asked about why they prefer to use ARS providers: '[b]ecause they can reach my family easily', '[t]hey can help me to help my family', 'I am very comfortable dealing with them', '[t]hey can communicate easily with me and the recipient', '[t]hey can easily trace, locate and contact my family overseas', '[w]e trust them', '[t]hey are fast and reliable', '[f]amiliarity', '[b]ecause they have local knowledge' and '[b]ecause there is no other option for getting money to my family' (Somali ARS users personal communications 2008).

The degree of integration, particularly linguistic and financial integration, of a particular community into mainstream society appears to have a considerable impact on its level of use of alternative remittance, where the greater the integration, the greater the use of the formal banking system. Another issue that impacts usage levels is the financial and physical condition of the country of origin. It is noticeable that countries that have little effective financial infrastructure, such as Somalia, or major criminal justice issues, such as street safety, tend to attract high levels of alternative remittance.

The decision-making process

Filipino and Somali communities

In both Filipino and Somali communities, women play the key role in decisions about using ARS. Research regarding these two communities consistently revealed that:

  • women remit more monies than men to distant family members including siblings, extended family and other community members;
  • for both men and women, the longer they have been sending remittances, the larger the amount they are likely to send;
  • within both the Somali and the Filipino communities, focus group participants suggested that the primary recipients of remittance funds were women, as they were regarded as being more 'trustworthy' in relation to using the funds for the benefit of the family; and
  • the sending of remittances declines with each generation for a variety of reasons depending upon the circumstances of the community, including personal motivation and weakening economic ties with the country of origin.

One community participant commented that:

The younger generation, especially those who are born here or those whose immediate family is here with them, only send money as gifts on special occasions, not as regular support (ARS user personal communication 2008).

Within the Filipino community, word of mouth is the most influential means for accessing a reliable provider. Community members exist within a strong formal and informal network that operates to ensure widespread access to information. Formal networks include community-specific media such as newspapers, radio, cable television and social groups. Informal networks can also include social groups, family and friends. It is through these means that information about ARS providers is shared; allowing community members access to information about those providers that are familiar with extended family or who have local contacts in the Philippines. It is these providers that they are most likely to use. One Filipino participant commented:

They are advertised by word of mouth and therefore they have to maintain their good reputation of reliability, ease and fast, friendly service (Filipino ARS user personal communication 2008).

Consultation participants also referred to checking on the reliability of ARS providers by initially only sending small amounts. Once their validity is determined, community members are likely to use these providers on an ongoing basis.

We will check them by trying them out with a small sum of money because they are usually referred by word of mouth. When we know that the money will get to our family we can send larger amounts.

Most experiences are that the money always arrives (Filipino ARS user personal communication 2008).

As stated above, women make up the largest percentage of ARS users in ethnic communities. The other highest user group identified in consultations with the Filipino community is overseas workers who have arrived in Australia under the 457 visa category (sponsored by employers). This group includes both men and women who are most likely to be sending regular, larger than average amounts, as they are usually supporting immediate family in the Philippines. Again, ARS providers offer a much more cost-effective and accessible means for ensuring money is transferred directly to the family.

Most of the Filipino community are very family oriented so we always help family back home. If you speak to anyone in our community you will find that they all send money to family in the Philippines. Many of our people also send money to build a family home so they can return one day (Filipino ARS user personal communication 2008).

Filipino ARS providers were also asked to comment on how they arrange for money to be delivered to family in the Philippines. All respondents commented that remittances are usually sent to female elders within the family for distribution among other members. As with the Somali community, women in the Filipino community are perceived as more reliable in ensuring that money will be used for its intended purpose. Some interviewees indicated that, where money was being sent to support extended family, they were expected to send back proof that the funds were effective in achieving intended purpose. One participant made the following comment.

We send money for the education of my wife's niece. She must send her results every year so we know she is completing the course. It is very difficult to find the money for this as we have to feed our family here too (Filipino ARS user personal communication 2008).

The most common user group of ARS is considered to include newly-arrived elders who continuously send money back to their extended family either in Somalia or in a refugee-hosting country.

Newly arrived people send more money than those who [have] spent more years in Australia and have other priorities (Somali ARS user personal communication 2008).

Although the provision of remittance to family overseas is an expected requirement within the Somali community, many interviewees spoke of increasing reluctance to continue sending regular payments due to feedback received by community members who travelled back to Somalia and found that family were not struggling to the extent indicated.

Those who recently returned to Somalia say that some of the callers' economic conditions [are] not as bad as they explain when they are calling from Somalia (Somali ARS user personal communication 2008).

The consultations further highlighted that all age groups within the adult Somali diaspora participate in remittance provision. Those most likely to send money were employed and between 30 and 50 years of age. Young people were more likely to be at school and less engaged emotionally with people left behind, while older people, relying mainly on income support and pension allowance, were less able to help financially.

Somali migrants tend to mainly remit money to female relatives because they are responsible for buying and cooking food. Some also fear male relatives will spend the money on qaad (a form of drug) or on marrying a second wife rather than prioritising the collective needs of the existing family. Women receiving regular money through xawilaad may have more control of the household economy than those relying on a male breadwinner.

Vietnamese/Indian/Samoan communities

There was general consensus among those who provide ARS to the Vietnamese, Indian and Samoan communities that while their client base was broad within the communities they serviced, there were a greater proportion of customers who were born overseas or older customers. Among Indian providers, however, a few mentioned that younger members of the Indian community, as a subgroup of customers, were also sending money to their families overseas.

