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Members of the Somali community wait to speak a bank manager in Minnesota.
Members of the Somali diaspora wait to speak with a bank manager in Minnesota. Photograph: Eric Miller/Reuters
Members of the Somali diaspora wait to speak with a bank manager in Minnesota. Photograph: Eric Miller/Reuters

Somalis face stark choice after US banks shut down cash transfer operators

This article is more than 9 years old

Banking regulations designed to prevent the flow of money to terrorists may force law-abiding Somalis to use illegal methods to support their families

The decision by the California-based Merchants Bank to close the accounts of Somali money transfer operators is likely to force many law-abiding Somalis living in the US to choose between three uncomfortable options. They can stop sending money to their relatives living in the Horn of Africa. They can try to find alternative legal channels, but as a result are likely to be charged much higher transfer rates, reducing the amount of money their relatives receive. Or they can use unregulated and illegal ways to send money.

Given that the money remitted to Somalia and other parts of the Horn of Africa is used for basic expenses – food, healthcare, education and emergencies – senders are unlikely to stop trying to send remittances to their relatives. The money is needed, and the idea of leaving loved ones without access to these essential resources is unthinkable. Dire predictions of “piles of bodies” resulting from the account closures are unlikely to materialise.

Some may find alternative, if more expensive, means of sending money legally, for instance through Western Union. But this will not be an option for people sending money to smaller towns and rural areas in Somalia and other parts of the Horn, where Western Union and smaller companies that still send remittances do not have a presence.

Instead, it is reasonable to expect that a large proportion of the $200m that Oxfam estimates is sent from the US to Somalia each year will be forced underground. People will send money the way they did before Somali money transfer companies were formed: in cash, stashed in bags and pockets, or in other ways that will be impossible to track.

This presents a problem for Somalis who have no desire to flout the law, but want to ensure that their relatives are able to get by. As the amounts sent through informal means grow, the issue is likely to bring wider problems, creating opportunities for terrorism financiers, money launderers, drug traffickers and others interested in unregulated channels to move money without being detected.

The situation is ironic, given that banks on both sides of the Atlantic have justified closing the accounts of money transfer operators on the basis that they fear people using them will engage in illegal activities. So far there is scant evidence to suggest that the accounts have been used in this way; the few convictions that have involved funds going to Somalia’s al-Shabaab terrorist group have come to light precisely because of the “know your customer” information collected by cash transfer operators. Now this method of information gathering will be closed down along with the accounts.

Earlier this month, the Redsea Cultural Foundation in Hargeisa, Somaliland, hosted politicians, non-governmental organisations, money transfer operators and representatives from local universities for a discussion about the likely impact of the account closures on recipient families and communities.

The mood among the assembly was sombre, but few expected that the main impact of the closures – which come a year after similar steps were taken in the UK – would be a humanitarian crisis. People will find a way to send money to their relatives, they said. But they will be unnecessarily criminalised for doing so. The minister of national planning and coordination, Saad Ali Shire, said that an important issue overlooked in the discussion of impacts was the right of the sender. “People have a right of access to financial institutions,” he argued, adding that blocking this access was questionable on legal grounds and should be challenged.

Those present also expressed concern that, irrespective of the immediate crisis, the volume of remittances to Somali families is likely to diminish in the longer term as diaspora members’ direct ties to family members in Somalia become more tenuous. Research on global diasporas suggests that second-generation migrants are often less likely to send remittances to individual family members who they do not know as well as their parents do. They may be willing to make contributions to community or national development efforts instead. Ultimately, the attendees agreed that there is a need for investment to take the place of remittances, but that this will take time and remittances are needed in the interim.

What struck me most about the discussion in Hargeisa was the willingness of those gathered to see themselves as part of a potential solution to the remittance crisis. Responsibility for increasing the trust of banks, preventing the flow of funding for terrorism (which, one man noted, Somalis would suffer from more than anyone else), and reducing reliance on remittances, they said, must be shared by Somali governments and lawmakers, the nascent national bank system, money transfer operators, the private sector and remittance recipients.

In a report released this week, Oxfam, African Development Solutions and the Global Center on Cooperative Security are calling for political intervention in countries where cash transfer accounts are being closed (the UK, US, and Australia). The organisations want national governments to providing assurances to banks that will encourage them to restore their links to Somali money transfer operators. This is essential.

At the same time, these governments should engage more with Somali partners to help minimise the risk of remittances being forced into illegal networks and people being criminalised for nothing more than helping their families at home.

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