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AMLs Screw Somalis, Again

by Bradley Jansen August 6th, 2013 6:46 pm

Pity the poor Somali people.  Not just because of the situation in their home country, but what the US government and multi-lateral organizations are doing to them.  The people there are the ones who survived brutal dictatorships and possibly even more brutal civil war and warlord rule.  Many got out and created the Somali diaspora--including some in the United States.  Being decent and generous people, many send money back home to help friends and relatives there.

The remittances are hugely important to the Somali people--often the difference between life and death.  "More than US$1.2 billion is remitted to the Somali territories annually. This is over half of Somalia's gross national income," explains Abdirashid Duale in a good but long article on the allAfrica.com website, "Somalia, Remittances and Unintended Consequences: in Conversation With Abdirashid Duale."  What does the cutting off of money services mean for the Somali people and people in other countries and territories mean?  Again, Mr. Duale explains:

I can honestly say it would be a recipe for disaster. It is estimated that remittances from the diaspora provide essential support to 40% of the Somali territories. We have nearly 300 branches in the territories and thousands of agents servicing people in towns and rural areas. For them, money sent from relatives overseas is an economic lifeline. It is mainly spent on food, medicines and school fees - for the absolute basics, not for luxuries.

Those affected are not just the Somali people, but others as well including Somali veterans of British military service and their widows, investors creating businesses and jobs there, and the Non-Governmental Organizations working there as well.  They have taken note and sounded the alarm.

Oxfam blasts the human toll of our misguided anti-money laundering laws, "Disruptions to diaspora remittances threaten Somalia":

The role of remittances during the food crisis in Somalia in 2011 was plain to see; the generosity of the Somali diaspora played a vital role in helping Somali families survive. But when a bank in the United States closed the accounts of several Somali-American money transfer operators (MTOs) that year, it became clear that the entire remittance system could come to a screeching halt at a moment’s notice.

Somali-American MTOs—really the only game in town when it comes to distributing cash in Somalia—need bank accounts in the United States to facilitate transfers from Somali-Americans. They have found those accounts hard to come by in recent years. Though they have invested significantly in anti-money laundering compliance systems, policies, and training, most US banks haven’t taken heed.

While generally skeptical of the private sector and unsympathetic to the banks necessary to make the life-saving remittances work, Oxfam concedes:

For the most part, the banks in question have refused to substantively engage with the money transfer companies, which have been asking how they can further improve their compliance systems. Admittedly banks are operating in an environment of regulatory uncertainty. The Treasury Department on one hand has assured banks that they could open accounts for high-risk money transfer companies, provided they do their due diligence. But Treasury auditors’ scrutiny of money transfer company accounts and the threat of multimillion dollar fines on banks send a different message [emphasis added].

A joint report by Oxfam America, Adeso and the Inter-American Dialogue can be found here:

http://www.oxfamamerica.org/publications/keeping-the-lifeline-open-remittances-and-markets-in-somalia

The report explains:

Somali-American MTOs need bank accounts in the united States to facilitate transfers, but have found it difficult to obtain them in recent years. They have invested significantly in compliance systems, policies, and training to ensure that they do not run afoul of uS anti-money laundering/combating the financing of terrorism (AMl/CFT) requirements, but most uS banks have ignored these investments. In recent years, many uS banks have branded Somalia a risky destination for money transfers and have unceremoniously closed the accounts of Somali-American MTOs without providing any specific reasons or justifications.

There are, of course, good reasons to be skeptical of government regulation and management of remittances.  The collusion of government and cronyism hurts the poor.  Take a look at the current scandal rocking Pakistan right now where the Federal Investigation Agency (FIA) issued arrest warrants for three senior officials of the Exchange Policy Department (EPD) of State Bank of Pakistan (SBP).  What's needed are fewer government regulations nearly literally taking food out the mouths of staving children and more market competition.  Pakistan's Express Tribune explains:

Those whose arrest warrants have been issued include SBP Executive Director Asad Qureshi, Director Mansoor Ali Khan, and Additional Director Moinuddin, while the magistrate has cancelled the pre arrest bail of co-accused Najamul Saqib, Senior Joint Director of the EPD.
However, while talking to The Express Tribune, central bank spokesperson Umer Siddique said that the SBP has not received copies of the arrest warrants of EPD officials.
The arrest warrants of SBP officials comes amidst FIA’s ongoing investigations into alleged collusion between senior officials of the SBP, Western Union (WU) and Zarco Exchange Company Pvt Limited (ZECPL) in a remittance scam which has caused huge loss.
Similarly, the court has also issued the arrest warrants of Senior Vice President Middle East and Africa of WU, Jean Claude Farah and Regional Director of WU, Sobia Rehman, while the case of Abdul Hameed Fareed, Country Head of WU has been fixed for July 30.

 What is the result of the government crackdown on people serving the poor?  Duale again:

Others would resort to sending cash with unregulated couriers - which will be much more expensive and less reliable than the current system - and by illegal means. Lorries and planes of cash would come in from neighbouring countries. Lots of small informal operators would fill the gap left by Dahabshiil and the regulated firms whose transaction records can be inspected.

We have seen this before - when al-Barakat's money transfer business was closed down in the USA after 9/11. As far as aid agencies and businesses are concerned, I have no idea how they could carry on operating as usual.

Basically, the transfer business would be driven underground. It would be much smaller and it would be exploited. I understand the global concern about money-laundering and terrorist financing by a small minority of MTBs, but bashing the regulated and reputable firms like Dahabshiil is not the way to counter this. When law enforcement agencies come to us, we always help them.

Here he references the disaster that was the implementation of the USA PATRIOT Act after 9/11 and the crackdown on terrorism financing.  The US Treasury's Financial Crimes Enforcement Network (FinCEN) issued regulations that forced the Mom and Pop, and often ethnic, money transmitters out business.  Instead of cutting off funds for terrorism, we cut off the pipeline of indispensable aid to the poor abroad.

In response, US Rep. Mark Kennedy and US Sen. Norman Coleman stepped up and provided the necessary leadership and common sense usually lacking from FinCEN.  In an August 2006 letter to FinCEN in response to their 2005 regulation, Kennedy and Coleman wrote:

"Many groups of new Americans depend on banks and money service businesses to provide critical financial support in the form of remittances to loved ones, friends and former communities in their troubled homelands, Kennedy and Coleman wrote. "The Somali community faces an especially pressing need to keep this system open as remittance flows account for nearly one-sixth of the $600 per capita yearly income in Somalia."

Where are today's leaders who see through the anti-money laundering charade and are willing to stand up for the poor?  Free banking is a human rights issue.  The sooner we make common cause with groups concerned with human rights, immigrants and global poverty the better.

One Response to “AMLs Screw Somalis, Again”

  1. avatar Gonzalo R. Moya V. says:

    Mr. Jansen, I read your article and the one from BBC News dated 30/12/2011 linked to the phrase "closed the accounts" in yours. I wasn´t aware of the impediments Somalis living in the US had to make money-transfers to their beloved ones living in their home-country, nor was I aware that these continue today due to anti-money laundering laws (AMLs). This reminded me of the "Type I-Type II Errors" matrix shown in Statistics textbooks to ilustrate the implication of determining the confidence level, in the sense that the truly poor Somalis needing financial aid are suffering from the unintended consequences of policies aimed at stopping the financing of actual terrorists from there. Maybe the formers could fill out an application form to have their background analyzed by the Financial Intelligence Unit (in Peru, it is part of the SBS, where I work). This way they can differentiate themselves from the second group, so that the "Type II Error" of AMLs can be contained.

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