ECONOMY: When Students With Money Become a Problem

By Sanjay Suri Reprint | | Print |

Sanjay Suri

LONDON, Aug 31 2005 (IPS) - The arrival of hundreds of thousands of foreigners with large sums of cash had begun to raise fears that some people could begin money-laundering under the guise of cash transfers simply because banks would not open accounts for them.

Shailesh arrived to study in Britain earlier this month with a bagful of money. Not because he was that rich, but because he was not sure he could ever open a bank account. And so he took to the pre-banking style of keeping his money.

”The bank wanted me to produce a utility bill,” he said. ”As a student who has just arrived, how can I produce a telephone or gas bill? How can I give proof of address when I have no address?”

Shailesh shared a flat with eight other students in a small three-bedroom house in north London. ”There was so much tension because everyone only had cash, and everyone knew that.”

But some hope could be at hand for these poor rich students. The British Bankers Association has offered new guidelines to banks that will enable them to open accounts for the students on the basis of an identification document.

British bankers are helping the students – and themselves. The arrival of hundreds of thousands of foreigners with large sums of cash had begun to raise fears in some quarters that some people could begin money-laundering under the guise of cash transfers simply because banks would not open accounts for them.

”This is a part of the overall requirement by the Financial Services Authority for banks to know their customer,” Brian Capon from the British Bankers Association told IPS. ”It is a part of the overall process against money-laundering, that customers can show they are who they say they are.”

Banks have an obligation to monitor all accounts and report any unusual transactions such as cash across the counter, and ”to flag them up and find what it relates to,” Capon said. Some cash transactions involving students when they finally could open an account were turning out to be quite substantial.

The average annual fee for a student from outside the European Union is around 8,000 pounds (14,500 dollars), and about as much more is needed for minimal student expenses. Last year as many as around 325,000 foreign students came to study in Britain. That adds up to a money inflow of close to ten billion dollars.

Even a relatively small fraction of that sum that could change hands under the guise of student needs could add up to finance a significant drug or terrorist operation.

There is no suggestion from the British Bankers Association that student money has been used for such purposes. But the new rules seek to block this loophole while helping students.

The new rules have been brought in just ahead of the start of the new academic year in September. They are a part of a larger package of proposals that have been put out for public consultation. ”That process of consultation is likely to finish by the end of the year,” Capon said.

The banking regulations follow other steps towards tightening admission rules for foreign students. Immigration officials have enforced a closer scrutiny of all institutions offering courses to foreign students after several instances where it emerged that admission to a course was an excuse for immigration.

Many students who have come to join courses have disappeared from the immigration radar. Apart from adding to the population of illegal immigrants, their disappearance raised questions whether they could have been brought in under the guise of students for terrorist or other criminal purposes.

For Britain these students are an invaluable source of income. Out to sell Britain as a brand name, former prime minister reclassified about 400 polytechnics as universities. Many of these institutions now offer foreign students a British degree of some sort to take back. The trouble for immigration authorities is that not many are going back.

”I came here because it was their decision,” said Shailesh. ”When I go back it will be my decision.”

Officials say that students who stay on illegally can become a source of money laundering for years to come because they merge into the cash economy. ”Any generation of undeclared and therefore unaccounted money is suspect,” a bank official said.

The new regulation that will give students immediate identification to open a bank account means that authorities can also keep an eye on their location and their money movements. Officials plan to use this to control both illegal immigration and money laundering.