AYAN HASAN works as a medical professional in Minnesota to support her family in Somalia. Her mother, stepmother, six siblings and her blind uncle depend on her remittances, the money she sends home every month. The money goes toward food, water, doctor visits, housing and tuition. If she couldn’t send money to Somalia, she worries, her 14-year-old brother might drop out of school and be recruited by extremists.
But her worries may soon be realized. Banks, afraid of running afoul of government anti-laundering regulations, are pulling the plug on remittance services to Somalia. If nothing is done, the Hasan family may have to face life without help from Ayan.
My district is home to one of the largest Somali communities in the world. Somali-Americans are proud of Somalia’s progress in the last few years. The nation successfully fought oppressive colonization and ended the ensuing decades of dictatorship and civil war. While millions still live in poverty, Somalia is establishing a legitimate government recognized by the international community.
The fragile progress in Somalia and other parts of East Africa is sustained in part by money sent from friends and family overseas. Every year Somali-Americans send about $215 million to Somalia, more than the $200 million annual aid package from the American government.
Remittances from around the world account for up to 40 percent of Somalia’s gross domestic product. This money keeps Somalis from going hungry, sends their children to school and provides seed capital for entrepreneurs to start businesses. And it limits the appeal of insurgent organizations like the Shabab; a pipeline from family members abroad makes it easier to reject the money that terrorist groups use to attract recruits.
Thanks in part to this growing stability, Somalia and its international partners have made important gains in fighting terrorism in the region. The United States has made significant investments in the African Union Mission in Somalia and other military efforts to root out terrorist activity.
Unfortunately, the remittances lifeline from the United States may soon be cut off completely. In February, the bank that handled up to 80 percent of remittances to Somalia closed the accounts of remittance businesses that provide money-transfer services from the United States. In May, one of the few remaining banks will also close accounts. And this week, Kenya suspended the licenses of 13 Somali remittance firms in response to the brutal murder last week of 148 students at Garissa University College.
Why are the banks shuttering these services? For one thing, having a money-services business as a client increases the difficulty of regulatory requirements, as banks must meet high standards under anti-money-laundering rules.
To make things easier, the Treasury Department and other regulators have published statements clarifying the rules and standards for handling money-service firms. The statements essentially say financial institutions do not need to be infallible to pass exams, and are not required to know the customers of every firm they serve. But banks have decided that it is still not worth the risk and trouble — what if remittance funds fell into the hands of the Shabab?
The Shabab’s recent attacks show why we must make it easier to send verified humanitarian remittances to the Horn of Africa — not harder. There have been only a few reported cases of remittances actually reaching the Shabab in the last two decades. The funds were minimal, in one case about $8,000 and in the other about $200.
We need to be creative. In the short term, banking regulators could assist banks that want to serve their East African diaspora communities. The Federal Reserve Bank of New York could use its own wire service and relationships with large international banks to process the transfers to East Africa.
In the long term, we could follow the example of Britain and set up a “safe corridors” program for banks, which closely monitors money transfers to prevent laundering. We could collaborate with the State Department’s Agency for International Development or embassies to send the money through their aid channels. We could provide technical assistance to the Somali government and central bank to strengthen their own financial-control capacity. And we could amend the anti-money-laundering laws to provide banks the assurance they need to offer these services.
Safe and transparent channels of humanitarian remittances must be able to reach desperately poor and struggling nations while ensuring funds are not reaching terrorists. The stability and safety of the Horn of Africa is at stake.
by Keith Ellison