The Impact of International Informal Banking on Canada:
A Case Study of Tamil Transnational Money Transfer Networks
(Undiyal), Canada/Sri Lanka
A Working Paper, Spring 2005
R. Cheran and Sharryn Aiken1
http://www.apgml. org/frameworks/ docs/8/Canada_ Sri%20Lanka% 20%20ARS% 20study%2
0June%202005. pdf
Introduction
In the immediate aftermath of the Tsunami that devastated the coastal
regions of Sumatra, Sri Lanka, Thailand, and India, on December 26, 2004,
Sri Lankan community groups in Toronto became active in fundraising for
Tsunami victims. Toronto-based Tamil community organizations and Tamil
media which had been raising money for relief, rehabilitation and
reconstruction over the past 15 years were the first to initiate coordinated
fund raising drives. On December 26, 2004 three community radio stations
and one Tamil TV station launched a live, on air fund raising drive that
lasted
for three days and netted $2.5 million CAD.2 An unusual participant in the
drive was an influential informal money transfer agent who was present at
one of the radio stations. The money collected by the radio station was sent
to Sri Lanka every three hours or whenever it reached $50,000. One of the
members of the relief organization that was coordinating the work on the
1 R. Cheran is a Research Associate with York University’s Centre for
Refugee Studies
(cheran@yorku. ca); in July 2005 he will be joining the Department of
Sociology and
Anthropology at the University of Windsor as an assistant professor. Sharryn
Aiken
is an assistant professor with the faculty of law, Queen’s University
([email protected]. ca). The authors gratefully acknowledge the research
assistance of Mervyn Mahesan and Senthil Ratnasabapathy as well as helpful
comments provided by Nikos Passas. The generous support of the Law
Commission
of Canada and York University’s Nathanson Centre for the Study of Organized
Crime
and Corruption made this research possible.
2 The stations were Canadian Tamil Radio (CTR), Canadian Tamil Broadcasting
Corporation (CTBC), Canadian Multicultural Radio (CMR), and Tamil Vision
Incorporated (TVI) – all based in Toronto.
2
ground in the North-eastern part of Sri Lanka and a Sri Lankan
representative of the Toronto Money transfer agency were also on air via
telephone from Sri Lanka. The money was transferred to the Tsunami
ravaged region instantly. The money transfer agent waived his commission
and he himself contributed an undisclosed amount of money. In contrast,
local people and NGOs on the ground have complained that assistance from
the Government of Sri Lanka has not reached certain parts of the eastern
province for over a month.3 The government of Sri Lanka has allocated SLR
10,000 (USD$100) for each Tsunami victim’s funeral expenses. However, the
banks in the eastern province- a post-conflict zone- were unable to provide
even SLR 5,000 (USD$50) for the victims citing insufficient funds. This
underlines two things: firstly, the enormous importance and impact of
diaspora and transnational communities on the countries of origin;4
secondly,
the uses of efficient and fast informal money transfer networks.
Transnational and diasporic communities have influenced economic,
political and cultural processes in their countries of origin in significant
ways.
They have the potential to influence economies and wealth creation. From
the banking network of the Rothschilds, originating in 18th century Europe,
to
the more recent Hinduja group, transnational communities have been a
leading player in global transactions. The Rothschild family banks operated
more like an informal bank in the 19th century in the manner they settled
their accounts dealing with money transfer at the end of the year.5 At $450
billion dollars (USD), the annual economic output in the early 1990s of the
55
million overseas Chinese was estimated to be roughly equal to that of the
1.2
3 Mr. Tilak Ranavirajah, Chairperson of the Presidential Task Force for
Disaster
Management acknowledged at a press conference that 70% of Tsunami affected
people had not received any government aid because of bureaucracy and
inefficiency
of the government relief operations, Associated Press, February 3, 2005 and
Toronto
Star, February 3, 2005.p.A15.
4 Broadly defined, diasporas constitute people dispersed among diverse
destinations
outside their homelands. Transnationalism is the social, economic, political
and
cultural practices carried out by such populations and they vary over time
and space.