Providers in the Samoan communities mentioned that while Samoans born overseas accounted for the majority of their customers, these individuals were 'often accompanied by their children to help them transfer money' (ARS provider personal communication 2008).

In some cases, older children accompanied parents to assist in completing forms, and this is particularly the case for older community members (those over 60 years) who rely on their adult children or grandchildren for assistance. This was seen to be necessary because often the providers were not from the Samoan community and therefore all transactions were conducted in English.

Research into these three communities also explored decision-making pathways and suggested that both men and women were involved in the decision to transfer funds overseas, as well as the transaction process itself. It appears that decision-making was less influenced by gender than by the links with family in the country of origin, as those with immediate family overseas were more involved in the decision to transfer funds. Women appeared to be more likely to conduct the transfer process, mainly because of fewer work commitments.

How the alternative remittance service process works—the user perspective

Table 4 provides the how and which elements of a typical ARS transaction from a user perspective.

Across all users in the Vietnamese, Samoan and Indian communities, contact with the final recipient confirmed whether funds were received and an accurate amount was transferred.

In summary, users of remittance services had a variety of experiences with being asked to provide identification. Familiarity between user and provider was an important factor in determining whether or not the provider requested identification.

Table 4: Summary of typical ARS transaction from a user perspective
Community Description
Samoan All transactions in the Samoan community are conducted face to face. No phone-based transactions had been conducted among these users.
Most Samoan participants simply told their provider how much they wished to transfer and either filled in a form with the users and the recipient's relevant details, or a provider did so on their behalf.
Those who had membership cardsa however, were generally not required to fill in any forms as 'the worker just swipes my membership card and asks for the contact details of the recipient' (Samoan ARS user personal communication 2008).
A few Samoan users were not asked to show any identification, though most were. If users held a membership carda from their provider, identification was not generally required.
Users could not articulate a clear understanding about how providers conducted the transaction. For instance, most Samoan users assumed that money was sent by providers directly to their destination.
Users were also unclear about whether their transaction was collected together with other remittances or sent overseas as a single transaction, or whether other individuals or organisations dealt with the remittance before it reached the final destination.
Most Samoan users reported that their, and their recipient's, personal details were recorded by the provider. Two Samoan participants believed nothing was recorded.
Vietnamese Of the 10 Vietnamese users consulted, three stated they conducted transactions over the phone with their provider due to their familiarity with that particular provider—'I rang the provider and told them how much I wanted to send to my parents…I paid on the next shopping day two days later. There's no need to verify my identity as I've been a customer for the last 20 years' (Vietnamese ARS user personal communication 2008). The remainder of Vietnamese users utilised face to face services.
For telephone-based users, transactions were as simple as placing a phone call to the provider and making a payment to them at a later date.
For face-to-face visitors transferring money overseas, transactions generally involved some discussion about the exchange rate and the fees required. Providers then recorded the user's and recipient's personal details and a receipt was given to the user.
Those who had received money were simply required to sign that the funds were received.
One participant who used a bank for remittances followed the 'normal process for sending money overseas—filling in the bank's forms' (Vietnamese ARS user personal communication 2008).
For those who sent money overseas using ethnic-specific service providers, identification was generally not requested by providers.
In the majority of instances, money was transferred to the destination by telephone and, according to users, was sent directly to the destination rather than somewhere else first.
Users were unsure about whether their transaction was collected together with other transactions, or how many persons/organisations dealt with their transaction before it reached the recipient.
Indian No users from the Indian community conducted transactions over the phone—all were on a face-to-face basis.
Providers generally completed a form recording the user's and the recipient's personal details. The transaction was then paid for by users and a receipt and 'code' or 'receipt' number were then given to the user.
Identification was required in most instances, however a few users who were regular customers of an ARS provider were not asked for it due to familiarity between the user and provider. One user noted that their regular ARS provider always photocopied their identification.
Indian users were unclear about how transactions were specifically carried out. Half of the participants assumed that the internet was involved, while a few others believed that a telephone call helped secure the transaction—'I don't know what they do. But they all seem to know what they're doing' (Indian ARS user personal communication 2008).
Only one user said that their provider collected a number of remittances before conducting the transaction. Others assumed that the transaction was carried out individually.
Similarly, all Indian users assumed that funds were transferred directly to their destination and that no one else was involved.
Filipino and Somali These communities send money through an ARS provider by using a representative agent or by visiting the provider directly to deposit money. Some community members use phone- or internet-based services but there was little evidence of this in consultations with ARS users.

a: many Samoans use Western Union regularly and so are entitled to a Western Union membership card. The membership card includes the relevant information which means that the sender is not asked to provide these details or fill in forms when transferring funds

Source: consultations with community users of ARS 2008

How the alternative remittance service process works—the provider perspective

From a provider perspective, transactions were generally conducted similarly across the Indian, Samoan and Vietnamese communities.

All providers reported keeping a record of the transactions, some 'because you have to' (Indian ARS provider personal communication 2008) while others did so in case a customer disputed the transaction at a later date. Recorded details included the names of both the user and recipient and their respective contact details (such as address and phone numbers). Receipt numbers and code numbers were often given to customers, although this was not mentioned by all providers. Some providers requested identification from their customers, although if customers were well-known to providers, it was often considered unnecessary.

