Terror financing concerns are driving banks to deny financial services to Somalis wanting to send remittances to family living in the East Africa nation, according to an Oxfam report released on July 31, 2013. Remittances represent a significant share of Somalia’s economy, and many families depend on them to pay for basic needs and services. But fear of running afoul of anti-terror finance rules imposed by the U.S. and other countries is often cited by financial institutions as the reason for curbing services to areas they consider high-risk. But, according to the report, titled, Keeping the Lifeline Open, “a remittance channel closure is among the most worrisome of the possible and foreseeable catastrophes that could befall Somalia.”
An estimated 600,000 to 800,000 Somalis living in the diaspora send home about $1.3 billion a year to support their relatives. Increasingly, however, they are finding it harder to do so because banks in the U.S. and in the United Kingdom are curbing banking services to Somali money transfer organizations (MTOs) because of fears that funds might end up in the hands of terrorists. Almost all major U.S. banks have stopped offering money transfer services to Somalia and Somalis in the UK are experiencing similar problems after Barclays bank announced it too would be suspending its services in August 2013.
But these banks, according to the report, “appear to be acting out of general aversion to risk rather than to any specific concerns regarding their compliance practices.” One Somali MTO official interviewed by Oxfam said that “none of the 40 account closure and rejection letters he had received [from a bank] mentioned any wrongdoing on the part of his company.”
“U.S. banks have responded in a manner disproportionate to the level of risk involved and have failed to distinguish among Somali-American MTOs, treating companies that are meticulous in their policies and practices in the same way that they treat those that take a less rigorous approach,” the report said.