5 Lawrence Malkin and Yuval Elzur, “Terrorism’s Money Trail”, World Policy
Journal,
Vol.XIX,No.1 (Spring 2002), p.65.
3
billion people in China itself (Seagrave 1995). The Interpol estimates place
the percentage of informal money transfer business in India at up to 40% of
its GDP (Balauf 2002).
While the political and financial influences of transnational
communities have come under closer scrutiny after September 11, 2001
(9/11), Western governments have not formulated effective policy responses
to the emergence of transnational communities. The conventional approach,
applied somewhat inconsistently, has been to view these communities as
potentially dangerous groups bringing their “homeland conflicts” with them
and therefore a perennial threat to social cohesion in host countries.6
The case of Liban Hussein highlights the flaws of the conventional
approach in the post 9/11 context and the serious consequences that may
arise for individuals. Pursuant to regulations issued by the federal Cabinet
in
October 2001 and specific provisions in the Anti-Terrorism Act, the Office
of
the Superintendent of Financial Institutions (OSFI) is responsible for
distributing a consolidated list of named terrorists to financial
institutions.
These institutions, including banks, federally regulated trust and loan
companies and life insurance companies, are then required to freeze the
assets of anyone whose name is on that list. Few would contest the
desirability of curtailing terrorism by cutting off its money supply but the
system the government enacted is problematic because the lists and
instructions issued to financial institutions by the OSFI encourage racial
profiling (Bahdi 2003: 302). According to a government document, financial
6 For example, Michael Ignatieff has suggested “…Diaspora nationalism is a
dangerous phenomenon because it is easier to hate from a distance: You don’t
have
to live with the consequences – or the reprisals … Canadians, new and old,
need to
think about what role diasporas play in fanning and financing the hatreds of
the
outside world. The disturbing possibility is that Canada is not an asylum
from hatred
but an incubator of hatred…… So it is appropriate to say to newcomers: You
do not
have to embrace all our supposed civilities. You can and should keep the
memory of
the injustice you have left firmly in your heart. But the law is law. You
will have to
leave your murderous fantasies of revenge behind.” (Ignatieff 2001)
4
institutions themselves must make the determination as to whether they are
in possession or control of any property owned or controlled by a listed
entity
(Canada 2002). OSFI advises financial institutions to regard with suspicion
not only people whose names are on the list, but also anyone whose name
resembles the name of a listed person: “… if you have grounds for suspicion
do not rely on different (but similar) spelling as grounds for deciding that
a
person is not intended to be covered by the list” (OSFI 2004; Bahdi 2003:
302). Commenting on this guideline, Bahdi states:“[b]ank managers and
employees, working under the shadow of risk of financial and criminal
sanction, are thus implicitly encouraged to regard Arabs and Muslims as
especially suspect. In short, race and religion, through the use of names,
becomes a proxy for risk” (Bahdi 2003: 302).
Liban Hussein is a Canadian citizen who ran a money transfer
business to help Somalis send money home to a country where there are few
banks. In November 2001 American authorities placed Hussein on a list of 62
people who allegedly supported terrorism. On the same day the UN Security
Council and the Canadian government adopted the same list. Hussein’s bank
accounts were frozen for seven months, his business was shut down and it
became a crime for anyone to have any financial dealings with him. Although
he was ultimately “delisted” when the Canadian Justice department
acknowledged finding no evidence to link Hussein with terrorist activities,
by
then Hussein’s personal reputation had been ruined (Dosman 2004).
The remittances sent by transnational communities are the most
stable and second largest capital inflow to developing countries. According
to
World Bank estimates, remittances to developing countries amounted to $ US
125.8 billion for 2004, an amount that is at least 20% higher than
development aid to these countries (World Bank 2005: 136; Sorenson et al.
2003:288). These remittances are primarily channeled through informal
money transfer networks, rather than official banking systems.
