Somalian Remittances at Risk as California Bank Closes Accounts

(Bloomberg) — Somalian remittances from the U.S. could be reduced as much as 80 percent after the main bank wiring the funds severs ties with money transfer businesses, Oxfam America representatives will tell lawmakers.

Merchants Bank of California NA is terminating the accounts of money service providers that send funds to Somalia. The Carson, California-based lender couldn’t meet government financial-crime surveillance requirements and work with the transfer agencies “given the complexity” of the business, according to a Jan. 27 letter to one company from the bank, provided by Oxfam. Somalians in the U.S. and Somali-Americans send $215 million to the east African country each year, based on a 2013 Oxfam report.

The closures this week have prompted an outcry among Somalians living in the U.S. and aid groups, which say crimping the flow of money could cause a humanitarian crisis in one of the world’s poorest countries. Somalia is struggling to recover from two decades of civil conflict. International transfers amount to about a fifth of its economic output.

“This is a bitter blow,” Scott Paul, senior humanitarian policy adviser at Oxfam America, said in an interview. “Closing this channel would be terrible, not just from a humanitarian perspective but from a stability and security perspective.”

Remittances sent worldwide to Somalia amount to $1.3 billion, according to Adeso. The country’s gross domestic product in 2010 was estimated at $5.9 billion, according to U.S. government figures.

Merchants Bank didn’t respond to voice mail and e-mail requests for comment.

Government Reaction

The issue has drawn the attention of Minnesota Democrat Representative Keith Ellison, whose district encompassing Minneapolis has a large community of Somalian expatriates. Ellison plans to speak at a briefing on the topic in Washington today. Speakers from Oxfam and Adeso, an African charity and development organization, will stress the need to find a swift solution, Paul said.

The Treasury Department’s Financial Crimes Enforcement Network in November noted that banks might be “indiscriminately terminating” accounts of all money services businesses in order to avoid regulatory scrutiny. The Treasury has been trying to balance enforcing regulations meant to prevent money laundering and terrorist finance with allowing remittances to flow.

Treasury spokeswoman Hagar Chemali referred to comments department official David Cohen made in January at a Treasury roundtable on financial access for money services businesses, and declined to immediately comment further. Cohen said the Treasury is “devoted to ensuring that compliant MSBs continue to enjoy access to the regulated financial system.”

Merchants Bank isn’t the first lender to struggle to balance meeting regulations and working with Somalian money transfer organizations.

In 2013, London-based Barclays Plc was involved in a U.K. legal case after it said it would end its business with a Somali company that provided remittance services. A court found that the bank must maintain its relationship with the company while money-laundering concerns were reviewed.

Source: Bloomberg

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