Following the initial customer contact in a transaction, most providers typically contacted their agent in the country to which they were transmitting money to deposit the funds in the recipient's account. Within the Vietnamese community in particular, this contact was often a member of one's extended family. Contact was typically made by telephone, although email, the internet (through Western Union) and, to a lesser extent SMS, were also mentioned. Facsimiles were also often sent to agents in other countries several times a day, to provide up-to-date contact details for the recipients.

In the Indian community, the few providers who ran Western Union services tended to have scant knowledge about how the actual transfer of funds occurred from Australia to other countries. According to these providers, funds sent overseas from Australia were sent to a 'centralised office' but further detail on where this office was located or how funds were distributed was not articulated.

Use of Australian-based agents to transfer money overseas was not common among the providers consulted in this research. Only one Samoan provider reported working with a Brisbane-based agent who then used his networks to transfer funds internationally.

From an ARS provider perspective, transaction processes in the Indian, Vietnamese and Samoan communities were generally conducted along similar lines and differences tended to be based on the size and nature of the business, rather than the communities serviced. The providers included in the research can be segmented into two groups and these two groups tended to follow a slightly different process when transferring funds. The providers included in the research were either agents of large organisations, such as Western Union, or smaller businesses where money transfers were one of the services offered to customers. For example, several of the providers also ran grocery stores and newsagencies, and one was a doctor's surgery.

All providers were asked to describe the process for transferring funds. The process is detailed in Tables 5 and 6.

Table 5: Summary of typical ARS transaction, provider perspective—Indian, Samoan and Vietnamese communities
Process Description

Initial customer contact
In most cases, customers approach the provider in person.
Occasionally customers contact the providers via telephone, however this only occurs where there is an existing relationship (as a result of regularly transferring funds). Telephone transactions can happen in two ways. Several providers (four Vietnamese and one Samoan provider) said that they asked the sender to deposit the money into their account and present proof of this via facsimile or receipt prior to the transfer occurring. Three providers said that the customer called the provider and organised the transfer, and then visited the provider at a later date to provide the money. That only occurred when the provider knew the customer well and there was a long history of money transfers. One provider also said that it only occurred when small amounts of money were involved. As businesses are usually located in shopping districts, customers visited agencies when they were next visiting the shops.
Larger organisations (Western Union and Worldwide Travel) do not accept phone requests and small businesses were the only providers that accepted phone transfers.
Providers also mentioned that sometimes people send money on behalf of others and in most of these cases, people send money on behalf of their elderly relatives (Vietnamese and Samoan) or their husband/wife—'It's very common with older people. The older generation rely on their children to do transactions' (ARS provider personal communication 2008). In these cases, the transfer is signed on behalf of someone else, but the person who authorises the payment at the office shows identification.
There were mixed responses from agents of large organisations with regard to accepting transfers on behalf of others, with some accepting them and others not. Where it was accepted practice, the transfer was signed by the person attending the office of the provider and that person also shows identification. Several Vietnamese providers said that they did not accept transfers on behalf of others.
It was very clear that providers did not ask customers what the transfer was for, with every provider adamant that it was not appropriate. While providers were able to discuss reasons why clients transfer money, it was based on clients volunteering the information, rather than on the providers eliciting the information. Several Vietnamese providers noted that besides it not being their business, it is also unlikely that people would disclose the truth.
Most, but not all, providers said that they ask for identification. Agents from larger agencies were more likely to say that they always ask for identification and were aware this was required due to government regulations. Several providers noted that customers who are well-known are not required to provide identification. Other providers said that they only ask for identification for large amounts (several mentioned over $1,000–3,000 and three mentioned over $9,000–10,000). One provider said that they never ask for identification.
Money is paid by the sender as cash or EFTPOS. Providers said that they do not accept credit cards.
One agent of Western Union said that there are limits for the amount that can be sent to some countries in one transaction and that the limit for India is $2,000.
Record keeping All providers collected and recorded the customer's and receiver's contact details—name and contact number. Address details were recorded by some, but not all, providers. In most cases, the details were recorded electronically.
Agents of larger organisations required customers to complete a form.
Providers kept copies of the customer details, the transfer receipt and the delivery details (date, time and receivers' details). These are kept in case a customer disputed the transaction at a later date, but also for accounting purposes; 'because you have to' (Indian ARS provider personal communication 2008).
One Vietnamese provider said they provided receipts on request. Few other providers discussed the receipt process.
Transfer The provider contacted the agent in the relevant country and this contact was made a variety of ways. Telephone and facsimile were mentioned most often, while email and the internet were also relatively common. Internet was used by agents of larger organisations and several smaller businesses used the internet because of the lower cost. SMS was rarely mentioned.
Agents of larger organisations, such as Western Union and Worldwide Travel, contact the central office in Australia via the internet and the money is transferred through the office. Several of the providers who ran Western Union services targeting the Indian community had limited knowledge about how the actual transfer of funds occurred from Australia to other countries. According to these providers, funds from Australia sent overseas were sent to a 'centralised office', although further details on how funds were distributed was not articulated. A provider working with the Samoan community worked with a Brisbane-based agent who then used his networks to transfer funds to Samoa. All other providers dealt directly with agents overseas.
All providers said that funds were transferred directly to the relevant country, with most saying that the funds were not handled several times.
There were mixed responses regarding the grouping of transactions. The businesses that were agents of larger companies were not sure if this occurred when the central office transferred funds overseas, but assumed this was the case, although the agents themselves generally sent requests to central office individually. A few providers grouped requests and sent them once or twice a day, while several small businesses did not group the transactions. This was probably because several of these small providers guaranteed a quick turnaround.
One Vietnamese provider said that they have money in Vietnam for advance payment and that they deliver to the customer first and receive the money later in the month from the relevant bank. Two providers to the Samoan community also said that there were funds in Samoa that were accessed immediately.
Several Vietnamese providers said that the receiver could choose to either have the money delivered directly to their home or to pick up the money from the relevant sub-branch (which for many is a home-based business). A few providers noted that people could also nominate for the money to be transferred to a bank in Vietnam, although one provider mentioned that people often do not want the money transferred to a bank, as they 'do not want any government to know they have money' (ARS provider personal communication 2008).
Some Vietnamese providers said that they had a number of staff in Vietnam who assisted in providing the transfer service and, in most cases, the staff were members of their extended family.
Several also provided a very quick turnaround, with the money available within an hour in some cases. This was seen to be a result of the competitive nature of the industry.
Collection All providers said that the receiver showed identification and signed for the funds/goods.
Agents of larger providers working with the Indian community said that the sender is given a money control number, or sometimes a test question, that they must tell the receiver. The recipient was able to visit any Western Union office with the code number and sender details to collect the money. Several Vietnamese providers talked about a pin number or a money-transfer customer number that was provided to the receiver for accessing the funds.
One Samoan provider said the recipient was contacted by phone by the agent and the receiver then collected the money from the agent. For most other providers, the sender was responsible for contacting the recipient and explaining how the funds could be accessed.
In some cases, in Vietnam, people received the funds as tales of gold or in Australian or US currency. It was explained that the amount of Vietnamese currency needed when exchanging Australian dollars is too great, and because of this, sometimes other currencies or tales of gold are used, as they are easy to store, allowing the receiver to exchange the relevant amount when needed.
Several providers also mentioned that sometimes cheques are received for larger amounts.
Verification Verification of the transfer was dependent on the customer and receiver making contact. Providers said that if they did not hear from the sender, they assumed the transfer had been successful. One provider said that 'once or twice there has been a clerical error and the money has not been picked up at the other end. I know this because this sender comes back' (ARS provider personal communication 2008). Most other providers said that they had not experienced a situation where the funds were not transferred successfully.
Several Vietnamese providers said that the agent in Vietnam faxed the details back to Australia so that the signature can be verified.

