International Banks Risk Destabilizing Somalia's Fragile Recovery

Tuesday, September 17, 2013

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International banks risk destabilizing Somalia's fragile recovery by closing the accounts of money transfer companies and should stay further plans to do so, President Hassan Sheikh Mohamud said Monday.

Stricter controls on international bank transfers by Somalian migrants could upset the war-ravaged nation's hopes of recovery by severing a vital financial lifeline and unwillingly lend succor to Islamic militants eager to pounce on any perceived shortcomings by the new democratic government, said Mr. Mohamud, who was addressing ministers from across the European Union at a special conference to rally fresh aid for the Horn of Africa country.

"That will take us back to a difficult time," said Mr. Mohamud. "It will only make Somalia more vulnerable and strengthen al Shabaab," he said, referring to the al Qaeda-linked insurgency that still wages suicide bomb attacks two years after African Union peacekeepers drove them out of Mogadishu.

U.K. lender Barclays BARC.LN -0.83% PLC (BCS), one of the last remaining international banks to work with money transfer firms, said last month it would close the accounts of Somalian-focused remittance companies that banked with the firm due to fears they lack sufficient oversight to spot criminal activity.

Among the accounts that Barclays plans to close is Dahabshiil, the biggest U.K.-to-Somalia money transfer firm with 268 branches across the country.

Their decision followed a similar move by Sunrise Community Banks in Minnesota, which stopped transacting with U.S.-based Somali remittance firms in 2012 citing fears it risked falling foul of regulations prohibiting the financing of terrorist groups.

Chastened by a record $1.9 billion fine imposed by the U.S. government on HSBC Holdings HSBA.LN -0.58% PLC last year for failed anti money-laundering controls in Mexico, international banks have moved to tighten their safeguards across the board. However, aid groups have criticized the decision, saying it could have far-reaching consequences in a country like Somalia with no formal banking system.

In a July report, U.K. charity Oxfam called on U.S. authorities to help set up an international clearing house through which Somalian-focused money transfer firms could transact.

Every year, migrant Somalis send around $1.3 billion back to their home country, according to Oxfam. Barclays said Monday that only a small proportion of Somali-focused remittance firms held bank accounts with the firm.

"It is important to note that of the 16 members of the UK Somali Remitters association, 12 of them banked with banks other than Barclays. Clearly Barclays isn't the last bank in this space, and there are multiple other UK remitters who claim to send money to Somalia that have never banked with Barclays," said a Barclays spokesman in an emailed statement. Dahabshiil said the decision to close its account was "unreasonable and unfeasible."

"Our record with the Financial Conduct Authority, the industry regulator, is spotless--just as it is with HM Revenue & Customs. We have very strong anti-money laundering and compliance checks, and in fifteen years of banking with Barclays they have never raised a problem," said Dahabshiil in a statement on its website.

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