US Banks May Destroy Somalia Economy
World Economy

US Banks May Destroy Somalia Economy

On Feb. 6, 2015, US banks stopped money transfers to Somalia because of strict regulations set by the Office of the Comptroller of the Currency over concerns of money laundering and funding for terrorist organizations.
The decision has left Somalis who depend on cash remittances for survival without critical financial support. Remittances bolster the local economy and serve as a major source of income for families and individuals, Aljazeera reported Saturday.
The Somali diaspora sends home more than $1.2 billion annually — a sum larger than foreign aid and investments combined. Remittances are a crucial component of the Somali economy, making up more than half of the nation’s gross national income.
An estimated 73 percent of Somali households use the cash transfers to pay for food. Remittances help build schools and hospitals and pay for school fees. Nearly 80 percent of Somalis receive remittances from a single person, highlighting the dependence on the money transfers from abroad. Somalis have created efficient money wiring agencies, known as hawalas, to get around the lack of a formal banking system in Somalia. It has been the country’s rare lifeline over the last two decades.

Major US banks stopped wiring money to Somalia years ago. The final holdout, the Merchants Bank of California, handles roughly 80 percent of the remittances from the US to Somalia. But it had been under pressure from wary regulators to monitor the flow of cash transfers there. The bank decided to shutter the service to avoid potential penalties. But there is no evidence linking hawalas to extremist groups. The pre-emptive measure was made at the expense of millions of people in Somalia.
The end of bank money transfers, the only legal means for Somalis in the US to send money to needy families back home, has rattled the Somali-American community. Community leaders and youth organizers are working with elected officials to exert pressure on US banks and regulators.

  Interests Vary
Over the last few weeks, the media have approached Somalis to help explain the effects of halting remittances. But unsurprisingly, US media are primarily interested in an anti-terrorism narrative that characterizes its coverage of Somalia and its diaspora. Years of conflict have left Somalia without a central banking system. Somalia is now asking US banks to reconsider their decision.
“We need to find a permanent solution to keep open this vital humanitarian lifeline,” Somali Prime Minister Omar Abdirashid Sharmarke told the Associated Press on Feb. 12.

  Policing Remittances
The Somali diaspora is rallying behind efforts to rebuild the country, not least through the money provided by remittances. The US is policing and criminalizing a lifeline for Somalia’s economic stability and rebuilding efforts. The US banks’ decision to halt money transfers to the country gives little consideration to Somalia’s vulnerability and the impending humanitarian crisis.
However, the US is not the only country policing Somali remittances. In 2013, Barclays Bank in London cracked down on Dahabshiil, the most widely used money transfer provider in Somalia. Australia’s Westpac bank is planning to close its accounts with Somali hawalas next month.

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