Diaspora Dollars vs. Global Rules: Why Ethiopia Must Choose Compliance for Remittance

Ethiopia’s ambition to attract more foreign exchange is both necessary and commendable. But how we reach that goal matters just as much as the goal itself. A growing number of banks and fintechs are exploring “pull” models using payment gateways to directly debit diaspora accounts abroad and route funds home. 

On paper, this sounds efficient. Pull models work by allowing people to remit funds using their cards and an app. This card-based remittance is often instant, and the receiver gets credited in Birr to their bank or mobile money account. The cost of remittance transactions for these platforms is cheaper than traditional remittance Service Providers (RSPs) like Western Union. 

However, this practice risks tripping over some of the most unforgiving cross-border compliance regimes in the world and undercutting Ethiopia’s own modernized foreign-exchange framework.

What Ethiopia’s FX Directive Allows

The National Bank of Ethiopia’s (NBE) Foreign Exchange Directive No. FXD/01/2024 is explicit about how international remittances into Ethiopia are to be provided, making policy choices crystal clear. 

Remittances must be facilitated through licensed International Remittance Service Providers (IRSPs) and disbursed locally by authorized representatives (such as banks, the postal service, telecom companies, and licensed payment operators). To do this, representatives use correspondent accounts with partner banks, based on contracts that have been approved by NBE.

In addition, Anti-Money Laundering/Counter-Financing of Terrorism (AML/CFT) controls are non-negotiable: representatives must identify customers, conduct due diligence, and are fully liable for their sub-agents’ payouts.

Settlement and fees are also strictly regulated. Payments must be made promptly, generally within 24 hours in eligible cases, and may be settled in Birr or in foreign exchange if the beneficiary holds a foreign currency account. Consumer fees are capped, and exclusivity clauses are not allowed.

This architecture is deliberate. It channels remittances through regulated rails and accountable counterparties, rather than turning domestic banks into cross-border money transmitters by default.

But platforms that provide remittance services in the pull method violate these legal requirements. 

The first platforms to offer remittance services were MamaPays and Cash Go. However, in 2022, regulators at the NBE ordered these digital remittance platforms, which were working in partnership with the Bank of Abyssinia (BoA), to cease operations. At the time, reports indicated that NBE had summoned BoA to clarify the legality of these operations and to explain how they differed from traditional money transfer services.

The suspension was lifted after a few months. Although NBE initially argued that the platforms were providing services without the proper permits, it reversed its decision three months later. While some reports suggested that the reversal followed negotiations, there was no public communication on why the regulator changed its stance. Nor were the laws revised to reflect this shift in approach.

Today, there are about half a dozen platforms providing remittance services in Ethiopia via the pull method. The regulator is also now backing the initiative, viewing “technology-backed platforms” as a tool to combat the parallel market. 

However, domestic policy does not override international and other countries' laws. Attempts to do so risk severe penalties and the loss of banking relationships.

Why “Direct Pull” Is a Regulatory Tripwire Abroad

The moment an Ethiopian bank (or its contractor) initiates fund pulls from consumer accounts located in New York, Toronto, or London to send money to Ethiopia, that activity typically meets the definition of money transmission in those jurisdictions. That brings immediate legal implications. 

In the United States, money transmitters must register with the Financial Crimes Enforcement Network (FinCEN) as Money Services Businesses (MSBs). This requirement is set out under Title 31 of the Code of Federal Regulations (31 CFR §1022.380), which implements the Bank Secrecy Act. In addition to federal registration, transmitters often need state licenses, for example, under New York’s Banking Law (Article 13-B) and California’s Money Transmission Act.

The U.S. also enforces strict liability under the Office of Foreign Assets Control (OFAC) sanctions. This office enforces economic sanctions programs primarily against countries and groups of individuals, such as terrorists and narcotics traffickers.

Thus, entities can face civil penalties even without knowledge of a violation if they facilitate money transmission to individuals.

In Canada, any firm, domestic or foreign, that provides money services to Canadian residents must register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) as required under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA, §11.1 referencing §5(h)). In the United Kingdom, section 19 of the Financial Services and Markets Act 2000 (the “general prohibition”) prohibits carrying out regulated activities without authorization or exemption, while the Money Laundering Regulations 2017 impose further obligations.

Across these markets, a bank attempting to “pull” diaspora funds directly without the right licenses, registrations, and sanctions controls invites enforcement risk, fines, forced exits (“de-risking”) by correspondent banks, and reputational damage.