Source: consultations remittance providers to Indian, Samoan and Vietnamese community members 2008

Table 6: Summary of typical ARS transaction, provider perspective—Somali and Filipino communities
Process Description

Initial customer contact
All of the ARS providers interviewed were aware of the '100 point check' requirement and most had processes in place to ensure that they met this minimum identification requirement (most kept photocopies of identification documents as a record of this check). Not all providers were willing to discuss whether they adhered to this requirement.
Some of the ARS providers interviewed were, at the time of interview, looking into how they could enforce this requirement on 'sub-agents' they used to access new clients. A number mentioned that they were not fully confident their sub-agents were complying with the identification checks required to meet Australian laws.
Agents who worked for providers were easier to access by users to provide the money to be transferred and they even arranged collection so the user did not need to travel to any location. They were also accessible outside of normal business hours.
Members of the Filipino community commented that registered providers were likely to request that their agents were also registered or require them to collect 100 points of identification when receiving monies from community members. However, unregistered providers were unlikely to seek identification details and usually requested a name, phone number and address but not proof of identity. One participant commented '[t]he provider we use will not ask for identification or a licence unless we are sending large amounts over $20,000' (ARS user personal communication 2008).
The researchers suggested that feedback provided by the Filipino community indicated that very few ARS providers requested identification from individuals sending remittances overseas.
Some legitimate Filipino providers were also being impacted by 'questionable' ARS providers. They were concerned about this impact on the reputation of providers as a whole. Comments included:

We are losing clients to providers that don't request identification. These 'back yarders' attract people by offering better exchange rates but end up ripping people of by not sending the money (ARS provider personal communication 2008).
Some Somali remittance providers allowed regular customers to phone and ask agents to send a remittance. They also commented that lack of identification documents did not impede a transfer and that trust and clan affiliations are used to determine who can use the system.
Somali providers are aware that there are some 'problem' operators.

ARS providers in these communities had a range of record-keeping processes. Those agents that operated a large full-time business had developed, and were working from, customised electronic databases, while some of the smaller providers kept records in hardcopy books, index cards or on an electronic spreadsheet.
Those with customised database systems were able to record and extract information such as:

  • a complete history of individual client transactions;
  • identification details of both the client and payee including bank account details and addresses;
  • percentage of clients who are local or interstate; and
  • who is sending the largest amounts over a period of time.
Our electronic database is updated daily and we can access all types of queries. It is also really useful for taxation purposes because we have immediate access to exactly how much money we are dealing with over any period of time (ARS provider personal communication 2008).
Some providers used duplicate record-keeping processes, that is, a hard copy file as well as electronic file for each client.
Providers with formal record-keeping processes also indicated that they regularly upgraded their systems to ensure compliance with regulatory/legal requirements.
Not all ARS providers interviewed were willing to divulge details on the types of information they kept. Those that did respond usually kept the following types of records:

