The Financial Times reported this week that the US Treasury has proposed new rules that could make sending money home much harder and more expensive for millions of migrants, which is a move likely to hit some of the world's poorest communities hardest.
This is an important development. At first glance, it appears technical and a change to financial regulations, but in reality, it is a decision with wide-ranging consequences, whether social, economic or political. When I was mainly working on tax justice and development-related issues, this was a major theme of concern, and it seems that matters are just getting worse.
First, what is being proposed is a major increase in reporting requirements for low-value international money transfers, which are precisely the kind of payments used by migrant workers in the USA to send money to their families in low-income countries. These new rules are said to be designed to improve security and tackle financial crime, but there is little evidence that remittances of this sort are a significant channel for any form of illicit activity. What is far more likely is that these proposals will create administrative barriers and increase the cost of migrants in the US sending money to their families in the places where they came from. It is hard to see this as anything other than another attack on migrants by the Trump administration.
Second, this amounts to what is, in effect, an indirect tax on those in the USA least able to afford it. These sums are not part of speculative capital flows. They are not being sent to avoid tax. They are payments being made by workers out of taxed income to help relatives meet essential needs such as housing, food, education, and healthcare. By making these transactions more expensive or complicated, the US is deliberately imposing additional costs on migrant people who are seeking to support their own families.
Third, the impact of this change will not be confined to the individuals directly impacted. In many countries, remittances constitute a significant part of national income. In some, they exceed foreign direct investment or official development assistance. Disrupting these flows risks economic consequences that go well beyond the immediate households involved. It is, in effect, a policy that could reduce the resilience of whole economies in the Global South.
Fourth, the broader message this sends is concerning. The United States has long promoted the free movement of capital. But this policy signals that such freedom is conditional, and that it may be withdrawn when the capital involved either flows in small amounts, or in the interests of poorer communities rather than wealthier ones. This move does, then, reinforce the global imbalance in financial power in the most blatant way.
Fifth, the proposed rules may set a precedent. Other countries might follow suit. What might result is a two-tier global financial system — one where large, wealthy actors continue to move money easily and discreetly, while small-scale financial relationships between individuals and families across borders become ever more difficult.
What this makes clear is that:
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This is not just a technical regulatory change. It is a very obviously political decision with clear distributional consequences targeted at migrants from the poorest countries, whose lives are already being made a misery by Trump.
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The burden of the policy will fall on some of the poorest people in the USA, while offering little or no return in terms of improved financial oversight.
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The logic of the policy is inconsistent with a fair and inclusive international economic system.
In that case, what should be done?
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First, there should be a clear international response. The UK and EU, in particular, should be prepared to question and challenge this approach through diplomatic channels and financial forums.
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Second, development organisations, NGOs, and migrant advocacy groups should be making the implications of this policy clear. Public understanding of the issue is vital because it is profoundly harmful to the well-being of hundreds of millions of people and can only increase hardship and so migrant flows. It is better that funds move easily, rather than people, with all the stress that results from that, most especially for those forced to do so.
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Third, there is a need to push for international financial standards that protect, rather than penalise, legitimate low-value financial flows. Remittances should be treated as essential, and not as a risk.
If financial systems are to be legitimate, they must serve all people, not just the wealthiest. That includes those whose contribution is not measured in market power, but in the quiet, everyday act of sending money back to their homes so that their families might have a better life.
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Might cryptocurrency be a way around these new rules?
As understand it, cryptocurrencies are not considered capital or currency in South Africa so not currently subject to their strict exchange controls.
https://insightplus.bakermckenzie.com/bm/technology-media-telecommunications_1/south-africa-coin-vs-capital-cryptocurrency-is-not-subject-to-exchange-control
I never encourage the use of cryptocurrencies.
These rules might, as you say, do so though.
The UK and its banks did the same thing a few years ago, hitting all communities sending money home to help families.
All done in the name of regulation. Of course it only hit the poorest.
Could it not be seen as a way to ‘encourage’ migrants to go back home, or at least to another country?
I am sure it is
In the blog “made a mystery by Trump” misery I think.
Regards
John
Indeed – corrected now.
As I looked into the issues surrounding migration I soon discovered the huge value of remittance money, not just in providing financial help, but also playing a significant role bolstering the stability of impoverished nations. You are right to point out that remittance money is often greater than the support offered by Foreign Aid, even more so now that Foreign Aid budgets have been so drastically reduced. Measures that further cripple access to funding in developing countries will increasingly destabilize these states, ultimately leading to an even greater flow of migrants desperate to escape conflict and poverty.
For that reason the documents I sent you on Collaborative Circular Migration, included a component that would facilitate remittance efforts by migrant workers in the UK, are so relevant to this debate. One of these documents was a proposal for a fixed term ‘Earn, Learn and Return’ (ELR) visa to supply the workers required by our care and farming sectors. This same ELR visa could also be utilized as the default choice for managing asylum seekers. This would enable them to work and contribute, living with dignity while awaiting a Home Office decision on their right to remain.
The ELR visa should encourage ‘all-found’ options for these temporary workers, offering shared accommodation within a care home or dedicated barn-hostels set up on farms to house workers. This arrangement would reduce basic living costs to liberate the bulk of wages earned to increase saving opportunities or remittance payments. A dedicated ELR bank account would encourage saving by offering top-up funds that would only be available after returning to a home country, making this a legitimate use of our Foreign Aid budget. Facilitating the sending of remittance money and topping-up these funds would essentially drip feed money directly into communities where it would have the greatest positive impact.
The ‘Learn’ component would include brief training opportunities targeting areas relevant to basic requirements in developing countries overseas. These evening or weekend training courses might include: care in the community; vector control; setting up a micro business etc. In addition basic English and math skills would help those who missed out on basic education due to past conflict. These learning modules would offer another opportunity for payment into their ELR account. All of the components of the ELR visa are designed to increase the welfare of participants returning home with funds and skills for a more viability and stable society, thus reducing the desperation that fuels dangerous migration journeys.
I believe that the ELR visa proposal would be well accepted by the public on all sides of the debate, due to lowering costs for taxpayers. This despite the deplorable current reality that migrant hotel costs are being covered by plundering our Foreign Aid budget! UK Foreign Aid investment of this kind would be mutually beneficial, by providing temporary workers in areas where they are most needed here while eliminating the current financial burden of asylum seekers. At the same time this program would also help to support and stabilize developing countries, thereby reducing the volume of those risking their lives in small boats.
All components of the Collaborative Circular Migration proposals are designed to be mutually beneficial, a significant departure from our current morally bankrupt scavenging of the ‘beast and the brightest’ from countries who can ill afford to train them. Once again I appeal to Richard Murphy to read and evaluate these Collaborative Circular Migration documents to let me know if any of them are financially viable. I would greatly appreciate and respect your critique of these innovative concepts.
[…] By Richard Murphy, Professor of Accounting Practice at Sheffield University Management School and a director of the Corporate Accountability Network. Originally published at Funding the Future. […]