Some financial companies in the U.S. resort to carrying cash on airplanes to keep remittances flowing to needy Somalis.
The closing of one of the few remaining U.S. banks to send money to Somalia set off alarm bells last February in the small but ever-growing community of Somali immigrants who moved to America in search of jobs to support relatives back home.
In the months since, however, remittance companies have found a way to get funds back to the increasingly desperate state in the Horn of Africa. The solution, it turns out, doesn’t require a bank — just a plane ticket and a large carry-on suitcase.
More than 40 percent of Somalia’s population depends on money transfers to buy food, medicine, and other basic needs, according to aid group Oxfam International. But the vital flow of support has been repeatedly threatened over the past few years amid an international counterterror crackdown against the Somali-based militant group al-Shabab.
That’s spooked banks from sending money to Somalia — where the terrorism risk is high and the capacity of the local government to police financial systems is low — for fear of potentially violating sanctions, and incurring multibillion-dollar fines, should the funds fall into the wrong hands.
Last week, Illinois-based First American Bank closed the accounts of several small remittance companies that had depended on the larger financial institution to process wire payments. That came on the heels of the Februaryshuttering of Merchants Bank of California, which handled an estimated 80 percent of the money flowing to Somalia.
Left with few other options, some money transfer agents have turned to a decidedly low-tech solution: Getting on a plane and hand-carrying the money to Dubai, from where it can be transferred through informal financial networks called hawalas to Somalia.
Traveling with large amounts of cash isn’t illegal, but it can be dangerous and make the courier a target of theft. Travelers are required to declare any amount over $10,000 if they’re leaving the U.S. on an international flight, and they could be subject to additional scrutiny from security and customs officials. Moving money in cash also presents an issue for regulators, who have a harder time tracking where the funds end up.
“There is a huge problem that nobody will ever see, and that problem is underground channels flourishing because of misapplication of regulatory guidelines,” said David Landsman, executive director of the National Money Transmitters Association.
Rep. Keith Ellison (D-Minn.), whose district is home to the largest Somali population in the United States, is pushing Washington to provide a smarter — and safer — solution. In an April 27 letter to Secretary of State John Kerry, Ellison and 10 other lawmakers called the flow of Somali remittances an “urgent humanitarian and national security issue,” and warned that more money could go underground.
“Routing remittances through traditional financial institutions provides greater transparency and security — better not only for those sending and receiving remittances, but also for enforcement of rules against terrorist financing,” the letter said.
Kerry made a brief stop in Mogadishu on May 5, but did not publicly discuss the remittance issue — an omission that drew criticism from humanitarian aid advocates, including Oxfam senior policy adviser Scott Paul.
“Given the multiple Somali delegations to Washington this year devoted primarily to securing remittance flows, it’s impossible to imagine that Somali leaders didn’t ask Secretary Kerry what is being done to ease money transfers,” Paul said in a blog post.
It’s not just bank closures that have caused problems. Other U.S. remittance companies say their wire transfers have been held up at banks or rejected, causing delays in payments getting to Somalia.
Aden Hassan, compliance manager for Somali money transmitter Kaah Express, said his Minneapolis company hasn’t yet had to carry cash out of the country. But it may soon have to, if delays continue to hold up money transfers.
“On some days, we have to completely shut down because the agents in Africa for 10 days received not a single dime from us,” Hassan said in a phone interview with FP.
As remittance companies put more effort into moving money out of the U.S., they’ve also raised prices. Fees for money transfers to Somalia have risen from 5 percent of the amount sent, to 6 or 7 percent, according to agents in Minneapolis and Columbus, Ohio, the two U.S. cities with the largest Somali populations.
Additionally, many agents now require money orders because they can’t process cash, further increasing transfer costs. And some remittance companies are shutting down their more remote branches, in places like Fargo, N.D. and Kansas City, Mo., that have become too difficult to operate without a domestic banking account to move the money from one part of the U.S. to another.
In Cleveland, for example, the rate to transfer money has doubled as the number of remittance companies has declined, said Jibril Mohamed, executive director of the Somali Community Access Network in Ohio. That has left Somali immigrants little choice but to pay the fees — eating into the money available to send back home.
“People depend on these money transfers,” Mohamed said. “So there’s no way to put food on the table if they don’t get the money they’re expecting from a relative.”
Accurate and timely information about money moving out of the U.S. and to Somalia is hard to obtain, according to the U.S. Treasury Department — meaning it remains unclear if the cash flow has in fact ebbed. The Treasury Department is working with the World Bank on a survey about remittances to Somalia and elsewhere for G-20 governments, due to be sent out in the next several weeks.
Remittance companies within the U.S. are regulated on a state-by-state basis, and there is no collective attempt to gather data on where money transfers are going. That has spurred the industry to demand federal regulation, largely in an effort to reassure banks, but also to simplify the bureaucratic web of rules and inspections each state requires.
Federal regulators have issued guidance and hosted discussions on the plight of Somalis in the U.S. who see money transfer firms as a lifeline to their homeland. Yet many Somalis — and the small businesses trying to help them — remain frustrated with the response from Washington.
“From the government side there’s been nothing; I think their position is just to wait and see,” said Hassan. “That’s been their mentality for too long, because we’ve been shouting about this for years. And every time there’s a crisis, there’s a temporary solution found, but then another bank closes.”