The Director of the Overseas Development Institute has called on Barclays Bank to reconsider its decision to close its Somalia accounts, describing the move as ‘unwarranted, unnecessary and a threat to some of the world’s most vulnerable people’.
In a letter to Anthony Jenkins, the Chief Executive of Barclays, ODI Director Kevin Watkins, cites new research demonstrating that it is possible to maintain cash transfers to Somalia while maintaining due diligence.
The research draws on ODI’s work in helping to develop a $90m cash transfer scheme in response to the 2011 famine. Detailed monitoring during the second phase of the project, which benefited almost 1 million people, found that the local money transfer system was highly efficient, and that agencies were able to avoid diversion of funds.
The bank’s decision threatens to cut off a pipeline to the Somali economy which delivers over $1.3 billion a year in remittances to families across the country many of whom use the cash to cover food and school costs.
Simon Levine, Research Fellow in the Humanitarian Policy Group at the ODI said:
“The famine of 2011 is largely over, so we’re back to the situation where one in seven young children are so skinny that they are classified as ‘acutely malnourished’. Remittances make up over a quarter of the economy of Somalia – so, if Barclays pull out of Somalia and there is no way to send money, what happens when families whose kids are already malnourished lose a quarter of their income? And what happens to the economy, to jobs, to investment when a quarter of its money just disappears? There is a risk that the consequences could be even worse and much longer lasting than the 2011 famine itself.”
The introduction of strict anti-money laundering laws in the US has been cited as a reason for Barclays’ decision, with HSBC having faced a fine of upwards of $1 billion for falling foul of the legislation through their operations in Mexico.
Mr Watkins said:
“There is a world of difference between providing banking services to drug barons in Mexico and delivering a service that pays for health, education, food, housing materials and small enterprises in Somalia. If aid agencies can find a way to operate efficiently in Somalia then surely it’s not beyond the capability of Barclays.
Please read the letter below:
ODI
203 Blackfriars Road
London SE1 8NJ
United Kingdom
Tel:+44 (0)20 7922 0300
Fax:+44 (0)20 7922 0399
Antony Jenkins
Group Chief Executive
Barclays Bank
2 September 2013
Dear Mr Jenkins,
I am writing to you ahead of your decision on whether or
not to close Barclay’s accounts with money transfer companies in Somalia.
My letter is prompted by new research from the Overseas
Development Institute (ODI) on a major cash transfer programme introduced in
response to the Horn of Africa famine. Carried out by eight international NGOs
and local partners, the programme reached one million people over two years, delivering
some US$90m in assistance. We designed the monitoring system for the programme.
Later this week we are launching the attached report
reviewing the delivery of support. Apart from underlining the effectiveness of
cash transfers relative to food aid, we found that the risks of money laundering
can be substantially mitigated through careful monitoring and engagement with Hawala
agents.
As I know you are aware, remittances play a vital role in
Somalia. The $1.3bn transferred annually – some US$500m of it through the UK –
far exceeds international aid. With acute malnutrition rates among displaced
people in South Somalia ranging from 12 per cent in Mogadishu to 19 per cent in
Kismayo, any loss of remittances will pose significant food security risks. It
will also undermine the efforts of families to keep their children in school.
Moreover, remittances are supporting a fragile economic recovery: some 80 per
cent of all new business ventures in Somalia are funded by remittances.
Our research looked in some detail at whether or not cash
was diverted. To briefly summarise some of the headline findings:
E We found no evidence of large-scale diversion due to the money
transfer system. To cite our report: “despite the significant security
and access challenges faced by humanitarian agencies, Somalia is an appropriate
environment for cash interventions: it has an innovative, national system of
money transfer agents (Hawala), which regularly deals with billions of dollars
from the diaspora. The market system is highly integrated and competitive as
the country relies heavily on imported food.”