  • sender's personal details (name, date of birth, phone number, address etc), details of identity checks, amounts sent and destinations; and
  • recipient's personal details (name, date of birth, phone number, address etc), details of identity checks and amounts received.
A number of providers used the MYOB package for their daily accounting activities, while others used less formal processes such as record-keeping books.
Transfer For the transfer process, providers generally performed one group transfer to each location at the end of each working day. These bulk transfers were undertaken telegraphically via the bank to the agent/office at the overseas destination for distribution. Remittances transferred each day were usually despatched at the end of each day.
Where the ARS provider operated as the Australian agent for a larger international remittance company, the Australian agent deposited the money into a local bank account to be transferred into the corporate bank account located in the country where the company was based (along with information needed to reach the sender). The corporate account operated as a clearing house which then redistributed the money to the agent in the intended destination for redistribution.
Collection Agents in the Philippines could be any number of individuals employed by providers and operate from business premises or on a mobile basis. One ARS provider indicated that they try to use local priests as their overseas agent when transferring door-to-door as they are less likely to be attacked by anyone that knows they are carrying money.

A number of other methods are also used. These include:

  • the customer visited the ARS provider directly to provide monies to be transferred. If the provider had a branch in the Philippines and monies were collected from this location, there was no agent involved in the process; and
  • increasingly, clients were using telephone and internet-based systems to access services, further reducing the need for using 'agents'.

ARS providers offered door-to-door services which was the only way money could reach families based in isolated areas with no infrastructure. This service was also preferred as it avoided the dangers associated with family members carrying money in public in the Philippines. One comment was:

We hear many stories about people going to pick up money from an agent and being robbed on the way home (Filipino ARS user personal communication 2008).
However, providers also commented that they tried to avoid door-to-door service provision as agents were also at risk and had been attacked, so any money they carried could be stolen. Providers had put in place a range of processes to minimise the risk, such as rotating agents on a regular basis to avoid their roles becoming common knowledge locally. Another provider explained that door-to-door delivery was also risky as there had been instances of agents being robbed by remittance recipients after they had delivered their money and were on their way to the next client.
With regard to Somali transfers, they sometimes occurred through door-to-door delivery. Agents in Somali villages usually had access to inhabitants in the villages and could deliver money quickly.
Verification Not available.

Source: consultations with Somali and Filipino community members 2008

Perceptions of the difficulties involved in the remittance process varied across the research, with some providers perceiving the process to be very time consuming and others viewing the process as simple and efficient. Several of the agents of larger organisations working with the Indian community said that the process was time consuming and hard to manage given that their primary business was a newsagency and post office, and that servicing customers for money transfers is time consuming and impacts their ability to serve other customers quickly. Some of these providers said that they sometimes ask senders to wait while they serve other customers because the process is so time consuming. Many of the smaller ARS providers stated that the process was relatively simple and straightforward and that setting up the business and networks was the challenging aspect; once this had been done, the transfers were relatively quick.

The research also explored the level of training of staff and the results suggested that training was provided by larger agencies, such as Western Union, on a regular basis. For smaller businesses, limited training (if any) was delivered, with providers discussing giving their overseas staff guidance via the telephone, or when visiting overseas. Training was not seen as important because many staff had been working in this area for a long time and also because staff were often family and were not seen to require training.

With regard to the Somali and Filipino communities the findings are summarised in Table 6.

All ARS providers servicing the Somali and Filipino communities indicated that they closely watched trends on exchange rates but were unlikely to notify clients unless a specific request had been made. Some customers contact providers seeking information around rate trends during the period in which they want to send money overseas and providers are usually able to offer this information. Providers generally set a daily rate each morning for transfers that take place on that day and it was unlikely to be changed, regardless of market movements throughout the day. These rates were advertised online by those providers who had a website. Where online transfer services were offered, customers could access adjusted rates throughout the day.

When ARS providers servicing the Somali and Filipino communities were asked to comment on how time consuming the process was, those who found the process more time consuming were more likely to run a professional full-time business and were better informed about compliance with regulations. Those providers who tended to collect detailed information and records of their activities usually had a set-up where staff performed specific roles.

Some of the ARS providers to the Somali diaspora who were interviewed were Australian-based agents of a larger international company (which would be seen as an ARS provider by AUSTRAC because it is ethnically-based) and so were required to comply with the Somali Financial Services Association (SFSA) Anti-money Laundering Compliance Guide. This impacted how much time needed to be allocated for service provision to each client. These agencies are expected to comply with a detailed range of processes and record-keeping requirements, including:

  • procedures for customer identification and verification;
  • undertaking of risk assessment processes, which may require the collection of detailed information about sender and recipient;
  • undertaking of verification processes involving necessary documentation before a transaction can be processed; and
  • customer identification files.

The SFSA Anti-money Laundering Compliance Guide sets out details of the expectations of the SFSA and agents/branches in each country are required to adapt to these to meet locally-based regulations.

It is important to note that there are actually two consecutive processes taking place with each ARS user that impacts the length of time providers take to conduct a remittance; one involves information and the other remittance.

The information process usually involves:

  • collecting information about the sender (personal details, identification, remittance amounts);
  • transferring information electronically;
  • sorting information at the central location (if local provider is an agent);
  • providing the agent at the recipient location with details for the recipient;
  • collecting information and identification from the recipient;
  • providing the sender with confirmation about delivery of payment; and
  • updating provider records.

