By Teresa Welsh
USNews

Over 40 percent of people in Somalia rely on financial remittances to meet their basic daily needs, but recent action from the U.S. and other countries has hampered the flow of money from relatives and friends abroad. And stopping that flow of millions of dollars in financial support, some say, poses a threat to international security interests.

Following the Sept. 11 terror attacks, Congress passed stricter money-laundering regulations, which caused several large U.S. banks to close the accounts of Somali money transfer operators out of fears that funds would end up in the hands of terrorist groups like al-Shabab. Regulation in the U.K. and Australia also made it difficult for Somali money transfer operators to work there.

Since then, operators have scraped by through partnerships with small and medium-sized U.S. banks that still allow funds to be sent to Somalia. But Merchants Bank of California, responsible for transferring between 60 and 80 percent of the total remittances sent to Somalia from the U.S., announced it would shut down such accounts in early February, and reportedly is still implementing the policy.

Scott Paul, a senior humanitarian policy adviser with Oxfam America, says Merchants Bank – along with handling most remittance transfers – was also willing to send more money than other banks.

“When remittances get cut off to many countries, it can precipitate a huge development problem. In Somalia if remittances get cut off, it’s a humanitarian crisis,” Paul says. “The other thing that makes Somalia different is there’s no banking system there so it’s not as if anyone can just say, ‘Fine, I’ll wire the money myself to my sister’s bank.’

“The Somali money transfer operators are really the only game in town.” Somalia receives approximately $1.3 billion each year from its diaspora and is one of the most remittance-dependent countries in the world, according to a new report from Kenya-based humanitarian organization Adeso, the Global Center on Cooperative Security, and Oxfam.

Aden Hassan, a compliance officer for Kaah Express – a major Somali remittance company headquartered in Minneapolis – says the company was using Merchant Bank’s services in several states. He is responsible for ensuring the company complies with U.S. regulations, and says Kaah Express will have to stop operations in several states because it won’t have access to a bank that meets federal requirements to send money to Somalis.

The level to which they depend on remittances is difficult to even describe unless you have firsthand experience of it,” Hassan says. “I’ve seen thousands upon thousands of families who will lose their ability to buy food and to pay for rent as soon as these remittances come to a stop.”

Hassan says the absence of remittance services also takes a toll on Somalis in the diaspora who provide vital support to family and friends back home.

“We have people who know that if at the end of this month they cannot send the maybe $100 or $200 they used to send for their relatives, they know there is a real possibility that those relatives there will probably even starve,” Hassan says. “So you can understand the psychological impact that will have when you know that the $200 you send is the difference between having food or not having food for your relatives.”

The Somali prime minister said he has urged U.S. officials to address the “pressing issue,” and that he would work to find a permanent and transparent solution.

U.S. Rep. Keith Ellison, a Democrat who represents a heavily Somali district in Minneapolis, sent a letter earlier this month along with other lawmakers to Secretary of State John Kerry, asking the government to help develop a plan to keep remittances flowing to provide for the Somali people and protect others as well. They requested a meeting to discuss the situation, which has been scheduled for Feb. 26, according to Oxfam America.

“As Somali President Hassan Sheikh Mohamud has said, cutting off money from the diaspora could significantly strengthen the appeal of terrorism and piracy for young Somali men,” the lawmakers’ letter said. “A disruption in remittances could reverse the limited gains that the Somali government and the international community has made to rid Somalia and the greater Horn of Africa of terrorism.”

Paul says in the future, when Somalia has a functioning banking system, U.S. regulations restricting money transfer operators won’t be an issue. In the meantime, he says, changing those regulations isn’t required, but the government needs to become more comfortable working with Somali money transmitters.

“We need the Treasury Department to be asking banks, ‘What do you need from us in order to feel comfortable offering banks to customers like these?’ in order to manage the risk instead of run away from it,” Paul says.

The Treasury Department is in charge of the regulations that govern the banks, though legislation introduced by Ellison and signed by President Barack Obama last year aimed to streamline the regulatory process surrounding money transfer operators. The State Department said the U.S. government has spoken with representatives of the Somali community and the financial institutions that send remittances about the issues involved, and that it will work with the companies and the Somali government “to build an effective regulatory framework for remittances.”

Hassan warns, though, that a lack of action from authorities will cause the remittance industry to go underground.

“The U.S regulations will have basically succeeded in shooting themselves in the leg,” Hassan says. “When this legitimate business is shut down, people will resort to alternative channels, and I believe that those alternative channels will either be completely illegitimate or a lot less transparent than what we have right now. And I don’t think anybody in the regulatory community and the government as a whole … really wants to see that happen.”

Source:USNews