Anxiety grips Somalia as US bank plans to close money transfers

Sunday, February 8, 2015

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The announcement by the US bank, the Merchant Bank of California, that it is closing down accounts run by Somali money remittance companies, has sparked fears of economic decline and multiple ripple effects in Somalia.

Somali lawmakers and beneficiaries said on Saturday the decision is likely to cut the lifeline of over one million Somalis who depend on foreign remittances which account for 35 percent of the country's Gross Domestic product (GDP). Remittances from the US alone are approximated at 200 million dollars annually.

"The effect of this decision is not only economic, but a security concern to the country and the region," Mohamed Omar Dalha, a lawmaker told Xinhua in Mogadishu.

"This is an economic embargo and it gives a chance to terrorist groups in the country to recruit young who will be dispossessed of any source of income and school fees since most people depend on their relatives from abroad to send money every month," Dalha said.

A 2014 report by Institute of Security Studies noted that the militant group Al-Shabaab recruited young men for as low as 50 dollars.

Dalha is also worried that with a recent UN-backed report saying over 730,000 Somalis are facing starvation this year, the decision to cut off remittances might further exacerbate the situation subjecting families to more suffering.

"Millions of families depend on remittances from relatives in the Europe and the US with some sending even between 100 dollars to 200 dollars; therefore, stopping this could put livelihoods into danger. We request the American bank not to close the Somali companies accounts," added Dahla.

Abdullah Moalim Ahmed, an economic expert in Mogadishu, said the decision to close the accounts means families in Somalia are not able to receive the regular remittances and thus hurt families and contribute to economic downfall in Somalia.

"The remittances support a number of businesses in Somalia thus a cuff-off could negatively impact on this business hence many people losing jobs," Ahmed said.

The closure comes after Somali Parliament last week held a special session to debate on the possible closure of the remittance accounts, noting that the decision will have far- reaching effects not only on the economy but also a threat to peace and cohesion.

Sunrise Community Banks in US state of Minnesota closed all Somali-American remittance accounts in 2011 while Barclays Bank in the UK announced plans to close the accounts of about 250 money transfer businesses, citing concerns about money laundering.

The US currency regulator OCC had warned Merchant Bank of California last year that it found its anti-money laundering procedures inadequate, expressing fears that the money could be channeled to terror groups in East Africa and, particularly, the Somalia based militant group Al-Shabaab.

The banking system in Somalia is relatively small picking up after over two decades of civil war, but remittance companies commonly known as, Hawalas, have been instrumental in facilitating money transfer serving the Somali community in Somalia, Djibouti and Kenya.

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