Analysis: Barclays to cut Somalia’s remittance “lifeline”
Somalia’s economy depends on remittances from abroad
Friday, July 05, 2013
By withdrawing banking services from more than 250 money-transfer
companies, Britain’s Barclays Bank risks severing an essential lifeline
for millions of people in Somalia who depend on remittances from
relatives in the UK, warn humanitarians, rights activists and academics.
For most of the remittance firms, the move is set to come into effect on
10 July, although an extension of 30 days has been granted to some of
Barclays said there was a risk that some of the firms might be
“unwittingly facilitating money laundering and terrorist financing”.
Companies set to have their Barclays accounts shut down - effectively
ending their UK operations - include one of Africa’s largest remittance
firms, Dahabshiil. While countries other than Somalia may also be
affected, ongoing humanitarian challenges in the nation and the absence
of a formal banking system there mean that Barclays’ decision could have
“A huge number of Somalis rely on remittances, which are estimated to be
as much as US$1.2 billion 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 1
July 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.”
“We are seriously worried that without the services of these money
transfer organizations, Somalis living in the diaspora throughout the
UK… will not be able to send desperately needed support home to their
relatives. This will have immediate and severe humanitarian
implications,” the appeal added.
Four leading international aid and development NGOs have this week
written privately to Barclays asking the bank to reconsider its
decision, warning of significant humanitarian fall-out.
According to Senait Gebregziabher, Somalia country director at Oxfam and
one of the signatories of the letter to Barclays, 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 soon to be published by the NGOs Oxfam and Adeso estimates that
members of the Somali diaspora in the UK send over 100 million pounds
($152.5 million) to Somalia every year.
These remittances are reportedly second in total value only to those sent back from the US.
The NGOs’ research suggests that remittances account for around 60
percent of the recipients’ annual income, with money mostly being used
to cover basic household expenses.
Mogadishu resident Halima Mohamed and her family depend entirely on
financial support sent through money-transfer firms by her two sons in
Britain and Denmark.
“My sons send $300 dollars each month, which we use to cover our basic
needs like food, water and rent. Three of my children are at school,
while one attends university, and we’ll find it hard to cope with the
situation if Barclays proceeds with its decision,” she told IRIN.
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.
Remittances account for more than a billion dollars every year
“While this suspension will not affect our local transfers, it is worth
noting that the UN and many of the large relief and development
organizations use hawala money transfers to pay their staff, procure
assistance, and implement very successful emergency aid and
poverty-relief programs such as cash-for-work,” the UN’s Dawn Blalock
Goodwin told IRIN.
For Barclays, the question is one of compliance with international
financial regulation and potential risk to the firm - both in terms of
reputation and possible legal penalties from the US and other
"As a global bank, we must comply with the rules and regulations in all
the jurisdictions in which we operate. The risk of financial crime is an
important regulatory concern, and we take our responsibilities in
relation to this very seriously,” said Daniel Hunter, spokesperson for
"It is recognized that some money service businesses don’t have the
proper checks in place to spot criminal activity and could unwittingly
be facilitating money laundering and terrorist financing.”
“Abuse of their services can have significant negative consequences for
society and for us as their bank. We remain happy to serve companies who
have strong anti-financial crime controls, but are asking the others to
find another bank. This is solely about the company’s controls, not
where they send money to,” he added.
The Barclays decision follows HSBC’s payment last December of a record
$1.9 billion fine to settle accusations from US prosecutors that it had
failed to implement anti-money laundering controls and allowed
terrorists to move money around the financial system. The UK’s financial
regulator also warned British banks on 1 July that they were not doing
enough to protect against financial crime, saying they could face
punishment for failing to spot abuses such as sanctions violations or
In 2011, two Somali women in Minnesota were convicted of funnelling
money to Al-Shabab militants using hawala brokers, and a Somali website,
Sunatimes, has made allegations linking Dahabshiil to the Somali
Islamists. Dahabshiil strenuously denies the claims and is taking the
Somali journalist who runs the website to court.
But some argue the move by Barclays will shift legitimate transfers to murkier channels.
More than 100 academics and aid practitioners wrote to the British
government last week to protest Barclays decision, warning that closing
down money transfer channels “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”.
“We are regulated by the UK government. We are a licensed institution as
is any other legal company,” Abdirashid Duale, CEO of Dahabshiil, told
“Dahabshiil's anti-financial crime controls are fully compliant with all
applicable legal requirements and industry best practice and have been
regularly audited by HMRC [the UK’s customs and tax department] for a
number of years (on behalf of the FSA [Financial Services Authority]),
without any adverse findings.”
“There is no other bank willing to open an account for us in the UK,”
Omar Abdinur, managing director of Tawakal UK, another remittance firm
affected by the decision, told IRIN. “We have approached many banks but
they are not willing. They say that money transfer is a risky business,
but there is no single case in the UK where it has been proved that our
firms are under-regulated or that we have transferred money to people
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 last week.
Though faltering in its recovery - with some 10 percent of its
population still reliant on humanitarian aid and violence ongoing in
parts of the country - Somalia is seen as taking some steps in the right
direction, a transition in which the UK is playing a key role.
In May, UK Prime Minister David Cameron, with President Hassan, hosted
the second London Conference on Somalia, at which international donors
pledged some $300 million in assistance.
But remittance flows to Somalia remain the country’s highest foreign
exchange earner, and are a vital revenue stream. Any drop in remittances
would throttle signs of economic recovery, analysts say.
“Somalia is almost entirely dependent on remittances, and if the
closures come into effect, this could cause a humanitarian crisis as
well as economic stagnation,” Somali economist Professor Yahye Amir told
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.
“Because Somalia’s crisis has been so prolonged, families have little
ability to absorb shocks such as floods, droughts, disease outbreaks,
displacement, a poor harvest or, in this case, an economic shock,” said
the UN’s Lazzarini.
“The key thing to realize is that when humanitarian needs are assessed,
remittances are already factored in. So a withdrawal or disruption of
remittances will likely increase the number of vulnerable households or,
for already vulnerable families, increase their need for humanitarian
aid,” he said.
“With no formal banking systems as an alternative, we know from our
experience on the ground that if remittances from the UK to Somalia were
to be halted, many more families would fall back into crisis.”
The UK’s Foreign and Commonwealth Office (FCO) noted in a statement the
“important role” played by remittances “in supporting the economy and
people of Somalia”. But an FCO spokesperson also said that “Barclays’
decision is ultimately a private commercial matter”.