A single bank in California holds the fate of countless families. Bold government action is required to keep money transfers flowing to Somalis in need.
The well-being of countless families in Somalia could be at stake if a California bank, under pressure from federal regulators, closes the accounts of Somali-American money transfer operators. On Tuesday, Merchants Bank announced its plan to shutter those accounts on February 6, potentially severing a lifeline worth between $200 million and $400 million a year.
That’s money that hardworking Somalis here in the US scrape together to send back to family and friends who rely on the support for necessities like food and medical care in a country that has endured decades of hardship. Members of the Somali diaspora in the US depend on the money transfer operators to help with the transaction, but without bank accounts these essential small businesses can’t hold and wire the money abroad.
News of the potential closings comes just a few months after Merchants, which reportedly handles between 60 and 80 percent of all funds transferred from the US to Somalia, said it would try to resist regulatory pressure and keep the accounts open.
In recent years, banks that provide accounts for money transfer operators have faced intense scrutiny and the threat of high fines for failing to comply with Treasury department rules designed to counter terrorism and prevent money laundering. The pressure prompted many banks to stop serving money transfer operators, with Somali companies particularly affected.
Merchants Bank decided to stay in the business as Oxfam and Adeso, an international humanitarian and development organization founded by Somalis pushed the Treasury Department to rewrite banking rules. Now, as the bank prepares to close accounts, it seems clear that a more urgent solution is needed. Somali families could begin to feel the effects of the decision as soon as next week, when the flow of money could drop dramatically. At the same time, the money is sent will be transmitted through informal and unregulated channels—something the Treasury Department agrees would be a significant setback in both security and humanitarian terms.
“Without bold, inter-agency governmental action, all of this is likely to destabilize communities, empower criminal groups, and deprive families of the support they need to survive and thrive,” said Oxfam’s Scott Paul, a senior humanitarian policy advisor. “Reform of banking and money transfer rules is needed in both countries—and those changes are underway—but it’s not happening fast enough. Somali families are caught in the middle. They are the ones who will suffer when the accounts close.”
Hardship looms
All told, Somali migrants around the globe send home about $1.3 billion a year—more than the country receives in humanitarian aid, development assistance, and foreign direct investment combined. From the US alone the annual amount is between $200 million and $400 million. Loss of that support could mean profound hardship for untold numbers of people.
“How would you feel if your mom was sick and you could not provide the medicine and food she needs?” asked Mohamed Hassen, a Somali elder living in Minnesota when word of the looming account closures hit his community last year. “I can’t even eat thinking about [it].”
What can be done?
“The US government bears significant responsibility for the closures,” said Paul. “With its humanitarian and security objectives on the line, our government needs to intervene and ensure that families in Somalia can get the life-saving support they need.”
One solution, said Paul, is for the US government to employ a public financial institution, like the New York Federal Reserve, to send money on behalf of the Somali money transfer operators—at least until market conditions entice private banks back into the business. Alternatively, the Treasury Department could approve a special regulatory regime designed to urgently entice banks to re-enter the market.
“Money transfers from abroad are possibly Somalia’s most important source of revenue,” said Paul. “It’s money that supports community resilience, promotes peace and stability, and reduces the need for international humanitarian assistance. It’s in the interest of all of us to make sure the flow isn’t cut off.”
Tell the US Treasury to step in and take action to keep the money transfer lifeline open.