5
The informal networks have flourished among transnational
communities for various reasons. Often, these communities originated in
impoverished villages or conflict zones in societies characterized by cash
intensive economies. Their points of origins were usually remote areas
without adequate banking facilities. The official banking system is slow and
not responsive to emergencies, while the informal system can deliver money
within hours to the recipient’s household. Preliminary research also
suggests
that official banks do not properly disclose the transfer rates and charge a
high percentage of commission (World Bank 2003). Latin American countries
like Mexico have successfully mediated the money transfer system to the
benefit of the senders (Orozco 2000). Migrant workers in the United States
have been able to benefit in this regard. However, a number of countries
mired in internal conflicts and turmoil have yet to organize their banking
systems to facilitate rapid, inexpensive and reliable money transfer
systems.
For this reason, the informal banking system dominates the life of several
transnational and diasporic communities. IMTS have been the only channel of
remitting money from the US to a number of African countries including
Somalia.7 Similarly the lack of banking linkages between Australia and
several African countries is the reason for the emergence of IMTS in
Australia. As long as these problems exist, IMTS will continue to be active
in
many parts of the world. International regulatory bodies such as Financial
Action Task Force on Money Laundering (FATF) has acknowledged that in
certain geographic regions informal money transfer services provide a
“legitimate and efficient service” and “their services are particularly
relevant
where access to formal financial sector is difficult or prohibitively
expensive.”8
The new economics of migration draws our attention to the household
in conflict zones and other economically impoverished regions as an
7 More recently, the institutionalizatio n and formal operation of remittance
companies
are offering alternatives to informal transfer mechanisms.
8 FATF, “Combating the Abuse of Alternative Remittance Systems”,p.2.
Available
at:<www.fatf. org/eng> accessed on January 28, 2005.
6
important unit for analyzing the link between poverty, livelihood strategies
and money transfer networks. In this context, remittances are understood as
a way to diversify the household’s income in response to poverty, conflict
and other constraints. 9 Hence, remittances are a critical dimension of a
household livelihood strategy. However, the households are no longer
confined to one geographic location. They have become transnational as
members of the household are scattered in various parts of the world but
linked by transnational practices such as money transfers.
As the power of nation-states weakens as a result of rapid
globalization, and as the power of transnational communities grows, the
logic
of incorporating these communities into theories and practices of
international law, international relations, development policy, foreign
policy
and civil society grows as well.
Informal Money Transfer Systems (IMTS)
Informal money transfer systems are rooted in antiquity and have
been an important remittance system between the global south and global
north. It predates the western banking system. These services operated
primarily to facilitate the transfer of money, value or goods to
geographically
distant locations. Ethnic, clan, village, regional, and kinship ties were an
important element in these transfer services. With the intensification of
transnational migration in the latter part of the twentieth century, the
informal system has spread to the cities of the global north. The IMTS are
not generally associated with violence and should not be conflated with
organized crime, gangs and other syndicates. There is no evidence that the
IMTS have become the preferred vehicle for the movement of funds by
contemporary terrorist organizations or criminal networks (Buencamino and
Gorbunov 2002:1).
9 Nicholas Van Hear (2002) examined the role of remittances in sustaining
societies
under strain using Sri Lanka and Ghana as case studies.
7
It is estimated that more than US$20 billion is sent across the borders
by informal money transfer networks (Simpson 2004:1) In some parts of
South Asia the system is called Hawala and Hundi. Among the Sri Lankan
Tamils it is popularly known as undiyal (literally ‘piggy banking’). In
South
East Asia the system is known as Fei Ch’ien and Chit. The informal transfer
system operates as an unofficial bank but one that handles only remittances
rather than the usual functions of deposits, savings and lending. Some
scholars argue that the system transfers only the value – not money – and
therefore, it is appropriate to call the system an “Informal Value Transfer
System” (Passas 1999: 11; Jost and Sandhu, 2000:2).10 While it is correct to
say the remittance system is about transferring the value, the users of the
system prefer to identify it as the transfer of money. The Financial Action
Task Force on Money Laundering refers to the informal system as
“Alternative Remittance system” and specifically money or value transfer
services (MVT). MVT is defined as a
[f]inancial service that accepts cash, cheques, other money
instruments or other stores of value in one location and pays a
corresponding sum in cash or other form to a beneficiary in another
location by means of communication, message, transfer or through a
clearing network to which the MVT service belongs (Van Hear 2002).
