Several US banks have quit conducting business with money transfer companies remitting cash to Somalia from the US. Somalia lacks a formal banking system due to the internecine warfare and political instability that has rocked the nation since 1991. Money transfer between Somalia and the outside world is conducted through informal money transfer networks called Hawala. However, its informal nature, and its framework outside the set banking laws have enabled terrorists to utilize the Hawala system to finance their operations.
Almost all major US banks have terminated remittance services to Somalia because of counter-terrorism financing regulations which seek to stop the flow of cash to terrorist groups including Al Shabaab – a Somalia-based Sunni terrorist organization. Somali-American money transfer agencies have repeatedly been accused by intelligence agencies of providing financial logistics to Al Qaeda-affiliated terror groups in the Horn of Africa and East African regions.
Last week’s decision by the Merchants Bank of California to terminate its business with Somali-American money transfer agencies will see remittances sent to al Shabaab from the US decline considerably.
It is commendable that the Office of the Comptroller of the Currency – a U.S. Treasury Department bureau – has issued consent orders to banks involved in money remittances to Somalia so that they can enhance their procedures and policies in order to avert legal infractions. The consent orders will enable the involved banks to adhere to counter-terrorism finance rules and regulations. Moreover, this move will stimulate Somalia’s Hawala system to formalize itself into a legal, accountable and transparent money transfer system. This in turn will limit the flow of cash to the coffers of terrorist organizations.
