Millions of Somalis are in danger of losing nearly $500m in vital remittances following news that Barclays is to withdraw banking services from up to 250 Money Service Businesses (MSBs) in the UK, including Africa's largest, Dahabshiil, along with a number of other Somali MSBs.
The bank's decision follows an industry-wide cull which has seen the likes of Barclays, HSBC and the Royal Bank of Scotland scrutinise the money-service sector more closely and change their eligibility criteria for MSBs. Barclays recently informed three-quarters of the money-service companies that use its accounts that it no longer wanted their customers – and gave until mid-July to find alternative banking facilities. Barclays' decision is understood to be part of a strategy to exit the money transfer sector as a whole in a bid to reduce the risk of further money laundering accusations and negative media headlines.
The decision has caused an outcry in the sector, with industry bodies, such as the UK Money Transmitters Association (UKMTA), a trade body for Britain's payments sector, mounting an industry campaign to highlight the damaging effects Barclays' decision will have on the sector. Evidence gathered by UKMTA suggests that as many as 75 per cent of UK money transmitters have experienced problems obtaining or retaining a bank account. UKMTA further believes that as many as 25 per cent of MSBs that have registered with HMRC have not been able to trade because of problems in obtaining banking facilities.
UKMTA is concerned that high street banks are discriminating against registered MSBs wanting to open bank accounts—leading to financial exclusion for both for MSBs concerned and the individual consumers who wish to send remittances.
Dominic Thorncroft, Chairman of UKMTA, said: "The bottom line is that the banks are closing the accounts of FCA authorised and HMRC registered MSBs without justifiable cause. Britain's money transfer industry is currently one of the most dynamic in the UK financial sector. However, if this trend continues it will have a disastrous impact on its development, as MSBs depend on their banking partners in order to provide their services.
"Barclays' decision is extremely damaging and disappointing for the sector. Clearly, Barclays' has the right to make its own commercial decisions, but it would appear that it has taken a particularly exclusive approach; perhaps only choosing to work with companies that send money to the less difficult regions."
Dahabshiil, an authorised payment institution under the Payment Services Regulation of the FCA, is one of the MSBs hardest hit by this decision as it is now faces a race against time to secure a new UK banking licence, so that it can continue to provide a vital service to the majority of the British Somali public and to international organisations, such as the United Nations, Save the Children and the World Food Programme.
Abdirashid Duale, CEO of Dahabshiil, said: "Dahabshiil understands it is one of a number of money service businesses that have been affected by Barclays' decision.
"Naturally, Dahabshiil is appealing this decision and would like to emphasize that to date Barclays' has acknowledged that our Anti-Money Laundering and Anti-Terrorist Financing policies are fully compliant with industry regulations.
"As an authorised payment institution under the Payment Services Regulation of the FCA, Dahabshiil hopes that the good faith and reputation we have established with Barclays over the past 15 years will allow us to come to a mutually beneficial resolution.
"In the meantime Dahabshiil remains fully operational while it explores a number of alternative banking arrangements, so that we can continue to provide a vital service to the majority of the British Somali public and to international organisations, such as the United Nations, Save the Children and the World Food Programme."
Having banked with Barclays for over 15 years, Dahabshiil received written notice from the bank on 8 May explaining that due to a change in Barclays' eligibility criteria for its MSB clients, the bank wished to terminate its relationship with Dahabshiil by 10 July 2013.
The Somali Money Services Association (SOMSA), a UK trade body for the money transfer industry, which has 17 members, has confirmed that 12 of its members have already lost their accounts with major banks in the UK, including Barclays and HSBC. Five others face imminent bank account closures.
Omar Abdinur, Vice Chairman at SOMSA, said: "The action of the banks to close the accounts of licensed and regulated Somali MSBs will have dire consequences across the Somali region as its people have no other alternative to send and receive money.
"It will not only seriously damage the flows of cash to the vulnerable Somali people, who depend on remittances for their livelihood, but it will threaten the economic and political stability in fragile parts of Somalia.
"Furthermore, it could have the unintended consequence that customers who rely so heavily on these money transfer companies might be pushed underground into the hands of unlicensed, unregulated and illegal providers."
With only a handful of financial institutions operating in Somali regions, the Somali people are exceptionally dependent on money-transfer services, with remittances serving as a lifeline for an estimated 40 per cent of the population.
According to the British Foreign Secretary, William Hague, nearly £1bn is remitted to Somali regions every year from émigrés in the UK, Europe, US and the Middle East. Dahabshiil – which channelled life-saving assistance to millions of Somalis during the famine of 2011 – suggests its UK licence affected by Barclays' decision sends more than £400m a year heading back to the Somali regions and its neighbouring countries.
The average transaction through Dahabshiil, the largest private sector employer within the Somali regions, is $100 - $200, which is the typical amount that an average Somali family needs to live on for a month in the region.