How International Remittance Providers Operate and How Licensing Works in Sending and Receiving Countries

International remittance providers operate within a dual framework of licensing and compliance that differs between sending and receiving countries. On the sending side, a licensed originator, such as a money services business, payment institution, or bank, onboards the sender, performs Anti-Money Laundering (AML) and Know-Your-Customer (KYC) checks with sanctions screening, and transmits funds through correspondent banking networks or approved settlement rails. The receiving representative, which may be a bank, money transfer operator (MTO), or e-money issuer, then pays out the funds in cash, as an account credit, or to a mobile wallet, in line with central bank rules and its own AML/KYC obligations.

Thus, launching a cross-border remittance service must follow a series of structured steps. First, the provider defines its activities, transaction flows, and jurisdictions, often with the help of local legal counsel. Next, it builds a compliance framework that covers risk assessment, KYC/Customer Due Diligence, sanctions monitoring, reporting, and policy documentation, while also appointing a compliance officer. 

Financial requirements must also be met, including minimum capital, surety bonds or insurance, audits, and background checks. Once prepared, the provider files applications or registrations with the relevant regulators, such as FinCEN in the U.S., FINTRAC in Canada, HMRC in the UK, state licensing bodies, or payment-institution authorities. 

After approval, the entity executes agreements with correspondent and representative partners and, where required, registers those contracts with the regulator. The final stage is readiness testing, which ensures that monitoring systems, sanctions list screening, reconciliations, and consumer disclosures are in place before going live with phased transaction volumes.

For example, Wise US Inc. operates in the United States as a registered Money Services Business (MSB)  with the Financial Crimes Enforcement Network (FinCEN) and has licenses with all 51 States. In most states, it is authorized to operate directly as an MSB, while in others, it relies on sponsorship. Similarly, WorldRemit Corp. (doing business as Sendwave) is licensed as a Money Transmitter in all states and as a Foreign Transmittal Agency in Massachusetts and Rhode Island. Remitly, Inc. holds comparable licenses across multiple U.S. states, including authorization as a Money Transmitter in New York and Puerto Rico, with registration under the Nationwide Multistate Licensing System (NMLS).

These examples show how digital remittance providers must comply with overlapping federal and state licensing regimes, often relying on partnerships with regulated banks to operate legally.

Risks of Providing Remittances Without Proper Licensing and Vetting

Attempting to send remittances by making a card purchase and then refunding it to the recipient constitutes misuse of card systems. Regulators often classify such activity as unlicensed money transmission or, in some cases, money laundering. The risks are significant: payment networks can shut down accounts, AML and sanctions checks may be bypassed, and regulators can impose heavy penalties.

For example, Ethiopia was penalized and agreed to a $6.5 million settlement after raising around $5.8 million from more than 3,100 U.S. residents between 2011 and 2014 to fund the construction of the Grand Ethiopian Renaissance Dam, without registering with the U.S. Securities and Exchange Commission. Businesses engaging in similar practices face exposure to fraud, frozen funds, and severe reputational harm.

Bottom line: do not disguise remittances as card payments. FinTechs and banks must obtain the appropriate foreign money transmitter licenses in jurisdictions where they operate or partner with regulated institutions. Compliance with clear fee disclosures, consumer protection rules, and Ethiopia’s National Bank Foreign Exchange Directive No. FXD/01/2024 is essential.

For banks, fintechs, and MSBs, the risks include civil/criminal penalties, license loss, sanctions liability, correspondent bank de-risking, and reputational fallout. For countries, systemic gaps can trigger FATF “grey-listing,” increase transaction costs, slow cross-border flows, and damage access to global financial services.

 A Compliance-First Growth Strategy

Ethiopia’s rules and foreign regulations point to the same conclusion: partner with licensed transmitters where the diaspora resides and settle through regulated banking correspondents at home as a payout partner to those foreign licensed money transmitters.

Ethiopia can grow remittance inflows without risking the system’s credibility by following a straightforward strategy. This involves building a network of licensed partners in key markets such as the U.S., Canada, the UK, and the EU under standardized NBE-approved contracts. Consistent safeguards such as sanctions checks, transaction monitoring, clear disclosures, capped fees, and strict reconciliation should apply across all partners. Transparency is equally important: publish exchange rates, keep fees low, and guarantee reliable 24-hour payouts, as already envisioned by the NBE directive.  

The guiding principle remains clear from years of managing payment schemes in the region: boosting inflows is a valid goal, but compliance obligations are non-negotiable. Aligning with Ethiopia’s remittance architecture and with the licensing regimes where our customers live is not red tape; it is the only sustainable way to protect our corridors, safeguard correspondent banking, and earn international trust.

This commentary is intended for general information and public discussion; institutions should obtain jurisdiction-specific legal advice before implementing cross-border fund flow. In addition, the views expressed in this article are solely those of the author and do not necessarily reflect the views or positions of Shega.