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(Updates with outcome of Friday's court hearing)
By Swati Pandey
SYDNEY, Nov 28 (Reuters) - An Australian court case is setto throw a spotlight on a steady retreat by Western banks outof the $435 billion global remittance business, a trend thatthreatens to erode the livelihoods of hundreds of millions ofthe world's poor.
Almost 20 remittance firms sued Australia's second biggestlender, Westpac Banking Corp, this month to prevent thelender from becoming the last of the country's major banks toquit the business, arguing that this would cripple them.
They want more time to find an alternative bank beforeWestpac shuts their accounts. At a hearing on Friday, a courtprovided a temporary reprieve by asking Westpac to postposeclosing the accounts until Dec. 22, when a full hearing of thematter is scheduled.
Westpac, however, argued in court that the matter is beyondtheir control as it cannot guarantee making payments on behalfof remitters as a correspondent bank overseas may refuse toaccept the transaction.
Australia's banking lobby says rising regulatory compliancecosts make it difficult for banks to support remittance firms,which help foreign workers from developing countries send moneyhome.
That trend risks undermining a plan by the Group of 20leading economies to cut the cost of remittances to around 5percent of the value of each transaction, down from the current8 percent estimated by the World Bank. The remittance firmsargue that without access to the global banking system, thecosts of transferring money become substantially higher.
"It's a big worry, if their accounts are closed there willbe black marketing and they will charge more to send money,"said Hussein Haraco, chairman of the Somali Remittance ActionGroup in Australia, which is supporting the remittance firms'court action.
Banks including HSBC, Standard Chartered and BNP Paribas have paid billions of dollars to U.S.regulators in fines to settle cases of money laundering andsanctions breaches. That's led many of their peers to the viewthat the risks of dealing with remittance companies that sendmoney to developing countries are too high for them to bear.
In Britain, Barclays is the only large bank stillin the remittance business, and it attracted a wave ofcomplaints from charities last year when it said it was going toclose the account of Somalia's largest remittance agent,Dahabshiil, due to regulatory concerns.
Dahabshiil was eventually able to block the move temporarilyon competition grounds in the courts and settled with the bankin April, agreeing to shift the accounts to another institutionby a certain date.
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Migrant workers globally use remitters to transfer moneyback home to help family members, to pay for education, medicaltreatment, or to fund a micro business.
Asia and Oceania receive more than $113 billion inremittances annually - the highest regional total in the world,according to the International Fund for AgriculturalDevelopment, a U.N. agency. India and China are the toprecipient countries.
Banking sources say remitters will find it hard to find asolution any time soon given the compliance costs facing banks,and will be forced to shift to more cumbersome, expensive waysof transferring money.
"At least giving a reasonable period of time to allow theremittance providers to explore alternatives to stop theindustry coming to a halt is what we are seeking," said RichardMitry, who is acting on behalf of the remitters in the Westpaccase.($1= 1.1652 Australian dollar) (Editing by Rachel Armstrong and Mark Bendeich)
