Africa and Western World / Corruption / Development / Economics / Refugees / Terrorism

Multinational Banking and Somali Remittance Flows: Exactly Who Should be Regulated?

Imagine someone operating outside of international banking regulations, transferring large sums of money to shadowy networks engaged in nefarious and illegal activities.

Who comes to mind? A Somali refugee financing Islamic terrorists? Or a US banker laundering money for drug cartels?

It’s an intentionally provocative comparison, to be sure. Yet largely absent from debates over Somali remittance flows is the issue of corruption within some of the world’s most powerful multinational banks and international financial institutions.

A Dahabshiil franchise outlet in Brisbane, Australia David Jackmanson, courtesy of wikipedia, http://en.wikipedia.org/wiki/File:Dahabaustmoor.jpg

A Dahabshiil franchise outlet in Brisbane, Australia
David Jackmanson, courtesy of Wikipedia

Somali remittances, which are sent through money transfer operations (MTOs), have been the subject of much scrutiny since 9/11. Members of the Somali diaspora rely on MTOs to send money (thought to total $1.2 billion a year) to their families and extended kin in Somalia, which, until recently, had no central monetary authority. These operations, in turn, rely on the banking facilities of large international banks. However, MTOs have also faced closures due to accusations they they serve as vehicles for laundering money and financing terrorism.

The most recent blow to the Somali remittance system came in May 2013, when Barclays announced that it would close the bank accounts of hundreds of Somali MTOs —including the biggest, Dahabshiil—in order to meet stricter money-laundering regulations. Previously, it had been one of the few banks not to have withdrawn from this sector.

While anti-money-laundering rules were not designed with MTOs in mind, many of the world’s largest banks (already subject to much public criticism) have scaled back on operations in “emerging markets” out of fear of failing to comply with these international regulations.

One UK commentator, Richard Murphy, noted the underlying hypocrisy of Barclay’s decision: “If they were worried about money laundering, Barclays would pull out of Cayman, the BVI, Jersey and other locations where tax evasion and high level avoidance is rampant – all of it only possible because of the presence of the world’s major banks and the availability of corporate and trust secrecy that facilitates the movement of billions and even trillions of funds behind a veil of respectability, all in the pursuit of greed and excess.”

Countering this logic, the Forbes contributor (and strong advocate of free trade), Tim Worstall, argued: “It’s not so much that they are worried about money laundering: it’s that they’re worried about being fined $1.9 billion for not following the bureaucratic rules against money laundering.” He suggested that Barclays made a purely economic decision and that denying Somalis much-needed remittances was an inherent side-effect of expensive government regulations.

Regardless of one’s opinions on government regulations, it appeared that ordinary Somalis would pay the price for laws aimed to regulate the activities of the world’s largest banks. (The very banks, incidentally, which have gone largely unpunished for the acts of financial mismanagement that helped trigger the 2007-8 financial crisis).

A Dahabshiil franchise outlet in Puntland (Somalia) Warsame90, courtesy of Wikipedia, http://en.wikipedia.org/wiki/File:Dahabpun.jpg

A Dahabshiil franchise outlet in Puntland (Somalia)
Warsame90, courtesy of Wikipedia

MTOs must also deal with a reputation already tainted by over-zealous U.S. prosecution. After 9/11, American banks shut down the accounts of al-Barakaat (once the largest MTO operating in Somalia) to meet the United States’ new anti-terrorist financing measures. Then Treasury Secretary Paul O’Neill declared al-Barakaat to be “the quartermasters of terror.” Yet, despite such polemics and numerous investigations, nothing was found to link the company to any terrorist activities. As Hannah Gibson notes, “the 9/11 Commission Report found that the funds used in planning the attack were channeled through a US bank – not a Somali MTO.”

This is not to suggest that operations like Dahabshiil or al-Barakaat may never have been used by individuals to finance acts of terrorism, piracy, or money-laundering. However, remittance flows to Somalia also help to subsidize unemployment, contribute to state-building and development efforts, and provide much-needed assistance to Somali families. NGOs and other aid organizations working in the region also rely on MTOs. “Cutting off this crucial lifeline,” argues Amanda Roth, “will likely do more harm than good.”

More importantly, financial institutions in the U.S. and U.K. have proven far more vulnerable to individual and systemic abuse and mismanagement. Barclays has been accused of running “dedicated units to systematically aid the undetected transfer of money” for states and enterprises on the U.S. sanctions list. And its decision to close Somali MTOs came in the wake of a scandal involving HSBC, the British multinational banking giant. According to a 2012 Senate report, HSBC failed to abide by international regulations and exposed the U.S. financial system to “a wide array of money laundering, drug trafficking, and terrorist financing.” The company recently agreed to pay a fine in order to avoid facing criminal charges for laundering millions to some of the world’s most powerful drug cartels in Mexico. For more on the HSBC scandal, see here.

As Gibson notes, “In the UK, no Somali API [Authorized Payment Institution] has ever been accused of money-laundering or terrorist financing by the regulatory authorities – despite increasing regulation since the 2008 global banking crisis.” In the U.S., nothing was ever found to link al-Barakaat to terrorist activities. The same cannot be said of Barclays and HSBC.

A Dahabshiil franchise outlet in Columbus, Ohio geocam20000, courtesy of Wikipedia, http://en.wikipedia.org/wiki/File:Dahabshiil.jpg

A Dahabshiil franchise outlet in Columbus, Ohio
geocam20000, courtesy of Wikipedia

In April of this year, Barclays finally reached a settlement with Dahabshiil that should allow it to continue its operations under alternate arrangements in the future. Hopefully, this will put the controversy to rest.

But what remains is the lingering sense that the world is not equally “globalized” for everyone. As many scholars and commentators have pointed out, the Somali diaspora represents a kind of globalization “from below.” Dispersed throughout the globe, Somali refugees send over a billion dollars each year to Somalia and the surrounding region. Certainly, militant groups, like al-Shabaab, also make use of these transnational networks and may even utilize some of the same financial instruments that also facilitate remittance flows. However, these networks strike me as remarkably similar in nature to many multinationals–rapidly transferring money across state borders; forging decentralized, global alliances that are often opaque and difficult to track; operating partially outside of state surveillance; and sometimes evading taxation and other financial regulatory regimes.

Still, many people continue to see Somali refugees as an alien, shadowy, and suspect presence in their home countries. And, despite all the evidence marshaled against banks like HSBC, blame for “terrorist” financing is disproportionately leveled at immigrants (and the companies they frequent).

The solution does not seem to lie in replacing one stereotype (the Muslim terrorist financier) with another (the shady, criminal banker). But it is worth recognizing that illegal activities (which are as globalized as any other) are deeply implicated in some of the most powerful financial institutions in the West, which are often the least subject to scrutiny and regulation and the least likely to be severely punished for wrongdoings.

Keren Weitzberg is a postdoctoral researcher at the University of Pennsylvania. She is working on a book manuscript that focuses on questions of transnationalism amongst Somalis in Kenya.

One thought on “Multinational Banking and Somali Remittance Flows: Exactly Who Should be Regulated?

  1. I suspect you are being too polite to get at the reality. AML legislation can be seen as a anti-competitive measure. In the world of money laundering CIA and various other government bodies are by far the dominant players – e.g. Iran-Contra, funding of Afghan resistance to Russia and many other roles in the drug business. AML effectively restricts unoffical competition.

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