By Najum Mushtaq
Even though the three-day White House summit on countering violent extremism was prompted by the shocking events taking place under the “Islamic State” in Iraq and wider Middle East, Somalia stayed in the headlines. In his opening remarks at the summit on 17 February, Vice-president Joe Biden left the audience puzzled and amused by claiming that, in his Delaware hometown, “there’s an awful lot of [Somalis] driving cabs and are friends with me for real.”
Biden’s defensive gaffe came after a barrage of criticism the Obama administration has received for blocking American remittances to Somalia. Late in January Merchants Bank of California, which handled 60%-80% accounts of Somali-American money transfer companies, sent out letters to customers informing them of the decision to close the accounts of companies on its books. It was the last major bank still providing this service to Somali-American diaspora.
The bank was complying with a ‘cease-and-desist’ order from US Treasury’s Office of the Comptroller of the Currency, which had reasoned that some of the money sent home by Somalis in the United States falls into the hands of the terrorist group, al-Shabab. Similar stringent measures apply for remittances from Somali diaspora in Europe—Barclays stopped the service in 2013, hitting the flow of money transfers from the UK—yet legal means of sending remittances remain available, albeit with rigorous compliance mechanisms and due diligence as well as through innovative adaptive methods used by the money transfer operators.
Yet, as the figure below suggests, the drop or disruption in remittances from the United States will have far more severe and far-reaching consequences for the people of Somalia than just a setback to the money transfer companies.
Source: Oxfam 2013, all figures in US$
Humanitarian crisis and radicalisation
Remittances from the diaspora amount to between $1.2 and 1.6 billion a year, which is roughly 50% of Somalia’s gross national income; 40% of the population relies on them for survival. “The bulk of money sent is used by families to cover basic household expenses—food, clothing, education, and medical care. Contributions are also made to pay for family emergencies or weddings, to community development efforts, to make investments, to promote political projects, and to settle clan disputes,” reports a survey by the Food Security and Nutrition Analysis Unit.
Not being able to receive remittances in a normal and regular manner will hit the already battered Somali society and economy in more ways than one. According to the United Nations, 731,000 people face acute food security crisis in Somalia, whilst 2.16m remain in stress situation, and there are 218,000 malnourished children under age 5.
“Every time a bank closes, the media asks, ‘What’s the impact?’ You tell them it’s serious, but the remittances don’t stop flowing, so they don’t see the immediate impact – they think we’re exaggerating. But it’s just a slow death,” says Degan Ali, the executive director of the NGO Adeso, who believes the potential impact of the closure of the remittances industry in Somalia “would be devastating…The last famine is estimated to have killed 265,000 people. Triple that number would not be able to access basic needs if the remittance flows stop.”
George Monbiot calls the US Office of the Comptroller of the Currency as “the world’s most powerful terrorist recruiting sergeant.”
“Over the past 10 years, the money known to have been transferred to suspected terrorists in Somalia amounts to a few thousand dollars. Cutting off remittances is likely to kill more people than terrorists will ever manage,” say Monbiot in his 10 February paper titled “Unremitting Pain”.
Monbiot likens the US Treasury’s decision to “iniquitous mass punishment”.
“So you take a country suffering from terrorism, massive youth unemployment and the threat of famine and you seek to shut off half its foreign earnings. You force money transfers underground, where they are more likely to be captured by terrorists. You destroy hope, making young men more susceptible to recruitment by an organisation promising loot and status.
“Through an iniquitous mass punishment, you mobilise the anger and grievance on which terrorist organisations thrive. You help al-Shabaab to destroy Somalia’s economic life.”
Discrimination on the basis of nationality
In addition to the currency control policy aggravating the humanitarian crisis and increasing the potential for radicalisation in Somalia, blocking remittances put immense pressure on communities in harsh conditions marked my constant conflict and extreme food shortage. A study by Oxfam-America and Adeso describes how closure of Somali accounts affects the economy and community relations not only in Somalia but also in the west. Noting that such restrictions do not completely stop the flow of remittances, they do lead to the following counterproductive consequences:
- Disruption of income in cash-strapped Somalia which, some of the interviewees said, affect virtually every Somali family and hampers investments
- Business performance—both inside the country and in Somali communities abroad—is severely undermined
- Increased costs of sending money home as money transfer companies start sending money through more expensive and indirect corridors
- Informal means of transactions are more frequently used which drives the process underground and increases risks due to lack of transparency and oversight.
- Lack of trust and community relations as Somali communities feel “a sense of frustration with US financial regulators for failing to ensure a secure channel for remittances, and second, a sense of exclusion from US banking institutions based on their nationality.”
Taken together, the closure of Somali companies bank accounts in the United States have exactly the opposite impact of what these measures purports to achieve—that is, containing the influence and growth of militant groups like al-Shabab and bringing the Somali population on board in the fight against extremism. As the sense of exclusion and discrimination on the basis of their place of origin spreads among the Somali population, anti-western, especially anti-US, movements will have an increased pool of disgruntled people to tap into.
Building trust between regulators, remitters
Against the backdrop of US restrictions, it will be instructive to examine how other countries with large Somali diaspora are dealing with the problems posed by remittances to Somalia.
In 2013, in response to risks related to remittances to Somalia, the UK government established an Action Group on Cross Border Remittances “to form a public-private partnership to address challenges in remittance markets.”
“Our aim is both to help banks have greater confidence in transactions and protect you by ensuring that funds are transferred through secure channels and reach the people you intend them for,” said an official statement announcing the establishment of The Action Group, which has three work streams:
- To improve guidance on regulatory compliance in the remittance sector
- To improve understanding of risks
- To develop a ‘Safer Corridor’ pilot for UK-Somali remittances. 
The steps taken by the UK government included the development of new guidance for remittance companies and for banks that provide services to remittance companies. Detailed consultations were held with banks and remittance companies to assess understanding of the risks in the sector and identify how these risks can be better managed. “The Safer Corridor” pilot for UK-Somali remittances—a collaboration of industry, banks, regulators, government and the community—is meant to develop a set of measures to improve the security and transparency of transactions. At the same time, a stakeholder group is also being set up in Somalia and the pilot is expected to be fully operational within a year.
In its report, “Capitalizing on Trust: Harnessing Somali Remittances for Counterterrorism, Human Rights and State-building”, the Centre on Global Counterterrorism Cooperation recommends regulator-remitter collaboration on joint outreach, risk analysis, and early warning:
“A core group of regulators and Somali remittance organisations (SROs) should work together to develop joint outreach tools explaining Somali remittances to banks and other regulators and joint risk analysis and early-warning tools” helping regulators and SROs to meet the standards and discharge their obligation provided under anti-money laundering and countering the financing of terrorism regulations.
“Trust”, the report notes, “is central to this industry’s business model, and we argue trust is the key to improving its regulation.”
The writer is regional policy coordinator at LPI and can be reached at firstname.lastname@example.org.
 For a full report on how the system works, see http://www.riftvalley.net/publication/challenges-somali-money-transfer-sector#.VOMdTvmUe1U
 Quoted in The Guardian, http://www.theguardian.com/global-development/2015/feb/06/somali-us-money-transfers-merchants-bank-remittances
 The fully referenced paper is available at http://www.monbiot.com/2015/02/10/unremitting-pain/
 Summarised from http://www.oxfamamerica.org/static/media/files/somalia-remittance-report-web.pdf