The Politics of Poverty

Ideas and analysis from Oxfam America's policy experts

New US law a boost, but disruption of remittances to Somalia still looms large

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Two community outreach workers walk through the Badbaado Camp for internally-displaced Somalis, located outside of Mogadishu in 2011. They are looking for malnourished children in the camp, referring them to the Community-based Therapeutic Care Center in the camp for treatment and following up with current patients. SAACID (Somali, meaning 'to help'), an indigenous non-profit organization founded and directed by Somali women, admits thousands of malnourished children every month in 16 care centers across Mogadishu. (See more about their work at saacid.org) Although important local programs like these exist, most Somalis are dependent families abroad for financial support. Photo: Geno Teofino / Oxfam

Passage of the Money Remittances Improvement Act (MRIA) means less risk for banks, but the lifeline is still not safe.

Scott Paul is a senior humanitarian policy advisor at Oxfam America. 

The arrival of Eid al-Fitr is a joyous occasion throughout the Muslim world, including in Somalia and Somali communities in the United States. Somalis mark the end of Ramadan and its dawn-to-sunset fasting with prayer, celebration, and the exchange of gifts.

Among other things, it is a time when Somalis reaffirm their strong bonds with their relatives in Somalia with generosity. Many Somali-Americans send their loved ones a little extra on top of the money they regularly send for food, rent, and healthcare, so that no one is left out of the community’s festivities.

Just a month ago, it was unclear whether the financial link connecting Somali-Americans and their families in Somalia would remain fully intact in the days following Eid. Merchants Bank, the only bank in the United States presently working with the full range of Somali-American remittance companies, had announced that it would close most of these accounts on July 31st.

Thankfully, this has been a month of mostly good news for Somali families sending and receiving money. Merchants Bank has postponed its planned account closures until September 30th as it looks for ways to maintain relationships with the Somali money transfer operators.

But perhaps the best news of the past month is the passage of the Money Remittances Improvement Act (MRIA) in the US Senate. On its face, the MRIA streamlines the regulation of money transfer operators. It will allow the Financial Crimes Enforcement Network (FinCEN), a Treasury Department bureau that detects financial crime, to use data gathered from some state-level examinations. Until now, the federal-level FinCEN has had to carry out its own exams, even if state agencies were already on the job. Once implemented, its most immediate impact on remittance companies will be relief from having to go through the same onerous processes twice. That will mean reduced overhead, and hopefully reduced or stabilized costs and improved service to people sending and receiving money across the globe.

Somali women receiving money from abroad at a Somalia money transfer operator in the Mogadishu area. Photo: Geno Teofilo/Oxfam

For Somalis and Somali-Americans, though, remittance company access to banking services—not high fees or poor service—is the most significant challenge, and the MRIA could lead to a modest improvement there too. The MRIA encourages states to increase the quality of their exams and frees up FinCEN to focus its resources on gaps in anti-money laundering regulation.

Better government oversight of money transfer operators means less risk for banks that maintain their accounts. It won’t be a sea change by any means, but if it influences the decision of just a single bank to maintain remittance company accounts, it will have staved off hopelessness and despair for millions of Somalis and their Somali-American families on whom they depend.

With the September 30th Merchants Bank deadline still looming, no one involved in the effort to maintain the Somali remittance lifeline is in danger of succumbing to complacency. Rep. Keith Ellison and his tireless staff, who authored the bill and shepherded it through the House and Senate, are under no illusion that their significant achievement marks the end of the fight.

This week I’m speaking at a day-long conference hosted by the Somaliland government on remittances, compliance and financial crime. The Somaliland government’s dedication on this issue is representative of the broad recognition by all Somali authorities that preventing money laundering and encouraging international banking is the only way to permanently ensure that money can flow freely and legally into the Somali territories.

As a result of campaigning by Oxfam and others, the United Kingdom government continues to develop its “Safer Corridor” program to enhance transparency in the Somali remittance system. Oxfam, Adeso, and other relief agencies will press the US government to match the UK’s commitment to the safer corridor initiative, as well as ensure that both governments are prepared to prevent any possible disruption in the flow of money in the short-term.

With 2.9 million people in Somalia already dependent on aid, and food security set to decline even further over the coming months, the millions of Somalis reliant on help from their families may have nowhere to turn if their lifeline is severed.

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