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U.N. Envoy to Somalia Warns Against Cutting Off Remittances
Money sent home by family members abroad is the “lifeblood” of the African country’s economy, but it’s getting harder to get the money over there.
The United Nations’ top official in Somalia warned that thwarting payments sent home by immigrants abroad will cut off a lifeline for Somali families and the biggest driver of economic activity in the impoverished and war-torn country.
“They are the lifeblood and survival mechanism for many, many Somalis, so from a humanitarian perspective it is clearly worrying if there is a complete stop in remittances,” Nicholas Kay, the U.N. Special Representative for Somalia, said in an interview Thursday in New York.
Aid groups Oxfam International and Adeso estimate that Somali expatriates send home about $1.3 billion a year. That’s about to get much harder: Merchants Bank of California, which handled the bulk of remittances to Somalia, is closing all Somali accounts. As Foreign Policy was the first to report, the bank sent letters last week to all the companies who send money from the United States to Somalia notifying them of the move.
Regulators say they aren’t trying to stop the flow of legitimate money to Somalia, but they have put increasing pressure on banks to monitor their business for money that could be going to terrorist groups, including al-Shabab, the militant group which controls parts of Somalia and is challenging its fragile, Western-backed government. As the crackdown on terror financing and sanctions-busting has intensified, banks have become more and more hesitant to send money into Somalia, which after years of war and conflict doesn’t have a functioning central bank.
“There is a horrendous sort of tension there between those who are for very good reasons trying to control and restrict money flows benefiting terrorist organizations, etc. and the very legitimate and absolute requirement for diaspora, particularly, to be able to remit money to family back in Somalia,” Kay said, stressing that he wasn’t trying to criticize U.S. government policies or individual banks’ legal decisions.
Merchants Bank was one of the last few willing to make the international wire transfers for the companies that collect small amounts of money from immigrants in North Dakota or Ohio and bundle them together for transfer to Somalia. The bank declined to comment on the decision to close accounts. The money transmitters are already shutting down, leaving Somali-Americans in many parts of the U.S. with no other option for sending money to family members.
“I think it’s very important that there is a safe channel mechanism that would allow remittances to continue,” Kay said.
Advocates like Oxfam are pushing for just such a channel. They want to see the U.S. government open up a connection between the Federal Reserve and a Somali bank to keep the money flowing, but so far that hasn’t happened.
Rep. Keith Ellison (D-Minn.), whose district includes the country’s largest Somali-American population, has called on banking regulators to develop a solution to the problem, which first surfaced a decade ago.
In 2005, the Treasury Department acknowledged that increased regulatory scrutiny was causing banks to stop working with companies that send money overseas. In 2011, the problem came to a head when Sunrise Community Bank, which many of the companies relied on, started closing accounts. Wells Fargo dumped them as well. In the past, the money transmitters were able to find new partners at the eleventh hour, but so far they’ve found no new bank to step in this time.
In a draft letter to Secretary of State John Kerry and Treasury Secretary Jack Lew, Ellison pointed to the risk that cutting off remittances could strengthen al-Shabab if Somalis with no other alternative turn toward the terrorist group.
“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,” Ellison said in the letter.