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Rich countries’ anti-money laundering rules are “causing a great deal of hardship” by making it very costly for migrants to send money home. So testified Federal Reserve Chair Janet Yellen before lawmakers on the House Financial Services Committee in Washington this week. It’s a problem a CGD Working Group is looking at right now: the de-banking of remittance organizations by many banks that cite burdensome compliance requirements.
At the Committee Hearing Ms Yellen said Congress should consider reviewing anti–money laundering rules for banks. She was responding to questions posed by Democratic Reps. Gwen Moore and Keith Ellison. Here’s some of their questioning of her (start at 2:45:00):
We’re gratified that Yellen raised this issue during yesterday’s hearings. Indeed, it seems momentum to review such regulations is growing. In an early February letter, the chairman of the Financial Stability Board and governor of the Bank of England, Mark Carney, asked G-20 regulators, central bank officials, and finance ministry officials to explore the problem of correspondent banking drying up in developing countries. In addition, several members of Congress sent letters to Secretary John Kerry and several heads of institutions (including Yellen) asking to hold a meeting on the issue of remittances to Somalia.
These are good developments, and we urge all involved to keep their eyes on CGD’s new working group on the unintended consequences of anti–money laundering policies. We’ll be making specific recommendations to lawmakers and other relevant parties in rich countries to help ensure that their regulations don’t unwittingly add yet more burden to the lives of the world’s poor.
The world, as they say, is moving “beyond aid.” As true as that may be in aggregate, however, the trend doesn’t apply evenly across groups of countries. While fairly significant data gaps prevent a complete and unbiased picture, the available data show that ODA remains a comparatively prominent source of external financing for fragile states.