Despite Kerry’s Visit, Little Movement on Lifeline for Somalis

John Kerry used the first-ever trip by a U.S. secretary of state to Somalia to express confidence in the rebuilding efforts of a country rocked by violence for more than two decades and to announce that the U.S. is moving toward re-establishing an embassy in Mogadishu.

But this week’s so-called historic visit – America’s top diplomat was confined to the capital city’s airport during his brief, unannounced trip due to security concerns – was apparently absent any mention of a financial system many say is essential to the country’s stability and is being crushed by overly stringent U.S. regulations.

“It was a brave move to go to Somalia without any answers on money transfers, because that’s what people want to hear about,” says Scott Paul, a humanitarian policy adviser for Oxfam America. “That’s what Somalis are most interested in: ‘Is my mother going to be able to send me my monthly rent?’ or, ‘Am I going to be able to put food on the table next month?’

“For [Kerry] to have come [to Somalia] without a solution to that problem I think raises more questions than it answers.”

The cutoff of remittances that the Somali diaspora send to family and friends back home has increasingly garnered attention from advocates in the U.S., who say the transfers are a vital lifeline for residents of a country that lacks a functioning bank system. Somalia receives $1.3 billion each year from outside its borders – an amount totaling more than the combined sum of humanitarian aid, development aid and foreign direct investment it gets – and remittances make up between 25 and 45 percent of the country’s economy.

These transfers, however, have been curtailed by stricter money-laundering regulations put in place in the U.S. after the terror attacks of Sept. 11. The restrictions have caused several large U.S. banks to close accounts used by money transfer operators to send funds to the country, due to concerns they could be used to finance terrorist groups like al-Shabab.

Merchants Bank of California – which was responsible for sending 60 to 80 percent of total remittances to the country – announced it was shutting down its accounts in February, and First American Bank in Illinois is expected to follow suit this week. As native Somalis’ options for sending money back home continue to dwindle, Paul says some transfer operators have started taking suitcases full of cash by plane to the country.

An al-Shabab attack last month at Garissa University College in Kenya that killed nearly 150 people also has caused the Kenyan government to cut off remittances sent to Somalis in its country from both the U.S. and Somalia. Kenya has a huge population of Somali refugees who have fled their country’s violence, but in order to remain in operation, Paul says Somali money transfer companies there have to prove they are not supporting Somali terrorism – something he also says is nearly impossible.

Humanitarian organizations like Oxfam America, along with members of Congress, have been pressing the Obama administration for U.S. action on the issue, but a solution remains elusive. Eleven members of Congress sent a letter last week to Kerry, Treasury Secretary Jacob Lew and National Security Adviser Susan Rice saying that remittances must continue to flow for the country to develop.

“As financial institutions continue to exit this market, the potential for a large-scale disruption of remittances for Somalis increases. Remittances are a vital source of income for Somalis,” the letter said. “While some remittances still appear to be reaching Somalia, the current situation is unsustainable for the long term. Routing remittances through traditional financial institutions provides greater transparency and security, better not only for those sending and receiving remittances but also for enforcement of rules against terrorist financing.”

While in Mogadishu on Tuesday, Kerry urged the Somali people to follow through on holding democratic elections in 2016, saying the country’s political chaos has allowed terrorist groups to thrive.

But State Department officials declined to say whether the secretary of state discussed the remittance issue as he met with the country’s president and prime minister, instead telling U.S. News in a statement that officials are “actively working across the U.S. government to consider various options to address the problem and improve information-sharing between Somali money transmitters and U.S. banks.”

“The lack of a regulated financial sector in Somalia is a significant factor contributing to this difficulty,” the statement says. “The Federal Government of Somalia (FGS) should focus on building institutional capacity, passing legislation, and implementing regulations and safeguards required to lay the foundations for a regulated financial system. We are in active discussions with the Somali authorities on how we can help them build such a system.”

Paul says blocking remittances is counterproductive to the U.S. aim of reducing terrorism in the country, because many young Somali men depend upon them to survive.

“Historically in Somalia when people have no other source of income, it tends to be armed groups that pick up slack and offer the best source of stable income,” Paul says. “So it does strike me as pretty problematic that there’s such a strong push around countering violent extremism and generally around stabilizing and bringing peace to the country, and still no solution to make sure that people get a reliable source of income that doesn’t require them to go and fight.”

Rep. Keith Ellison, D-Minn., whose district includes Minneapolis and has a large population of Somali-Americans, has been advocating for a swifter administration response to the reduction in available remittance sources. He and Rep. Adam Smith, D-Wash., have held meetings on the issue with administration officials, but no steps have been taken to reverse the closures of Somali accounts.

Smith, who also represents a district that’s home to many native Somalis, says he and Ellison are in consistent contact with the administration on the issue, but have no further meetings scheduled.

“We have got their attention. For the longest time it was viewed as not that big of an issue, but I think people are beginning to understand the impact – it’s just now they actually need to act,” Smith says. “It’s not complicated. They just need a financial institution in Somalia that they trust.”