Thursday, October 17, 2013
With the imminent deadline from Barclays to finalise their closure of money service business accounts, this factsheet provides an update on the situation, and on Government efforts to facilitate a durable solution. The UK recognises the role the Somali diaspora play in supporting the economy of their homeland through remittances. It is important that Somalis remain able to send money back home both safely and efficiently.
How you can remit money back to Somalia now
It is still possible to remit money from the UK to Somalia. There are several options, including:
a) To use one of the many small Somali remittance companies, which do not need a bank account;
b) To use mobile phone payments, which are widely used in Somalia, and can be sent from the UK;
c) To ask friends and family in Somalia to ask their local remittance company which is the best way to remit the money, since they will know which routes are open for receiving money.
Government action to help facilitate a solution
The Government is taking this issue seriously and has held discussions with the banks and the Somali Money Service Associations (SOMSA). Any solution will need all of the stakeholders to come together collectively. The Treasury and the Department for International Development (DFID) have brought the best-qualified experts (including SOMSA) together to develop a sustainable solution.
The Government will now form an Action Group on Cross-Border Remittances, which will help clarify guidance for banks on dealing with remittance companies. The National Crime Agency will help banks and money transfer companies to help identify the risks better. DFID is developing a pilot project to help develop secure remittance channels to Somalia. Regulators have also committed to making it as easy as possible for remittance companies to carry on trading, within the scope of the relevant legislation, and will help money transmitters improve their compliance.
The humanitarian impact
Some commentators have suggested that Barclays’ decision will cause a humanitarian catastrophe in Somalia. This did not happen following similar decisions in the US, Australia and other European countries. Consultations with NGOs indicate that the impact on their humanitarian operations is currently limited. Aid agencies can also use their bank accounts to send money direct to remittance companies in East Africa and the Middle East, from where it can be sent to Somalia.
Most Somali remittance companies are small-scale businesses that operate in cash and do not have bank accounts. These will not be affected by Barclays’ decision. We also understand that some of the larger remittance companies are making alternative banking arrangements, although they have not necessarily announced this. Remittance companies can also make cash transfers, and individuals can use mobile payments to remit money. Together, we expect these arrangements to keep the remittances flowing until a sustainable solution is found.
The global context
The context for Barclays’ decision to remove bank accounts from a variety of money remitters is a global trend by banks of moving away from parts of the remittance sector which they see as being high risk. The National Crime Agency estimates that around £1.5bn is laundered through UK-based money service businesses every year in the UK. Governments, regulators and law enforcement agencies have tightened up their approach to overseeing banks. This has led, particularly in the US, to heavy fines of banks whose clients were involved in money laundering. We all want to stop money getting into the wrong hands, as laundered funds and terrorist financing can hinder stabilisation in countries like Somalia.
Questions and answers
Why can’t the Government force Barclays to keep the accounts open?
Ultimately, Barclays’ decision is a private commercial matter. There would be legal and reputational risks to the Government if we were to seek to interfere in Barclays’ decision, particularly as Barclays has cited regulatory reasons for terminating their services. The solution will require a joint effort on the part of Government, regulators, banks, remittance companies and experts, and is likely to require changes to the way each of them operates, including closer cooperation. The Government is working to achieve this.
Couldn’t the Government tell the banks it will suspend the law until a solution is found?
No. The UK has a commitment to reducing the risk of money laundering and terrorist financing, in line with its EU obligations. Suspending the law would potentially expose the Government (and thereby British taxpayers, including the Somali community) to serious legal and financial risks. Furthermore, illicit finance could be used to support terrorism and crime which would hinder stabilisation of countries like Somalia.
Won’t Barclays’ decision ultimately make remittances to Somalia less transparent?
All money remitters are subject to supervision for anti-money laundering requirements. Their records are subject to oversight, whether the transaction takes place in cash or through a bank. However, with an estimated £1.5bn laundered through money service businesses in Britain every year, there is scope for improvement. The Government is urgently seeking to facilitate a long-term, market-led solution that enables people to send money back home safely and efficiently. We will continue to work with regulators, law enforcement and industry to ensure that remittance companies are compliant with the regulations, and will be offering help to enable them to do so. DFID is also developing a pilot project to help develop secure remittance channels to Somalia.
Why did Barclays take this decision? Are any Somali remittance companies suspected of being in breach of HMG regulations on money-laundering and terrorist financing?
The Government cannot speak on behalf of Barclays. However, Somalia is recognised to be a high risk remittance corridor. Under the Proceeds of Crime Act 2002 and Money Laundering Regulations 2007, Parliament has placed stringent requirements on how banks and money service businesses operate. In particular these place an obligation on banks to ensure they have systems and controls in place to prevent and detect money laundering and terrorist financing. It is an operational and commercial decision for each bank how it implements the regulations.
Useful websites
For a list of Somali remittance companies that can be used to remit money back to Somalia see - Somali Money Services Associations (SOMSA) - www.somsa.co.uk
For details of other remittance providers including remitting by mobile, see Send Money Home - www.sendmoneyhome.com
To check if an MSB is properly registered with HMRC see - HMRC - www.hmrc.gov.uk/mlr/msbregister.htm
If you suspect a money service business is operating illegally, please contact HM Revenue and Customs - www.hmrc.gov.uk
To find a payment service firm in your area, or to check that they registered with FCA see - Financial Conduct Authority - www.fca.gov.uk or www.fsa.gov.uk/register/psdFirmSearchForm.do
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This factsheet has been issued jointly by Her Majesty’s Treasury, the Department for International Development and the Foreign and Commonwealth Office |