E Cash transfers are a particularly efficient form of support and
assistance. Although there were considerable difficulties during
implementation relating to access, security and the sheer volume of transfers
required, the process of cash delivery was relatively smooth, thanks largely to
the previous experience of agencies and the role of local private sector partners
(the Hawala and local traders) in delivery.
E Transfers delivered wide-ranging benefits. Cash interventions enabled
households to purchase food, increase the number of meals consumed each
day and increase the diversity of their diets. Importantly, there is evidence
that the intervention also allowed households to repay debts, which opened up
new lines of credit. This contributed greatly to building household resilience.
None of this is intended to downplay the enormous challenges
associated with aid and banking operations in Somalia. We documented cases of
aid diversion during the early phase of the project, largely as a result of
corruption. What is instructive in this case is that more stringent regulations
introduced during later phases curtailed significant diversion.
Our report underscores the fact that preconceived ideas
about risk in Somalia may be overriding a more balanced assessment. In the case of the cash
transfer programme, UN agencies and The Overseas Development Institute is
registered in England and Wales: Company No: 661818 Charity No: 228248 international non-government organizations were able to
develop institutional mechanisms for conducting due diligence and meeting strong fiduciary
standards while working through the Hawala system. If international NGOs and their partners can
achieve these results, then surely Barclays can work with money transfer agents to minimize the risk
of money-laundering activity.
I recognize that financing for an aid programme raises
different fiduciary management issues than banking operations. Yet two common challenges stand out:
tracking the money flow past the collecting agent through the clearinghouse, and
conducting due diligence in verifying the identity of
the receiver and ultimate beneficiaries. These challenges
could be addressed through a dedicated
Risk Management Unit to cover your Somali accounts. More
generally, we would urge both Barclays and the UK government to develop constructive
solutions to what are solvable problems.
We are, of course, aware that you are operating in a
difficult regulatory environment. The US$1.9bn fine imposed on HSBC for its
failure to maintain an effective anti-money laundering program has clearly had
a chilling effect across the banking sector. It would be helpful, in this context,
if the European Union engaged with regulatory authorities in the United States
to clarify the compliance requirements for anti-money laundering legislation.
In particular, there is an urgent need for a high-level political dialogue to
clarify the requirements for banks to comply with the anti-money laundering
requirements of the US Treasury’s Office of Foreign Assets Control with respect
to the 2001 Patriot Act and the 2010 Executive Order on Somalia.
By the same token, the HSBC case is a weak analogue for
Barclays engagement in Somalia. It is worth recalling that HSBC was charged
with allowing US$670bn in wired transfers from the Mexico, at least US$881m of
it associated with drug trafficking. Such activities are hardly comparable to
the operations of the Hawala system and money transfer agencies. At risk of stating the obvious, there is a
world of difference between providing banking services to drug barons in Mexico
and delivering a service that pays for health, education, food, housing
materials and small enterprises in Somalia.
In the last analysis, closing the Hawala system will do
nothing to reduce the risk of money laundering or terrorist financing in
Somalia. What it will do is drive the remittance economy underground. People
seeking to support their families would have no alternative but to use the unregulated
couriers and firms utilized by organized money launderers. This will make it
more difficult to separate legitimate financial flows from illicit activity,
raising the costs of remittances in the process. It is worth adding that
agencies working in Somalia – including the UN, Oxfam, Save the Children, and
Islamic Relief – will face higher operating costs for their programmes. If remittance
channels close one of the most effective tools available to the international
community in responding to future crises will be lost.
There will be no winners from the closure of Barclays’
Somali accounts. Desperately poor and vulnerable people will lose a vital source of finance.
The international community’s efforts to support recovery and respond to humanitarian emergencies
will be compromised. And Barclays will suffer the reputational damage that will come with
closure of a vital lifeline.
I very much hope that you will reconsider your closure
decision and would be happy to discuss the
issues raised by our research in greater detail.
Yours sincerely
Kevin Watkins
Executive Director, Overseas Development Institute
Source: sierraexpressmedia.com
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