Research on these systems has been limited. The available studies locate the
system simply in the economic sphere and the post-9/11 criminalization of
the informal money transfer system has added a political dimension. While
these two aspects are important to our understanding of the informal money
transfer system, we argue that the cultural and social dimensions of the
system are equally important. We suggest that a better working definition of
informal money transfer systems is that they are social, cultural and
financial
networks that function primarily outside the formal banking system and are
transnational in operation. This research addresses the Tamil informal money
transfer system, its economic, social and cultural impact on both Canada and
Sri Lanka. Since there have been few studies on informal money transfer
10 See Passas (2003) for a useful discussion of terminology.
8
systems in Canada, the study of undiyal in Toronto and its distribution
network in Sri Lanka could serve as a useful model for generating
appropriate policy responses to a range of informal banking systems in the
diasporic and transnational context.
Research Methodology
Ethnographic research was conducted in Toronto, Canada, Singapore
and Sri Lanka. In Sri Lanka the research was conducted in the capital city
of
Colombo, and in the post-conflict zones of Jaffna, Kilinochchi, Mannar and
Trincomalee. In-depth interviews were conducted with fourteen informal
money transfer agents in Toronto. One in-depth interview was conducted
with the president of the Money Changers Association of Singapore in
Singapore in August 2004. Two focus groups for the users of informal money
transfer system were conducted in Sri Lanka (August 2004) and Toronto
(December 2004). The Sri Lankan focus group was conducted in Jaffna.
Three women and six men participated in the group. All of them have
immediate and/or close family members and relatives living in Toronto. Six
men and three women participated in the Toronto focus group. In addition,
one of the authors of this study has been a frequent user of Tamil informal
money transfer system for the past eleven years. Two transactions were
made by the authors during the period of research. It would be appropriate
to mention that the study has benefited from participant observation: one of
the researchers had the opportunity to spend five hours at an informal
money transfer agency in Toronto conducting participant observation.
It was not possible to organize a focus group for informal money
transfer agents in Toronto. As one agent put it, “talking about our business
with other competitors is bad for our business”. Ten informal money transfer
agents refused to be officially interviewed. However, they shared their
views
and insights with the researchers. One of the reasons these agents cited for
being reluctant or refusing to participate altogether, was that they had
9
traumatic interrogation experiences when, in the wake of 9/11, Canadian
authorities turned up at their place of business with increasing frequency.
Two of the agents we approached informed us that some of the questions on
the questionnaire were exactly similar to the ones asked by the Canadian
authorities.
.
The Community: Sri Lankan Tamils
Sri Lanka is among the top 20 developing countries that receive large
amounts of remittances from its diaspora. It received $1,056-million USD in
2001, through official banking systems. This amounts to 7.0 percent of the
GDP (World Bank 2003). This is important to an economy that has a total
annual GDP of less than US$ 20 billion. There has been no systematic
research on regional or ethnic breakdowns on remittances and modes of
money transfer. Hence it is impossible to calculate what percentage of this
annual remittance is sent by the Tamil diaspora. Remittance data from
official sources are patchy at best. There are no disaggregates in terms of
migrant remittances and refugee or diaspora remittances. The available
information does not include the money sent through informal networks.
There is a crucial need for mapping both the formal remittances as well as
remittances by informal money transfer networks that operate outside
official
banking systems.
The Sri Lankan Tamil community in Canada is the largest Tamil
diaspora in the world. An estimated 250,000 Tamils live mainly in Toronto.
The majority of them came to Canada as refugees fleeing the civil war in
that
country. Between 1987- 2001 Sri Lanka was among the top three source
countries for refugee claimants in Canada (Citizenship and Immigration
Canada 2002). Large numbers of Tamils have been granted some form of
residence status in their host country. In Canada, the acceptance rate for
Tamil refugee claimants has been consistently high. This perhaps explains
why Toronto has become the epicenter of Tamil transnationalism (Cheran
10
2002). Recent research indicates that 49.8% of the population entered
Canada as refugee claimants. Another 32.4% came as family class
immigrants.
