New Delhi: The Reserve Bank of India (RBI) has asked international money transfer agent Western Union Co. Ltd to stop expanding its network in India till it receives “further instructions" from the central bank, which also doubles up as the regulator of the banking and foreign exchange business. The company operates in India through a network of principal agents and sub-agents.

A government official, who did not wish to be identified, said the central bank found that Western Union Services India Pvt. Ltd (Wusi) was deviating from what it is actually allowed to do in India. The official declined to specify what these activities were.

In a letter dated 5 September, a copy of which is available with Mint, RBI has prohibited “Indian agents of Western Union Financial Services Inc., USA/Western Union Network (Ireland) Ltd" from expanding their wire transfer business in India through sub-agents. The letter does not mention any violations of service terms, and adds that “MTSS (money transfer service scheme) guidelines are being comprehensively reviewed in consultation with the government", and that the bank expected to be able to issue the revised guidelines “shortly".

But the letter adds that “any breach of these instructions" on not expanding the network “will be viewed seriously and render (the) agency permission liable for cancellation."

A Wusi executive confirmed that RBI sent a letter but not to the company. “Some of our sub-agents have received the letter, not us," said the executive, who did not wish to be identified. Wusi has 11 principal agents in the country, who have appointed sub-agents. The official said Wusi will not be directly liable for the functioning of sub-agents, who run over 45,000 outlets in India.

The Wusi executive clarified that the RBI letter refers to Western Union Financial Services Inc., US, and Western Union Network (Ireland) Ltd, because the bank does not have current information on the company’s structure.

“Western Union Co. Ltd is the parent of all Western Union locations worldwide," the Mumbai-based executive said.

The government official confirmed that Western Union has been singled out for a bar on expansion, and that the letter has gone to the company. The official clarified that no other wire transfer services currently in India faces such a stricture. The RBI letter says that “Indian agents of Western Union... should not appoint any sub-agent till further instructions from us."

In an emailed statement from its headquarters in the US, Western Union Co. Ltd said: “In this specific case, Western Union encourages its agents to cooperate with the RBI and engage in a dialogue with RBI on this matter."

Western Union is not permitted to transfer money domestically or to send money abroad from India. But India still remains a very attractive market because of the huge inflow of remittances.

According to a World Bank report, India is the world’s largest market for inbound remittances, with $23.4 billion coming in during calendar year 2006 alone.

Most international money transfer organizations, including Western Union, have imposed stringent money transfer guidelines after the 2001 terrorist attack in the US and consequent fears that remittance mechanisms could be used to launder money and fund terrorist organizations. In 2006, an article in the International Herald Tribune said money transfer firms such as Western Union and MoneyGram International were blocking or delaying cash deliveries out of Dubai “on suspicion of terrorist connections simply because senders or recipients have names like Muhammad or Ahmed."

The article cited the example of an Indian driver who was prevented by Western Union from sending $120 to a friend because “the recipient’s name was Muhammad".

Western Union’s problems with the regulator come at a time when the company is growing rapidly in India. “Our agent network has more than doubled in the last two years; we are doing very well here," said the company executive.

He added that Western Union follows the same principles for customer identification globally and maintains a five-year record of all transactions.

“We ensure the same practices in every country and make sure we follow the law of the land," he said. Customers must have one of the 11 valid identity proofs approved by RBI to transact with us, the executive explained. He said Western Union has received no complaints about the activities of its sub-agents.

“We have had a very good experience with our agents with whom we have worked with over the years," Wusi’s South Asia managing director Anil Kapur said in an emailed statement. “Our record-keeping preserves a financial trail for investigators to follow as they track criminals and their assets," he added.