Congress searches for Somali lifeline

Congress searches for Somali lifeline
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Lawmakers are scrambling to find a way to keep critical funds flowing to Somalia, after immigrants effectively lost their only way to send money to family back home.

Increasing scrutiny from the government about whether banks are properly policing their accounts for money launderers and terrorist outfits has driven nearly all U.S. banks away from providing accounts to companies with ties to risky areas, including Somalia, a war-torn region that is home to the terrorist group al-Shabaab.


Several large and midsize banks had previously announced they would no longer carry accounts for money transfer companies that exist to gather funds from Somali immigrants to wire back to family. And earlier this month, one of the last banks to do that business said it was shuttering such accounts as well, leaving those companies, and the immigrants they serve, searching for any new way to send money home.

“If the money’s cut off, we’re looking at a really significant crisis,” said Scott Paul, senior humanitarian policy adviser for Oxfam. “It’s money people depend on to survive.”

The latest decision, announced by Merchants Bank of California, has resonated all the way to Washington, where a handful of Democratic lawmakers are calling on the Obama administration and global community to take emergency steps to get that money lifeline open again.

“The timing of this meeting is urgent,” they wrote in the Feb. 6 letter to the heads of the State and Treasury Departments, the National Security Administration, and a host of financial regulators. “With nearly three million Somalis already dependent on aid organizations, eliminating the ability to send money into Somalia could throw the country and its already vulnerable economy deeper into crisis.”

The letter was signed by the top Democrats on the House and Senate banking committees, as well as lawmakers from districts with significant Somali populations.

The dire circumstances came about as regulators are pushing for banks to keep a closer eye on who uses their services, demanding they ferret out illegal money laundering and terrorist financing. At the same time, banks are facing pressure to manage risks and operate at a profit. Throw in the fact that Somalia has no globally recognized banking system, and the end result is that nearly no bank in the United States is left to handle wire transfers to Somalia.

International remittances are hugely important to Somalia, as outside funds provide an estimated 25 to 45 percent of the nation’s economy. $1.3 billion is sent there each year from nations across the globe, and an estimated $215 million from the U.S. alone. Over 40 percent of Somalis rely on money sent from family living abroad to cover needs like food, housing and education, according to a report released Thursday by Oxfam, Adeso, and the Global Center on Cooperative Security.

With no solution immediately apparent, banks and the government are effectively pointing the finger at each other in terms of who is responsible for keeping a financial channel open to the African nation.

A November memo from the Treasury’s Financial Crimes Enforcement Network, which oversees money laundering and terrorist financing, argued that banks should be able to provide sufficient services to Somalia. The memo argued banks were “indiscriminately” closing accounts with all money service companies, and that “wholesale approach runs counter to the expectation that financial institutions can and should assess the risks of customers on a case-by-case basis.”

The Treasury is aware of the current struggles of Somali immigrants, and called the lack of a formal banking industry in the country a key factor, according to a department spokesperson. While working with those communities and other government agencies towards a solution, the spokesperson reiterated the Treasury’s stance that banks can manage risks and service these companies.

But to hear the industry tell it, a heavy hand from the government effectively forced the move.

The government in recent years has struck some large settlements with banks over failures to detect money laundering. For example, HSBC paid $1.9 billion in 2013 to settle charges it allowed drug cartels to use its services to launder funds.

And the Justice Department, through its “Operation Choke Point,” is pushing banks to reexamine relationships with payday lenders and other companies associated with high-risk activity.

All that has left banks increasingly risk-averse. And with little official reassurance as to where money sent to Somalia ultimately ends up, it’s driven most of that activity out under a “better safe than sorry” mentality.

“The entire industry has recognized that their [anti-money laundering] programs are under very close scrutiny…the examiners don’t want to be criticized for missing something,” said Rob Rowe, associate chief counsel at the American Bankers Association. “The banking industry, at this point, is on the sidelines, I hate to say.

“It’s one of those situation that really just requires government intervention,” he added.

Rep. Keith Ellison (D-Minn.), whose district contains a large Somali population, said lawmakers are preparing to meet with government agencies later this month to discuss the matter. And he was critical of the regulator’s hand in the matter.

“They’re very single-minded. Their thing is to stop bad money, and if they have to stop a whole lot of good money to stop one cent of bad money, they’ll do it,” he said. “They don’t take into consideration the collateral consequences.”

In their letter, the lawmakers laid out a host of options to get Somali funds flowing again. For example, the State Department could create a temporary program with humanitarian groups. Or the Federal Reserve Bank of New York could use its own wire transfer service to send funds.

“All of these possibilities, and other creative alternatives, should be explored to find a solution to this crisis,” they wrote.

But with no solution immediately apparent, humanitarian groups are calling on the administration to step up and forge a solution.

“Whatever that is now has to be laid at the feet of the Obama administration,” said Paul. “The consequences for Somalia will be at some point so severe it’s impossible to ignore.”