UK Plans Corridor for Somalia Fund Transfers

Barclays Bank Chair Marcus Agius has resigned amid revelations related to an interest-rate rigging scandal. Banks function as a law unto themselves. The scandal is international in scope., a photo by Pan-African News Wire File Photos on Flickr.

October 13, 2013 1:32 pm

UK plans safe corridor for Somalia payments

By Elaine Moore
©FT

The British government is planning to create a safe corridor for payments to Somalia as money transfer companies in the UK face closure over fears of terrorist funding.

The move was announced days before Barclays is due to shut the last account held by the largest money transmitter operating in Somalia, effectively halting the majority of funds sent from Britain.

Somalis living and working in the UK send around £500m to friends and family in the country each year through money transfer agencies and global remittances account for close to half of Somalia’s economy, exceeding global aid.

For many Somalis the money they receive in remittances is their only source of income.

Farhan Hassan, who came to the UK at the age of 14, sends home a portion of his salary every month, and says he knows the money is a lifeline.

“The money we send is used for food, education, hospitals – basic things. It costs $57 to get a blood test in Somalia – with no money sent from overseas that’s impossible for the average Somali to afford. If remittances are stopped, people in Somalia will start to die.”

Barclays, which is cutting ties with 250 international money transmitters, says that the money transfer sector is at risk of being used for money laundering and terrorist funding and falls outside new regulatory criteria. Last year HSBC was fined $1.9bn by the US regulator for poor anti-money laundering controls.

Barclays is due to close the account of Dahabshiil, Africa’s biggest supplier of remittances, on October 16.

Ahead of this deadline the British government has come under pressure from the Somali government, charities and campaigners to come up with a solution that will keep the money flowing.

In response, the Department for International Development, the Treasury, the UK regulator and the National Crime Agency have announced plans for a scheme that will track payments made from the UK to Somalia.

The plan is expected to take lessons from a remittance payment initiative set up in Pakistan after the country came under scrutiny from governments concerned about militant funding after 9/11. Pakistan’s government, supported by the UK, put in place strict monitors on money transfers in 2009 and the additional security led to a dramatic increase in funds sent to the country, from $6bn in 2007/08 to $13bn in 2011/12.

Dahabshiil said it would welcome similar security measures employed in Africa, but that the pilot – expected to take a year, did not address the immediate problems faced by money transmitters in the UK, which cannot send large sums of money unless they are deposited with a British bank.

No alternative account providers have offered to take Barclays’ place for money transfer companies working in Somalia.

“This needs to be addressed as a matter of urgency,” said Abdirashid Duale, Dahabshiil chief executive. “No equivalent banking solution has been found and the disruption of these flows presents an immediate and real risk to the people of Somalia.”

The UK has one of the largest Somali populations outside the Horn of Africa and communities are still largely centred around port towns such as Cardiff, Hull and London that Somali sailors first settled in a century ago. The country’s civil war in the 1990s led to a significant increase in numbers and the Somali population in the UK is now estimated to be a little over 100,000.

According to a 2009 government report, Somali-born migrants have the lowest employment rate of all immigrants in the UK and many who are employed work in some of the lowest paid jobs.

In spite of this, the diaspora sends back millions of pounds to Somalia each year.

Rushanara Ali MP, who represents a constituency in east London with a large Somali community, said that British Somalis know that the money they send is vital to their families and urged the British government to come up with a short-term plan.

“The action of shutting down Dahabshiil’s accounts punishes everyone and leaves no way to send money to Somalia via legitimate routes,” she said. “The government and regulator need to come up with a solution now.”