The remittance process usually involves:

  • collecting money from the sender;
  • depositing money into the relevant account;
  • transferring money to a central account (if the local provider is an agent);
  • transferring money to the payment location; and
  • paying the recipient.

The majority of providers across all communities appeared to make at least some attempt to identify new customers (although there were certainly exceptions) and may resent those who do not because then the second group of providers could unfairly lower their costs. Providers kept records (either written or electronic), but these records varied quite widely in nature and detail and often, providers had very little idea of how the remittance industry worked on a large scale, even when they acted as agents for large corporate remitters. One ARS provider commented that he was not sure if his sub-agents were following proper identification procedures. The consultations suggested that larger alternative remittance companies may share many of the characteristics of the non ethnic-specific corporate remitters and that some communities use a mixture of corporate remitters, large ARS providers and small ARS providers.

The identity and motivations of remitters

Filipino community

With regard to ARS providers who service the Filipino community, key research findings about such providers include:

  • All the alternative remittance providers servicing the Filipino community in Australia are members of the Filipino community. There are over 100 providers currently in operation nationally.
  • The majority of these providers operate as a small business, usually from home-based premises. Many initially started out as agents for other providers before branching out on their own.
  • Within Victoria, all Filipino ARS providers are immigrants with the exception of one company. This company was initially set up by the current owner's parents.
  • All providers indicated that money is only transferred in one direction—to the Philippines.
  • A number of the providers were unwilling to provide feedback in relation to their registration status. These were generally the smaller providers operating from a home office.
  • Most providers use agents at both ends of the process.
  • Filipino ARS providers were reputed to provide the cheapest, safest, fastest, most reliable and efficient service for their clients.

Somali community

Key research findings about Somali community ARS providers included:

  • Almost all the remittance organisations currently operating outside Somalia are owned and operated by citizens of the respective countries in which they operate. The owners/operators are Australian, North American, Canadian, British, French, Swedish, Kenyan and Ethiopian citizens. There are fewer than 15 operational Somali hawala owners nationally within Australia (ie owners/operators of Somali citizenship), while the overseas-owned remittance companies could be in the hundreds.
  • There is clearly a close partnership and network of overseas hawalas and local Somali hawalas, which gives the impression that they are one and the same organisation.
  • Although most clients are of Somali ethnicity, the client base does include a variety of African nationalities such as Kenyans, Ethiopians and Sudanese. Somali Remittance Companies (SRC) clients also include AusAID, UN Agencies and international non-government organisations operating in Somalia.
  • While most money transfer destinations are within Somalia, SRCs do transfer money elsewhere including within North America, Western Europe, Arabia and Africa.
  • On the whole, SRCs are legally registered, or in the process of legalising their status, and they pay taxes in every country in which they operate, including Somalia.

Vietnamese/Indian/Samoan communities

The primary motivation for the majority of providers for making ARS available was for the financial benefits it gave their business. Other motivations for ARS provision included that it helped attract customers to other aspects of the provider's business (eg the purchase of groceries or lottery tickets) and, within the Vietnamese community, one provider noted that 'it helps create employment for my relatives back in Vietnam' (ARS provider personal communication 2008).

Some providers were also motivated by a desire to help their communities by providing what they felt was a very important service. A number of Indian providers mentioned that while the service was important to their community, it was a time-consuming aspect of their business that they provided reluctantly. For many of the providers interviewed, money transfers account for a small part of their business, whether they acted as ARS providers or as agents for corporate remitters. This was true for all of the providers servicing the Indian and Samoan communities and many providers servicing the Vietnamese community.

Community perceptions of the risks associated with remittance

Indian/Vietnamese/Samoan communities

Many Indian, Vietnamese and Samoan consumers said that they would not use a provider that was not registered, but most said that they do not ask if the ARS provider is registered, or request evidence of registration.

When asked about their level of concern about how money transfers are currently conducted, there were mixed responses from respondents. Vietnamese users did not identify any concerns and, indeed, all of the participants reported that they had not heard of any misuse or abuse of money transfers within the community. While some participants felt that there are people involved in illegal activities through ARS, this was far removed from their own experience with the providers and others they knew who transferred funds.

In comparison, almost all of the Samoan participants were concerned about how money transfers were currently conducted, although this concern related to worries about losing money. It did not appear to be based on knowledge of people losing money, or their own experience of money being lost, but instead on a general level of nervousness about handling money and sending it overseas. For example, almost all said that they had not heard of any misuse or abuse of money transfers within the community, although two people mentioned stories they had heard about providers. They had heard of cases where the recipient did not receive the full amount that had been transferred, and in one example, the recipient had only received half the money after four weeks, although the sender was told that the money had been transferred and that the recipient would receive it on the same day. The recipient is still owed the money. A Samoan provider said that there were concerns among the Pacific Island community that money was not received on time, although this was not raised by the consumers.

Similarly, most of the Indian participants were concerned when sending money overseas, especially initially, because of worries that they would lose their money.

I'm always a little nervous—will it go through, will I have to go back and do it again? (ARS user personal communication 2008).

