DI press statement on illegal money transfers

Ladies and Gentlemen, we are grateful to you for honouring our invitation to attend this press conference. The purpose of today’s gathering is primarily to brief you and the general public on research undertaken on illegal money transfers to Ghana from the Diaspora and its effects on the Ghanaian economy. You can ask questions after this session and they will be duly answered.

As some of you may recall the Danquah Institute in March 2010 invited a leading legal expert on money laundering and offshore banking, John Hardy QC, to Ghana to deliver a paper on the subject. The objective of the lecture was to educate the financial sector, the business community, policy makers, the general public and the international community about the prospect of Ghana’s offshore status and measures that needed to be taken to safeguard the status against money laundering.

Indeed the Organization for Economic Cooperation and Development (OECD), in January of 2010, issued a stern warning to Ghana that its emergence as a tax haven could fuel corruption and crime in the region. Jeffrey Owens, head of the OECD’s Tax Centre, said at the time: “The last thing Africa needs is a tax haven in the centre of the African continent.”

The Danquah Institute held the seminar not because of it agreed with the ‘DON’T GO OFFSHORE’ posture of the OECD, but rather because we appreciated their concerns and wanted to find out if Ghana measured up to the task of ensuring our offshore status was protected per international standards and was also not at risk of being a soft-touch magnet for a flood of “dirty money”.

The Anti Money Laundering Act of 2007 (in force from 22nd January 2008), a primary legislative tool in the Anti Money Laundering struggle was passed, together with the Banking Amendment Act of 2007, to ensure our systems were in sync with other offshore banking centres across the world. This AML Act also established a Financial Investigation Centre whose mandate includes assisting in the identification of proceeds of unlawful activity and the combat of money laundering.
However, Barclays Bank who in 2005 mooted the idea to introduce offshore banking into the country and was on the verge of setting up Ghana’s first offshore bank pulled out of this agreement because of Government’s total loss of interest in this project which could have transformed Ghana into a multibillion dollar investment destination.

The Danquah Institute sees a similar scenario panning out with regards to government’s seemingly disinterested stance in the enforcement of the Anti Money Laundering Act as money laundering, through the activities of illegal money transfer operators in Ghana, is becoming a threat to our country’s economy.

Ladies and Gentlemen, let me take this opportunity to run by you some figures as to the volume of remittances our relatives in the Diaspora in 2010 alone sent to us.
Figures from the World Bank indicate that some 215 million people, representing 3% of the world’s population, live and work away from their countries of origin.  The total formal remittances worldwide in 2010 for these 215 million international migrants amounted to $440 billion with $325 billion of this amount going to developing countries. 31 million African Migrants in 2010 remitted $40 billion with total remittances to Ghana alone amounting to $2.12 billion, an increase of 18.4% from the 2009 amount of $1.79 billion.

You will be amazed to find out that the total remittance to Ghana for 2010 constitutes 7% of our GDP, 24.8% as a percentage of Ghana’s total export value for 2010 of $7.9 billion and almost double of Ghana’s total foreign direct investment ($1.1 billion) for 2010. Remittances are vital to developing countries and a crucial source of foreign exchange for them.

Generally, remittances can:
•    impact on the economy through savings, investment, growth, consumption, and poverty and income distribution;
•    help in raising national income by providing foreign exchange and raising national savings and investment as well as by providing hard currency to finance essential imports thereby curtailing any Balance of Payment crisis;
•    improve sovereign creditworthiness by increasing the level and stability of foreign exchange receipts;
•    improve evaluations of African countries’ external debt sustainability and creditworthiness. Remittances are now being factored into sovereign ratings in middle-income countries and debt sustainability analysis in low-income countries; and
•    help African countries to use future remittances as collateral, instead of the use of our oil, to raise additional financing from international capital markets and to reduce interest costs and lengthen the maturity of bonds for financing development projects such as low-income housing or power and water supply

Many economists are of the view that because of the scale of undocumented migration within the African continent, the prevalence of informal remittance channels within the region, and the relatively weak official data in many African countries, data on African remittance flows are likely to be understated.
It is also well documented that a large portion of remittances to Ghana are transferred through informal channels, and this method reduces the potential contribution of remittances to development—through financial sector deepening, credit multiplier effects, savings, and investment. Remittance flows outside the formal financial sector also raise issues of money laundering and other financial crimes.

