Rules designed to thwart criminals also disrupt immigrants sending money home.
- By Jamila TrindleJamila Trindle is a senior reporter who covers finance, economics and business where they intersect with national security and foreign policy. Her beat spans everything from the economic underpinnings of conflict to sanctions, corruption and terror finance. Before coming to Foreign Policy magazine, Jamila reported for the Wall Street Journal’s Washington bureau, covering financial regulation and economics. She has also worked as a foreign correspondent in China, Indonesia and Turkey as a freelancer for NPR, Marketplace, The Guardian and others. She moved back to the U.S. to cover the post-crisis economy for PBS in 2009.
Aden Hassan is getting used to rejection. He’s been driving all over North Dakota and Minnesota over the past couple months looking for a bank that will do business with his company, Kaah Express, which helps Somali immigrants living in the United States wire money back home. Most of the banks won’t even look at his application. If he can’t find a partner, he may have to shut down some of his company’s branches in far-flung places like Fargo, N.D.
"All the banks and credit unions seem to be reading from the same script," Hassan said from Minneapolis, where Kaah is based. Kaah is a privately-held money services company that operates in 13 U.S. states and transfers about $70 million a year to Africa and other parts of the U.S. Hassan is its compliance manager, so he’s the one that banks want to talk to when they’re considering whether or not to do business with the company. Kaah’s branches use accounts at commercial banks to send money to the company’s headquarters in Minneapolis, which then sends the funds to Somalia. Without those accounts, Kaah staffers across the country would have to drive the money to Minnesota themselves.
Hassan’s struggles are an all too familiar problem for many Somalis. Growing numbers of banks are refusing to do business with Somali money transmitters like Hassan because they worry the Treasury Department will hold them responsible if any of the funds wind up in the hands of terrorists or criminals. In a stark illustration of the law of unintended consequences, the banks’ eagerness to comply with U.S. rules designed to thwart the financing of terrorist groups are also making it harder for law-abiding immigrants to support their families in war-torn Somalia.
"It’s making it more expensive, more difficult, and the level of anxiety is skyrocketing," said Rep. Keith Ellison (D-Minn.). He said the pool of banks willing to do business with the money transmitters in his district, which is home to more than a third of the total Somali-American population in the country, is rapidly shrinking. Ellison has drafted legislation designed to address the issue by streamlining regulations, but it hasn’t gone anywhere.
"Treasury’s job is to stop any terrorist financing and they’ve been successful at that," he said. "The problem is that they’ve stopped a whole lot of legitimate transfers, too."
In an email, a Treasury spokesperson said that the department remained engaged with the Somali-American community and that channels to transmit funds back to Somalia remain open. The spokesperson declined to offer any further details.
Many of the Somalis living in the United States would disagree. They complain that the Treasury crackdown could threaten the livelihood of friends and relatives back home, who are heavily dependent on remittances from abroad. Somalis abroad send home about $1.3 billion a year, which includes about $215 million from the United States, according to Oxfam. It’s hard to get more precise figures because Somalia doesn’t have a functioning central bank that keeps track of such things. The money is a vital source of income for people in Somalia, as the country has been gripped with violence and instability first from civil war and now from an insurgency led by Islamist militants belonging to a group called al-Shabaab. Though the instability makes the remittances all that more important, it also makes banks wary of doing business there for fear of accidentally handling a transfer for a terrorist, criminal, or someone else on a U.S. blacklist.
It’s not an abstract concern for the banks. In 2012, HSBC paid $1.9 billion to settle charges that the bank’s lack of rigorous oversight led it to do business with Mexican drug cartels and people in sanctioned countries like Iran and Libya. Last month, when Bell State Bank closed accounts that belonged to Kaah Express and other money transmitters in Fargo, the bank’s security officer told the Associated Press that it made the move because of the risk of massive fines. The bank did not respond to requests for comment.
In a report earlier this month, the World Bank called the closing of accounts used to transmit money to Somalia and other fragile countries from the U.S. and Britain "worrying." "More needs to be done to ensure that anti-money laundering and combating the financing of terrorism (AML/CFT) regulations do not unduly undermine development objectives and harm the poor," the World Bank said in its biannual report on remittances.
In the years since the September 11, 2001 terrorist attacks, the Treasury Department has worked to make it harder for terror groups to raise needed funds. The huge fines imposed against banks like HSBC that are found to have transferred money to terrorists or criminals have grabbed the attention of other financial institutions and made them leery of sending money to countries where the local banking system is not up to U.S standards. Somalia is perceived as one of the riskiest countries to do business and many of the country’s connections to the international financial system have fallen victim to the country’s ongoing instability. When Barclays announced last summer that it was cutting ties with Somali money transmitters, a British court stalled the move because it was the only bank in the U.K. still working with Somalia.
In the United States, the issue came to a head at the end of 2011, when Somalia was suffering from famine and the main bank serving the Somali community in Minnesota, Sunrise Community Bank, decided to close the accounts that connected the Somalis to their home country. Companies that send money to Somalia, like Kaah, found new banks to work with at the time, but they still live with the constant threat that they’ll be dropped. The latest issue with local accounts being closed only stokes the fear that eventually there may be no bank left willing to work with them.
Kaah Express has already had three accounts closed this year in Minnesota, North Dakota and Nebraska. That’s why Hassan is scrambling to find a new bank. The accounts weren’t the ones used to wire money to Somalia, but they were smaller accounts used by Kaah’s branch offices to store customers’ money. Now, Hassan says, agents from locations like Fargo have to drive the money to Minneapolis.
"We’re trying very hard to avoid having to close our offices in the affected areas," Hassan said. But, Hassan added, he’s not very optimistic that the situation will change.