State Department Not Alarmed By Shutdown of Money Flow to Somalia

State Department spokesperson downplays role of remittances in Somali economy.

 Many companies that send money from immigrants in the U.S. to friends and family in Somalia shut down this week, but the State Department doesn’t see any need for an emergency response.

State spokesperson Jen Psaki downplayed the impact that a cutoff of remittances could have on millions of Somalis that the U.N. says depend on the money for basic survival. It would be a “stretch,” State spokesperson Jen Psaki said Wednesday, to connect remittances to economic opportunity in Somalia.

Psaki said the U.S. government had “engaged in ongoing communication with the Somali community in the United States and financial institutions serving that community” in an effort to effectively regulate remittances and keep them from financing terrorism.

At issue is the fallout from a decision by the main bank facilitating international wire transfers to Somalia to close the accounts used to hold and then send the money. Merchants Bank of California, which handled 60-80 percent of those funds, closed all Somali accounts on Friday, as Foreign Policy was the first to report. The closure was a result of regulatory pressure on banks to verify where the money is going to make sure it isn’t funding terrorism, which is hard to do in Somalia because the country doesn’t have a central bank or formal banking system.

U.S. banks’ reluctance to send money to Somalia threatens to disrupt vital financial support to Somalis living in poverty. Humanitarian organizations estimate that $250 million flows from the U.S. to Somalia every year, but money transmitters estimate the number is far higher when flows to the broader diaspora of Somalis living all over Africa are included.

Oxfam, the humanitarian organization, responded to Psaki’s comment by pointing out that Somalia receives $1.3 billion in remittances every year, which is more than the country gets in aid or foreign investment.

“It is critical that the Department of State recognize the catastrophic consequences that the current disruption in remittances will have in Somalia,” Scott Paul, a senior advisor for Oxfam America, said in an emailed statement.

American regulators say they aren’t trying to stop the flow of legitimate money to Somalia, but they have put increasing pressure on banks to monitor their business for money that could be going to criminals or terrorist groups, including al-Shabab, the militant group which controls parts of Somalia and is challenging its fragile, Western-backed government.

Advocates and lawmakers have called on banking regulators to develop a solution to the Somali problem. Rep. Keith Ellison (D-Minn.), whose district includes the country’s largest Somali-American population, said stopping the flow of hundreds of millions of dollars to Somalia could further destabilize the country, which is facing a fierce Islamist insurgency and endemic poverty.

“A disruption in remittances could reverse the limited gains that the Somali government and the international community has made to rid Somalia and the greater Horn of Africa of terrorism,” Ellison said in a letter to Secretary of State John Kerry and Treasury Secretary Jack Lew on Feb. 6.

It’s not clear whether Ellison’s work will gain traction. In a similar situation in the U.K. in 2013, when Barclays threatened to close the accounts of the main company transmitting money to Somalia, the British government intervened to force the bank to keep them open until an alternative was found. There has been no such response from the U.S. government in this case.

According to a report by the U.K. Department for International Development, 80 percent of business start-ups are funded with remittances and two thirds of the urban population relies on them.