A couple of users were also worried about delays and about the remittance organisation going bankrupt and losing their money as a result. Despite these concerns, many took comfort in having a receipt, as well as knowing that their friends had had no trouble in the past. A few also mentioned that they used larger organisations that were well-known and reliable to allay any fears. Around half of the Indian participants had heard of misuse or abuse of money transfers, although a couple said that this was not necessarily related to the Indian community. Stories that were identified in the research included:

Internet scams where a friends' friend gave bank details over the internet and money was taken from his account and not received at the other end.

I have read in the papers that people were sending money for illegal organisations, not in the Indian community, but in other communities.

Of course—[I have] heard of people sending money for drugs or to support illegal organisations, not to India necessarily. I have heard people talking (Indian ARS users personal communications 2008).

Users were asked what, if anything, they would do if they suspected that there was some misuse/abuse occurring among money transfer providers. All of the Vietnamese and Indian consumers said that they would do something as a result of this, while the results for Samoan consumers were evenly split. For those who indicated that they would respond if they suspected misuse or abuse, the most common response was to tell their friends and family and to stop using the provider. A few respondents from each language group said that they would report the behaviour to relevant authorities, such as the police.

Several Samoan consumers indicated that they were not sure what they would do and that they would not do anything unless they could prove the misuse of money transfers. A few were not sure if they would report the behaviour because they did not know how to file a complaint, because they were not sure of the consequences and 'no one will listen to you and you may end up in more trouble' (ARS user personal communication 2008) and because they were concerned about legal implications.

All except one of the remittance providers for these communities said that they had not had any bad experiences with customers when making a transfer. In the isolated case, someone had wanted to transfer a large amount of money but refused to provide their identification. The provider therefore refused to send the money, but did not report this to anyone. A few other providers said that they had refused a transfer on a few occasions primarily because of the restrictions of the business. For example, a Western Union provider said that they refused transfers of $10,000 on two occasions because Western Union has limits on how much can be sent in one transaction. Another Western Union provider noted that their organisation does credit checks and that if a person has been blacklisted for any reason, they are not able to transfer funds for this person.

When providers were asked what they would do if they had a bad experience, such as if they suspected someone trying to transfer money for illegal purposes, all providers said that they would not transfer the money. However, there were mixed responses with regards to whether the organisation would report any suspicious behaviour. Slightly more providers said they would report it, with several agents of corporate remitters saying they would report it to their organisation (such as Western Union), the police, the government, or relevant authorities. A few providers said that they would not report it because of concerns that this would have a negative impact on their business, or because 'the agency doesn't want to have an enemy' (ARS provider personal communication 2008). The research does suggest that providers rely on their intuition when assessing whether a case is suspicious and this lack of hard evidence, combined with concerns for their business, are likely to be significant barriers when it comes to reporting these cases.

There was little concern among providers about how transfers are currently conducted and, indeed, almost all of the providers had not heard any stories of misuse/abuse of money transfers within the community. There were a few cases where providers had heard stories, although not much detail was recalled (the cases referred to a provider from Melbourne and one from Sydney). For one case it was thought that the provider received a heavy fine and faced a jail term.

Somali/Filipino communities

The research regarding the Somali and Filipino communities suggested that these communities and the ARS providers that service them are aware of ARS providers (or more likely sub-agents) who are not registered and/or do not behave properly regarding issues such as customer identification. It was also noted that users do take precautions to ensure that the ARS provider or sub-agent they use is reliable. However, the research would suggest that community members have experienced nothing untoward when using ARS. For the Filipino community, this may be because the ARS providers are of the same ethnic group and the smooth operating of alternative remittance is very much a community concern. The community perceives ARS to be a crucial system for the maintenance and support of people in the country of origin.

In summary, the level of risk posed by remittance transactions varies between communities but even where there were concerns, participants had little or no personal experience of any trouble relating to the use of alternative remittance. The fear of misuse appeared to exceed the reality of its occurrence. The consultations suggested that corporate remitters were likely to be aware of regulatory requirements and that alternative remitters were also sensitive to suspect transactions, although they were perhaps less likely to report them.

The advertisement of alternative remittance services

Vietnamese/Samoan/Indian communities

The research also explored advertising carried out by ARS providers. Most providers who service the Vietnamese, Samoan and Indian communities advertised in the ethnic press and community radio, to a lesser extent, while a few were also active in the community through sponsoring community events in Australia. One provider was also involved in supporting development in Samoa. Several providers no longer invested in advertising, as they felt they were already well-known in the community. One Vietnamese provider produces a CD every year for customers that includes a range of New Year songs and promotional information on the business.

Filipino community

ARS providers servicing the Filipino community use a range of advertising and marketing approaches to seek out their client base. These include:

  • advertising in community newspapers such as The Philippine Community Herald Newspaper and The Philippine Times;
  • internet—ARS provider websites and advertising on community-specific websites;
  • shops that cater for the Filipino community—especially around the Footscray and Springvale areas in Melbourne;
  • agency representatives networking and approaching community members at community functions;
  • cold calling;
  • word of mouth; and
  • leaflets distributed at community functions.

The majority of ARS providers servicing the Filipino community are small businesses operating from a home-based location. A smaller number operate from their business premises which may also involve other activities such as importing and exporting or may focus specifically on remittance transfer.

While the actual ARS agency is responsible for transferring money between Australia and the Philippines, most of the 'leg work' involved in transfers is usually undertaken by agents. These agents are employed by the provider to recruit clients in Australia, collect money from clients in Australia and forward it to the ARS provider and distribute monies to recipient in the Philippines. Agents in Australia can include community members who perform this role as their main job, as well as shopkeepers, hotel staff etc.