Research suggests that nearly 60% to 100% of total remittances are sent through the illegal money transfer route. This translates into anything between $1.2 billion and $2.12 billion, including laundered money from crime proceeds, passed through the illegal money transfer channels to Ghana in 2010 alone. It is a very dangerous, growing industry that our authorities must throw their focus on. Unfortunately, the lack of proper attention has seen to the institutionalisation of this illegal money transfer business. The situation, per our findings, is almost beyond redemption in countries such as Germany and the Netherlands. But, it is not late. Like the drug trade, it involves demand and supply. The supply side is in Europe and the demand side here in Ghana. The solution is not to discourage genuine people abroad from transferring money to Ghana. Rather, the solution is to encourage them to use licensed channels of transfer of funds, which, by themselves guarantee them and their funds protection and efficiency.

The growing phenomenon of the underground money transfer business represents a huge loss of revenue to the state in unpaid taxes from commissions collected by these illegal MTOs and even the capacity of the state to use these large incomes of foreign exchange to buy crude oil, address our balance of payment issues, enhance our creditworthiness and even use it as collateral for external loans. The crippling of genuine businesses of the formal MTOs is also imminent with the activities of the illegal MTOs.

To get a clearer understanding of the illegal money transfer operations, the Danquah Institute carried out a 3-month long research to assess the extent of illegal money transfer operators with regards to Ghana’s 3 largest Europe remittance corridors (United Kingdom, Germany and The Netherlands).
The research looked at the Ghanaian regulatory environment as well as that of the 3 other sender nations, the products and services available on the market and the remittance patterns. We interviewed money transfer operators, regulatory authorities, senders and recipients. We also spoke to law enforcement agencies regarding the aspect of money laundering

We conducted an in-depth survey of 300 Ghanaians living in the UK and 103 Ghanaians living in Germany, and a similar number in the Netherlands, targeting all classes of community members, irrespective of gender, age, educational background, religion, cultural and political affiliation so as to give a cross section of the Ghanaian community a fair and balanced representation and also to achieve accuracy in the final report.

Our research revealed that despite the increasing numbers of licensed MTOs over the last two decades, the volume of cash transferred through illegal channels have been growing in the past few years. Beauty shops, food stores, spare parts shops, kiosks, churches, social groups, homes, have become regular channels for remitting cash to Ghana.

Some of the things that make them attractive to many Ghanaians living abroad include, no commissions charged, no personal identification documents required, no limits to amounts transferred, can pick up money in foreign currencies back in Ghana and the ability of the illegal operators to quote an exchange rate even better than the daily rate provided by the Bank of Ghana.

The countries most affected by illegal money transfers are the Netherlands and Germany, where unlicensed shops and individuals operating from their homes have overwhelmed the licensed MTOs.

We estimate that as much as half of the amounts transferred through the Netherlands and Germany are done through the illegal means. We found that the current stricter regulatory regime (post-9-11) has, paradoxically, had the undesired and undesirable effect of pushing more and more people into the black market of illegal MTOs.

Whilst the volumes of unlicensed money transfers in the UK are high because of the sheer size of the migrant population, the presence of a more liberal regulatory regime has ensured a lower percentage of transfers through unlicensed sources.

The growing influence of the West African corridor in the illicit drug trade to Europe is having a huge impact on the operations of the unlicensed money transfer channels, as our research discovered.

Indeed, in Germany, it was one such ‘Afro’ shop, which was a known unlicensed MTO, servicing the Ghanaian community that was caught up in the single largest drug bust in Germany for 15 years, with $37 million worth of marijuana hidden amongst seven tonnes of pineapples in Hamburg harbour in March 2009.
Honest importers and exporters are forced by convenience to patronise the illegal MTOs, through which they can transfer as much as 200,000 Euros at a time to facilitate their legitimate business. These illegal money transfer operators have become a useful conduit for money launderers, attracting unhelpful negative attention to small, honest, Ghanaian businesses in Europe.

Regulatory bodies in Europe are being forced to target African-owned shops in efforts to tackle money laundering for drug traffickers and terrorists, beyond the simple task of clamping down on unlicensed operators. While that may be counterproductive, very little, on the other hand, is being seen to be done by the regulatory body here, the bank of Ghana, to encourage a positive shift from the patronage of illegal MTOs to the legal ones.

Accra and Kumasi have the largest concentration of unlicensed receiving points for cash transferred through unlicensed channels in Europe. Ordinary looking such as Trans Africa Travel, Kay’s Candies and Nana’s Artifacts, all shops in the Netherlands are examples of the big players in this illegal money transfer business.

No receipt is issued neither is there any request or any form of formal identification requested of the transfer recipient. A telephone number or code is all that is sometimes requested. Once it is provided, the transfer value is made available to the recipient and sometimes in hard currency.

To better experience and understand the informal money transfer processes, some monies were actually sent from UK and Netherland to Ghana for a researcher to retrieve through ‘money transfer agents’ in Ghana.