Dr Laura Hammond, Senior Lecturer in the Department of Development Studies at SOAS, said: "What is at stake is a lifeline that provides essential support to an estimated 40 per cent of the population of Somalia. Somali MSBs provide fast, reliable and secure transmission of funds from the diaspora – estimated at approximately 1.5 million people – to their relatives at home. In addition, many other diaspora groups from the Horn of Africa – in Ethiopia, Kenya and South Sudan – send remittances to their family members using the same companies.
"As a researcher, I have seen first-hand the impact that remittances have on preserving the resilience of individuals and communities in the Horn of Africa. Some of us have done in-depth research on the uses of remittance funds. In one such recent study, 73 per cent of remittance recipients said that they use the money they receive from their relatives – averaging $2040 per year – to pay for basic food, education, and medical expenses. One-third of recipients said that they would not be able to afford basic food if the remittances were stopped. Moreover, one-quarter of recipients said that they receive support from a single relative living in the UK."
Not only does Dahabshiil provide essential services to the global Somali community, it also makes it possible for international humanitarian and development organisations to provide vital support to Somalis in a country that lacks a more formal public banking system and where war and famine are recurrent visitors.
Most of the large relief and development organisations, including the United Nations Development Programme, Oxfam, CARE, and others, use Dahabshiil to pay their staff, procure assistance, and even in some cases to facilitate distribution of cash payments to food-insecure households as part of their cash-for-work schemes.
Simon Davis, Director of AML CFT Compliance Ltd, who is working with several international organisations on this matter, said: "While banks have the commercial prerogative to choose with whom they work, the humanitarian impact this decision will have on the Somali population must not be overlooked.
"Remittances to Somali-inhabited regions provide a stable capital flow that far exceeds what the regions receive in aid. If remittance companies are prevented from operating, the international aid organisations that also use these licensed providers may be left with virtually no other means to transfer funds to where they operate in the Horn of Africa.
"An end result is that much needed financial transactions to the Horn of Africa especially will decrease, and cash sent to the region may become more vulnerable to the risks of money laundering. Licensed money remitters may be forced to close, thus cutting off much needed financial life-lines for their customers, which will only favour underground black-market services.
"The regulated United Kingdom Money Remittance Companies remitting into the Horn of Africa do fully comply with the United Kingdom Anti-Money Laundering and Anti-Terrorist Financing policies and international standards. In the interim period it would be beneficial if banking facilities could continue to be extended to these companies whilst affected businesses can fully explore their business options."
Such is the role of MSBs in the UK-Somalia corridor; they were recently recognised at a London conference co-hosted by the British Prime Minister and the Somali President, attended by delegates from more than 50 countries and international organisations.
This news also coincides with the Somali President's attendance at the G8 Summit in Northern Ireland, where he thanked the international community for its support in developing the region and the British Prime Minister's long-term commitment to developing a better future for the Somali regions and its people.
Dahabshiil now hopes to see a resolution similar to the situation which occurred in the US in late 2011 when Sunrise Bank, which provided services to Somali MSBs, announced it would close their accounts. After 16 months of lobbying, protests, and negotiation between the Somali-American financial services association, the Somali-American community, federal authorities, banks, and elected officials such as Congressman Keith Ellison, the accounts have continued to remain open to avoid disrupting a lifeline to people living in Somali regions and refugee camps in neighbouring countries.
The International Association of Money Transfer Networks (IAMTN), the global trade body for the money transfer industry argues that greater transparency of banks' selection process for MSB partners is required. It also believes that a lack of clear industry compliance directives will not only curtail competition and increase cost to the consumer, but as a result reduce the availability and accessibility of money services to millions of clients – including an unbanked majority.
Leon Isaacs, Managing Director of IAMTN, said: "None of the banks that have revised their 'eligibility' criteria have shared the rationale with their clients. Yet many of the providers caught in the crossfire have complied with every piece of government regulation, are registered by the FCA, and pass money laundering checks and audits with HMRC. As such, there is clearly a discretionary selection process for deciding which MSBs remain banked which is impossible to manage without understanding whether any changes in the operational models can be made to meet the criteria.
"We understand that banks have serious and legitimate concerns concerning money laundering. These of course extend to money transfer operators. We think that the best way to work to manage these concerns is to promote responsible, transparent, and accountable systems in line with existing regulations and Know-Your-Customer standards, rather than taking actions that will actually close all legitimate channels by which funds are sent to some countries. With or without offering services to MSBs, the banks are already exposed to the risk of money laundering and terrorism financing. The industry is ready to work with the banks and regulators to find a suitable and long term solution. MSBs already work closely with the Serious Organised Crime Agency along with other law enforcement agencies in the UK and across the globe."
