The country’s economy depends on regular remittances from the diaspora in the UK. But concerns over money laundering and funding terrorism push Barclays UK to cut the “remittance lifeline.”
The long war in Somalia means there is no formal banking sector at all, so millions of Somalis depend on money sent from abroad.
But now the UK’s Barclays Bank intends to withdraw banking services from more than 250 money-transfer companies because, it says, some of them might be “unwittingly facilitating money laundering and terrorist financing”.
Humanitarian groups, rights activists and academics warn that the move risks severing an essential lifeline for millions of people who depend on remittances from relatives in the UK. More than 100 wrote to the British government at the end of June warning that the move“will only encourage people to send funds through illegal, unsafe, and untraceable channels, thereby potentially making the problem of support to proscribed parties much more serious”.
For most of the remittance firms, the move was set to come into effect on July 10th, although an extension of 30 days was granted to some, including one of Africa’s largest, Dahabshiil. Dahabshiil said it was urgently trying to meet the bank’s criteria to keep its account open. Abdirashid Duale, chief executive officer of Dahabshiil, said Barclays’ decision could see money transfers pushed underground into the hands of “unregulated and illegal providers”.
“A huge number of Somalis rely on remittances, which are estimated to be as much as US$1.2 bn every year – more than the entire humanitarian operation in the country,” Philippe Lazzarini, the UN’s top humanitarian official in Somalia, told IRIN. “It is not an overstatement to say this move will cut a lifeline for essential services in Somalia.”
An “urgent appeal” to British Prime Minister David Cameron, issued on July1st by 185 Somali civil society groups, said the move was likely to have “dire consequences” in Somalia “where no alternatives to the money service businesses exist.”
Senait Gebregziabher, Somalia country director at Oxfam said that stopping the transfers would see many more Somali families “fall back into crisis”. Somalia is still recovering from a famine that killed some 260,000 people in 2011. A report to be published by the NGOs Oxfam and Adeso (African Development Solutions) estimates that members of the Somali diaspora in the UK send over £100m to Somalia every year and that that remittances account for around 60% of the recipients’ annual income, with money mostly being used to cover basic household expenses.
Remittance firms serving Somalia have developed systems that help them operate in a country with no formal banking infrastructure. Using bank transfers where possible, the firms also use non-bank financial transfers based on trust and social solidarity, commonly known as ‘hawala’, meaning “transfer”. This system has become vital both for the delivery of support to families for business development. Aid groups rely on these systems as well.
Somali President Hassan Sheikh Mohamud has also called on Barclays to reverse its decision, stressing that the country is at a turning point “after two decades of chaos”.
“We understand Barclays’ corporate responsibility and its duty to its global customers to maintain a reputation for tackling financial crime, but that does not have to mean pulling the rug from under the feet of people battling extreme poverty – and before our fledgling government can step in to help,” he said in a statement.
Extending the central bank’s reach and introducing banking regulation are among the government’s many priorities. Normal bank transfers, such as SWIFT, are not currently possible.
Worldwide, the remittance business is estimated to be worth $350bn a year – more than double the total of international development aid.
Barclays is the last major UK bank that still provides such money transfer services to Somalia, which has an estimated 1.5 million of its nationals living overseas. The UK Serious Organised Crime Agency has identified money service businesses generally as a potential money laundering risk. All international banks have been tightening rules in a bid to cut money-laundering and funding of groups accused of terrorism.