Dire warnings after U.S. bank cuts Somali lifeline

Somali men walk in front of a branch of Dahabshiil, Somalia's largest remittance company, in Mogadishu, Somalia. (AP Photo/Farah Abdi Warsameh)

Countless Somalis were suddenly cut off from the funding they need to get by after the Merchants Bank of California closed all of its accounts with Somali-based money transfer companies. The move cuts off what is estimated to be between sixty and eighty percent of the more than $200 million in money sent from the U.S. to Somalia each year. For a country that is still suffering from conflict and relies heavily on money home from Somalis living abroad, the consequences are devastating.

“My worst fear is that the government will not take action until people start to die. I hate to sound hysterical, but we are at the point where if there is no intervention people will die,” said Scott Paul, senior humanitarian policy adviser at Oxfam America, in an interview with Humanosphere.

In total, Somalis living abroad send $1.3 billion home each year. The money sent into Somalia provides for a significant portion of the country’s population – as much as 40 percent. Remittances represent roughly 35 percent of Somalia’s gross domestic product. They are so significant that the amount of foreign aid provided to Somalia is significantly less than the money sent home by individual Somalis. The announcement by Merchants is only the latest in a series of pull-outs by banks offering services in the country.

“At the moment, the market is not going to provide a solution. Right now, it falls on the administration on which option it hates least – whether it is better to stomach an unorthodox policy move or the consequences of money laundering and funding for armed groups,” said Paul.

The breakdown of the money flow from the U.S. makes it easier for the money to end up in the wrong hands. There are still ways to get money into Somalia, but it may require people to use individual brokers or fixers to make it happen. The cut they take as a service fee or all the the money might end up in the wrong place. With the banks, a person sending home money to his or her family can know for certain that it makes it to them.

“Criminal networks pray on these flows, and it’s made worse when flows breakdown,” said Paul.

Merchants’s announcement comes as little surprise. For nearly a year, campaigners like Oxfam and Adeso lobbied in Washington, D.C., for the government to take steps to ensure Merchants would not close its accounts. As recently as the fall, Merchants indicated that it was closing only half of its accounts in Somalia. The Treasury department, who oversees all banking in the United States, voiced its support for making changes to rules on remittances to Somalia, but little action has actually happened. Money used for armed groups and money laundering are chief concerns for the banks.

Due to insufficient regulatory structures in Somalia, there are not guarantees that money sent from the United States and other parts of the world are ending up in the hands of bad people. That then leaves banks in what they perceive to be a vulnerable position. Merchants is one of the last banks to close all of its accounts in Somalia. There are still a few providers scattered across the United States, but their reach is minimal in Somalia and the availability is not consistent throughout the United States.

A leading concern is the effects the sudden shutdown of money will cause. Given the significance of money sent to Somalia, suddenly ending a vital financial lifeline is potentially devastating for a family. Food security is already a major problem. The United Nations estimates 2.3 million Somalis struggle to meet their basic food needs – of that 730,000 are food insecure. Those numbers could get worse due to the shutdown.

“If we could we prevent a humanitarian disaster, would we? Should we? Right now Somalia may be on the brink of a preventable humanitarian disaster,” said Rep. Keith Ellison, D-Minn., on the floor of Congress.

Ellison was joined by other members of Congress who wrote a letter to Secretary of State John Kerry urging the administration to enact an emergency plan for the shutdown. His district is home to the largest Somali-American population in the United States.The sudden inability to send money to Somalia affects his constituents and their family and friends. Somalis voiced their concerns about the shutdown on Twitter using the hashtags #IFundFoodNotTerror and #Somalis4Remittances. Tweets explained how the money was helpful to families, decried the actions of both Merchants and the U.S. government, and raised concerns about what may happen if remittances are cut off for a long period of time.

A significant concern is what will happen to young men. If the money some men need to get by is suddenly gone, they are then forced to look for other ways to make a living. The availability of criminal groups, including Islamist extremists Al Shabaab, is worrying as some men may increasingly turn to them as a result of dwindling remittances. The potential humanitarian disaster and security threat caused by the shutdown has sparked some action in the State Department and the United States Agency for International Development, but the power to make change still lies with the Treasury.

“The problem in general terms, foreign policy is not very high on the Treasury priority list,” said Paul. “The people at treasury talk a good game about this, but they have a specific orthodoxy abut how they approach banking. They see this as a banking issue, not a humanitarian one.”

“I am really concerned that it is going to take a great deal of suffering for something to happen.”

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Tom Murphy

Tom Murphy is a New Hampshire-based reporter for Humanosphere. Before joining Humanosphere, Tom founded and edited the aid blog A View From the Cave. His work has appeared in Foreign Policy, the Huffington Post, the Guardian, GlobalPost and Christian Science Monitor. He tweets at @viewfromthecave. Contact him at tmurphy[at]humanosphere.org.