At an Automobile spare parts shop on the Darkuman – Kokompe road, it seemed difficult if not impossible to imagine there could be a money transfer or remittance service or agency among the stretch of auto spare parts shops off that road.  While it’s front-end activity is obvious to the public, its back-end activity may only be known to the users of the service. At Darkuman, the centre transfers and receives money between Ghana and three European countries of Holland, UK and Germany.

They are able to receive and pay any amount of money though are unable to pay in one lump sum if the amount is huge as anything above 50 thousand euro. Their commission rate is 2% of the value and is prepared to pay in any chosen currency as required by the client if the sum is above 50,000 euros.

This shop did not require any mode of identification before accessing the amount transferred. All that one needs is a secret code/telephone number, the amount and the money is released.  Again, one may have to forfeit the transferred sum if it is not accessed within days of sending as it was experienced by one of our researchers at a location in Kumasi.

In Ghana, lots of shops in the major trading portions of Accra and Kumasi are steep into the business of illegal money transfer under the cloak of dealing in other legitimate businesses.  In Accra the streets of Makola, Kantamanto, Abossey Okai, Okaishie and Kokompe while in Kumasi, the streets of Kejetia, Pampaso, Adum and Asafo are lined with shops which have variance in their front-end business activity from their back-end illegally dealing in money transfers.

Surprisingly, the Bank of Ghana, the regulatory body in Ghana does not appear to be attaching the requisite relevance and urgency to this growing threat of unregistered foreign exchange transactions to the nation’s balance of payment and related financial implications.

It seems obvious to us that the Bank of Ghana has no specific, active department or desk devoted to analysing the entrenched phenomenon of illegal money transfer and taking steps to clamp down on them.

Our analysis indicate that the risks involved in transferring money through illegal operators for both sender (abroad) and receiver (in Ghana) outweigh many of the benefits. We found stories of Ghanaians who transferred thousands of Euros only for the recipients in Ghana to be given mobile phone numbers to call for collection that were unreachable. There are stories of some people receiving counterfeit foreign currencies through these unlicensed outlets in Ghana.

If this growing patronage of the unlicensed MTOs is not checked, it may lead to the collapse of otherwise vibrant licensed independent MTOs (some like Samba and Unity Link owned by Ghanaians) within the next 10 years.

Clamping down on the illegal operators, while at the same time relaxing the rules to pull in more money senders into the formal MTO sector will lead to a healthier and more competitive environment to serve the needs of customers and national economies.

There should be greater co-operation between the BoG and its counterparts in the other countries. There should be greater co-operations between our security agencies and their foreign counterparts dedicated to anti-money laundering matters. But there should be more focus on public education, especially through community radio stations both in Ghana and the host nations of Ghanaian emigrants.

In addition to this, the BoG be seen to be proactively promoting the operations of formal transfer methods and act against illegal methods and should take positive enforcement action where appropriate against known illegal operators.

BoG should also consider allowing MTOs to transmit money out of Ghana as a solution to this growing menace. The Bank of Ghana currently does not allow MTOs to send funds out of Ghana. It is understood that the Bank of Ghana wishes to control foreign currency that is sent out of the country but a number of the MTOs feel that if this were allowed then it would result in improvements in the country.  Permitting Ghana MTOs to transmit money will open up a new agent network, new outlets in Ghana, assist in financial inclusion and help financial literacy.

Regulation by the Bank of Ghana means that the remittance outlets are dominated by banks (and the Post Office) and do not reach the rural areas. A change in the regulations to open up the remittance service to other outlets – i.e. retail outlets and Ghana Post which would significantly  improve access in rural areas.

Finally, there should be guidance on the limit for ID requirements for Ghanaians seeking to remit money being proposed by the European Union. The threshold of £900 in the UK and €1,000 should not be lowered significantly as this will drive a percentage of consumers away from the formal market.
In concluding, ladies and gentlemen, the  use  of  formal  channel  remittances  play  an  important  role  in  alleviating  foreign exchange constraints and supporting the balance   of  payments   in  many   developing countries. The greater stability of remittances, compared with other capital flows, contributes to the stability of the recipient country’s economy by compensating for foreign exchange losses due to macroeconomic shocks.

At the individual level, remittances play a significant role in reducing poverty.  Beneficiaries often depend on remittances to cover day-to-day living expenses, improving their quality of life, as well as improving conditions in rural communities where financial capital is scarce for small business investment - impacting on national growth and capital accumulation.

Inflow of remittances     therefore holds significant personal potential for Ghana’s economic development.

In order to maximise the benefits of this, it is important that these inflows are channelled through the formal remittance market to enable more accurate recording of data, and to provide policy-makers with more reliable information with which to develop monetary and financial policy and regulations.

Thank you very much for your attention.

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