Bank Moves Hinder Immigrants

Miriam Jordan and Erica E. Phillips | Wall Street Journal | June 22, 2012

Efforts by U.S. banks to avoid violating antiterrorism financing laws are crimping the ability of Somalis in the U.S. to send money home, prompting calls for Congress to revisit bank regulations on money transfers.

Somalis in the U.S. use money-transfer merchants, informally known as “hawalas,” to send about $100 million annually to Somalia, according to the U.S. Treasury Department. The East African country, where there is no formal banking system, has been without a functioning government since 1991, when civil war erupted and forced tens of thousands to flee.

Nasir Hamza, an employee of Kaah Express in Minneapolis, helps Abdirahman Mahamud send money to his grandmother in Somalia on Wednesday. CREDIT: Jenn Ackerman for the Wall Street Journal.

U.S.-based Somali hawalas, which are federally licensed, rely on banks to wire funds to their counterparts in Africa, who deliver the money to the designated recipients. But increasingly, U.S. banks say they are severing ties with the informal and opaque system to avoid violating federal banking regulations, such as anti-money-laundering rules.

In Minnesota, home to 32,000 Somalis, a crisis erupted for these immigrants when Sunrise Community Banks, a local bank that facilitated most transfers for three years, stopped doing so last Dec. 30. It acted after two local Somali-American women were convicted last year of routing money to al-Shabaab, a Somali terrorist group. The women used hawalas, according to evidence presented in court.

A Sunrise spokeswoman said the bank wasn’t involved in the case.

“The community is concerned that their loved ones back home will be severely impacted if this problem isn’t solved,” said Sadik Warfa, a Somali community leader in Minneapolis.

Rep. Keith Ellison (D., Minn.), whose congressional district includes Minneapolis, called the situation “precarious.” He said he has pressed officials at the Treasury, Federal Reserve and State Department to tackle the problem. Mr. Ellison also is working on legislation to modify oversight of money-service businesses.

Concern over money transfers has risen since the Sept. 11, 2001, terrorist attacks. The federal government has tightened banking regulations to prevent money from the U.S. ending up in the hands of terrorist groups in the Middle East, Africa and other parts of the world.

Rep. Ellison told a House financial subcommittee hearing Thursday that Congress should take a “hard-nosed look” at regulations to determine whether portions could be consolidated or repealed without risking the protections they provide. Deborah Bortner, a state banking regulator in Washington, testified that without legitimate ways to send money “it’s going to go underground.” That would leave regulators in the dark about how much money is sent, where it goes and what it might fund, she said.

Rep. Carolyn Maloney (D., N.Y.) and other members of the House Committee on Financial Services have attempted to address the issue through legislation in the past.

Somalis have held several demonstrations in Minneapolis to demand a solution. Last month, they marched from the Wells Fargo Center to U.S. Bancorp with signs that blamed the institutions for “starving” their families. Many Somalis closed their accounts with the banks, according to community leaders.

“War on terror has nothing to do with this business,” said Imam Hassan Mohamud of the Islamic Da’wah Center in St. Paul. “The money we send goes to 80-year-old grandpa and grandma.”

Representatives of Wells Fargo & Co. and U.S. Bancorp said their banks sympathized with the Somali plight but must abide by federal laws.

U.S. banks are permitted to deal with hawalas, typically small businesses that have anti-money-laundering, reporting and record-keeping obligations in the U.S. But many banks have ceased money transfers to Somalia amid concerns the funds were being funneled to terrorist groups.

Sunrise cited security and liability issues in closing bank accounts with the Somali money-transfer shops. In a statement, Sunrise said it remains open to facilitating transfers to Somalia but “we cannot do it alone.” The bank said it had “reached out to multiple government agencies and officials…to reach an accommodation that would satisfy the concerns of those sending funds, the government and the bank.”

As a result of Sunrise’s move, several hawalas in the Twin Cities have closed or curtailed money transfers.

Those still open are working with one or two banks outside Minnesota, said Abdul Aziz, a member of the Somali American Money Services Association, a trade group for hawalas. Mr. Aziz declined to name the banks, citing concern that publicity could compel them to halt transfers.

In San Diego and Seattle, home to many Somalis, hawalas are able to send money through a few small banks. A Somali remitter in Atlanta said the number of banks doing business with his firm has dwindled.

A Treasury Department official said, “We continue to watch this issue closely and to engage regularly with the Somali community, with banks and with money transmitters.”

Scott Rembrandt, policy adviser in the Treasury’s Office of Terrorist Financing and Financial Crimes, said in a Treasury blog post that the department can’t ban financial institutions from doing business with specific parties that send money to Somalia.

Mr. Rembrandt also suggested banks can safely send funds to Somalia. The Treasury doesn’t assume “money transmitters present a uniform or unacceptably high risk of money laundering, terrorist financing or sanctions violations,” he wrote.

Abdiaziz Hassan, 29, a Somali immigrant in Minneapolis who helps support a family of more than 10 back home, said he recently tried to send $500 to his mother for medical treatment. “I had to go to three different places,” sending a small amount from each one, he said.

Write to Miriam Jordan at miriam.jordan@wsj.com

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