Blocking wire transfers could spark a humanitarian crisis in Somalia

Updated: 11:30 a.m. | Posted: 7:25 a.m.

Somali-Americans in Minnesota and across the United States are again facing problems sending money to relatives still living in east Africa.

Last month, the bank that handled the majority of cash transfers from the United States to east Africa stopped providing the service. Aid organizations say there will be a humanitarian crisis if the financial pipeline doesn't expand soon.

That worries residents of the Cedar-Riverside neighborhood near downtown Minneapolis, home to thousands of Somali-Americans. It's not hard to find people who regularly send cash to family in or near Somalia.

"If I don't send any money, there's no way they can live," said 28-year-old Ayub Ali, who earns a modest living as a truck driver.

This month Ali again scraped together $700 and came to Kaah Express, a storefront money-wiring business on Cedar Avenue. Ali said he sends money to his wife and children, which they'll use for the basics including food, clothing and rent.

"She doesn't have any income except my income," he said.

During Somalia's recent civil war, Ali's family fled to Nairobi, Kenya along with many others.

According to the charity Oxfam, many of the 10 million people who remain in Somalia are deeply dependent on money sent from relatives overseas. The group says $1.3 billion in remittance payments flow in to Somalia from around the world every year. The funds account for as much as 45 percent of the country's economic activity.

Somalis in the United States may only send money if a U.S. bank is willing to facilitate the transfers. Any bank that does risks multimillion dollar fines if it runs afoul of federal antiterrorism financing laws — and complying with the laws is increasingly difficult.

Last month, Merchants Bank of California — a relatively small institution that handled an estimated 60 to 80 percent of remittances from the United States — quit the business.

Merchants Bank officials could not be reached for comment. But Somalia's minister of foreign affairs and investment promotion, Abdusalam Omer, said he fears the move will further impoverish people in an already precarious economy.

"It will impact families. They might not get enough to eat. Children might not go to school," Omer said. "Small business mom and pop stores might go out of business."

At Kaah Express in Minneapolis, compliance officer Aden Hassan said some money is still getting through — including money from Minnesota — thanks to another bank he declines to name. But he said wire transfers are down 40 to 50 percent across the states where Kaah operates.

While regulators and banks may see businesses like his as risky, Hassan said agents at both ends of the transaction ensure that the cash goes to the intended recipient.

"When I send $200 today to a relative who lives in Kenya or Somalia or somewhere, they go to the company's offices there, the paying agents, and they have to identify themselves," he said. "Without that identification, they don't receive the money."

But sometimes money gets through to people the U.S. government deems terrorists. In 2013 two women from Rochester were sentenced to 10 and 20 years in federal prison for sending $8,600 to the militant group al-Shabab.

Liat Shetret, who studies the Somali remittance system at the Global Center on Cooperative Security, said wiring firms, banks, and regulators will never have 100 percent certainty that cash won't wind up in the wrong hands. But she said they can mitigate that risk by working together.

"It comes down to an issue of trust, and trust building," she said.

Shetret said having experts in the international remittance system explain its intricate workings to risk-averse bankers would be a good start. So would wiring money to fund construction projects in Somalia to build evidence the system works safely.

Closing legitimate financial channels, she said, will just drive the money underground.

"We're really turning off the lights for ourselves here, leading to potentially more financing opportunities for organizations like Shabab," Shetret said.

U.S. Treasury Department officials say they recognize the problems Somali-Americans are facing in sending money home and are working across the government to find solutions. Department officials say they encourage banks to assess money-wiring firms on a case-by-case basis rather than declining services to all of them.

But so far, the department's recommendations are not enough to counter bankers' reactions to the aggressive enforcement by Treasury's own bank regulators.

Correction (March 13, 2015): An earlier version of this story incorrectly reported Abdusalam Omer's job title. The current version is correct.