Somali community

Within the Somali community, 'word of mouth' is the key form of advertising used to attract clients. Given the concentrated location of the majority of the Somali community in Victoria, word of mouth is a highly effective way of distributing information. The majority of ARS providers are also located in a shopping strip frequented by many members of the Somali community on a daily basis. Dahabshiil is the longest established Somali remittance provider and has by far the largest share of the market. Types of alternative remittance systems regularly used by the community include:

  • hand delivery—although this is reportedly diminishing as people are fearful of being robbed;
  • cash delivery by specialised couriers;
  • trade-based systems, where money is remitted via a trader;
  • shopkeeper or travel agent who has other business with Somalia;
  • remittance in kind (eg export of vehicles);
  • hawala-type networks; and
  • SRCs.

SRCs rely on a network of branches or franchises. Usually there are only a few salaried employees and the rest are agents who receive a percentage of transfer fees.

During the research process, respondents expressed the view that if these hawala operations are disrupted, hundreds of thousands of Somalis will face grave consequences given the perception that many Somalis in the country of origin rely heavily on this support for survival (even though some of those who visited Somalia seem to have formed a rather different impression). Moreover, if overly-restrictive regulation is imposed on the hawala agencies, it is likely to force these agencies 'underground'.

Provider perceptions of current trends in the remittance industry

The small number of participants suggested that any comments made about currents trends in the alternative remittance sector (from a provider perspective) may not be entirely representative.

Providers of ARS to the Vietnamese, Samoan and Somali communities did have some comments about how demand for their services has changed over time. ARS providers tended to differ in their views, based on which community they were from and therefore predominantly serviced.

  • Samoan providers felt that there was consistency with the number of recent transactions they had conducted, however, one provider commented that there were probably '[fewer] being conducted now than a few years back' (ARS provider personal communication 2008).
  • Vietnamese providers were increasingly receiving money from Vietnam rather than only sending money to Vietnam. This was believed to be due to an increased number of international students from Vietnam studying in Australia. A few Vietnamese providers also stated that larger amounts were now being sent overseas, potentially due to the increased regulations for ARS providers.
  • Most Indian providers felt that 'demand has increased—people see it as fast as and more convenient than bank' (ARS provider personal communication 2008). Indian ARS providers suggested that more favourable exchange rates may be a factor in the increase in demand.


Alternative remittance may be changing due to many factors, including technological advances (much of which is recent and involves delivery systems such as cards and mobile phones) and regulatory initiatives. The consultations suggested that a number of ARS providers were struggling to comply with new regulatory requirements. Nevertheless, ARS remains firmly entrenched and continues to address a need felt by many ethnic communities (a need that these communities see as perfectly legitimate). This was particularly the case for those who had had unfavourable experiences with banks in Australia or who, due to experiences in their countries of origin, were wary of dealing with the formal banking structure (and often, perhaps even more strongly with government regulatory and law enforcement bodies who might try to extort some or all of the remittance money).

There were a number of factors that influence the level and type of use of ARS. Proficiency in English and general levels of integration into the wider community may be important factors. Communities such as the Vietnamese and Filipino community placed more emphasis on dealing with ARS providers from their own communities. Samoan and Indian communities placed less emphasis, although even if they used the corporate remitters, the ethnicity of the corporate agent may also be relevant to their decision to use that particular agent. Although the large majority of use seemed to involve sending money to families for a variety of reasons, remittance was also used to send money to communities and to send money for business purposes (which could interlink with sending money to family members).

A number of factors were relevant to the decision to use ARS. While the emphasis on the ethnicity of the providers suggested that cultural factors were not without importance, the feedback from the communities generally demonstrated that the commercial factor was crucial, that is, ARS is quick, cheap and reliable. Many ARS users have had unfavourable experiences with banks or had found the performance of the formal banking sector (and in some cases the big corporate remitters) was inferior to that of alternative remittance in terms of cost and speed. Improved performance by the formal banking sector (which would include branches of banks based in other countries) is likely to encourage more ARS users to use the formal banking system (rather than ARS). ARS was not always seen in a positive light by members of the ethnic communities that used it, although virtually none of those interviewed had had any unfavourable experiences with ARS. The consultations demonstrated that the issue was more that a number of later generation members of ethnic communities believed that it absorbed resources that could be better spent in the host country.

It was not clear to what extent the formal financial sector was interested in, or capable of, obtaining access to remittance work and whether the structure of formal financial institutions would lend themselves to remittance work where the amounts being sent are often small and the formal financial structure that receives the remittance in the host country has little or no presence in the country of origin (particularly in rural areas).

The comments provided by ARS providers were to the effect that, as a group, they were generally attempting to comply with regulations, although they could see no great benefit in doing so from a commercial perspective. ARS users were interested in the ARS providers being regulated (they assumed regulation would provide protection to consumers) and, at times, sympathetic regarding the cost of regulation to the ARS providers. They also saw a role for the government in helping address the cost of meeting the regulatory burden. They put considerable emphasis on the need for providers to comply with government requirements, although their knowledge of the nature and the basis to these requirements was minimal. Although there were concerns among ARS users about misuse of the remittance industry, there appeared to be little personal knowledge of such misuse actually occurring and the benefits of alternative remittance outweighed any perceived risk.