Somalia’s informal banking system is one of the only coherent institutions in the country—so why is U.S. policy undermining it?
 |
| Map courtesy of Lindsey Burrows |
A
hidden room piled with U.S. currency, protected by only a single security guard and a pair of rusty green sheets of heavy aluminum hanging over the entryway, is one of the safer places in Mogadishu. This branch of the Dahabshiil money transfer company, near Makka al-Mokharama road in the formerly war-torn and still incredibly dangerous Somali capital, differs from every other building of importance in the city, including my hotel, which has a 4 p.m. curfew. It stands out because it is not set behind blast walls, sandbag barriers and guard turrets. In Mogadishu, it feels novel and even a bit daring just to be in a structure that opens directly onto the street. The office is windowless, and the clerks don’t sit behind bulletproof glass, or any glass at all. Yet they hand over tiny stacks of $100 bills without the slightest display of nervousness.
“You go to Nairobi, and you see how the entrance to a bank is blocked”, said Ahmed, a local businessman who was showing an Oxfam researcher and me around the city for the day. (Disclosure: Oxfam covered some of my travel expenses in Somalia.) “You don’t see that in Mogadishu. The door is here, and the cashier is here.” Outside, the street was crowded with fruit vendors and qat chewers, with no hint of looming trouble. It was a scene of deeply misleading normalcy, however, considering that an average of ten unique security incidents roil Mogadishu’s peace on any given day. Indeed, signs of social and government dysfunction are plentiful. One civil society activist showed me cell phone images he had taken of what he described as a roundup of accused al-Shabaab suspects: random young men who happened to be milling about in public, most likely without connection to any militant group. They were blindfolded, thrown on the backs of pickup trucks and taken to a police station until relatives paid bribes to have them released from jail. On the morning I visited Mogadishu’s Elman Peace Center, an organization respected worldwide for its work in de-programming former child soldiers, the staff had been arrested en masse simply for being spotted in public with accused al-Shabaab members.
Fear of al-Shabaab should not, of course, give the police license to shake down the populace, but the group is still dangerous, and still has a presence inside the capital. “People plant IEDs with impunity”, one Mogadishu-based security consultant told me. “People don’t even bother to report things like that anymore. Nobody says anything, and nobody gets arrested.” In the past six months, an increasingly bold al-Shabaab has bombed the Turkish embassy, UN offices and the Supreme Court—and then there are its terror attacks in Kenya, including the September massacre at a shopping mall in Nairobi’s Westgate area. In Mogadishu, the UN attack featured seven suicide bombers. During the assault on the Supreme Court, terrorists were disguised in police uniforms that had been officially distributed only two days earlier. An IED attack killed a government soldier the day of my arrival in Mogadishu, just a few days after the end of an alarmingly violent Ramadan, during which the city occasionally experienced more than twenty attacks in a day.
It is in that uncertain and often violent context that the stability and relative security of the Dhabshiil money transfer office stands out as an anomaly. The only thing that guards it and the merchants hoping for spillover business from its newly moneyed customers is a resilient combination of necessity and trust. Dahabshiil is one of Africa’s largest financial institutions, but it’s also fully family-owned. The company does not franchise unless its central offices are sufficiently convinced that the branch owners command the respect and authority needed to navigate local clan and militia politics. Like all of Somalia’s multinational money transfer companies, Dahabshiil is a modernized and somewhat better regulated version of the hawala system, the traditional Islamic financial societies that have existed for centuries outside of any formal banking structure.
The office near al-Mokharama is thus protected, in effect, by its essential and irreplaceable function as a receptacle for incoming remittances from Somalis abroad, who supply nearly half of Somalia’s GDP. In Somalia’s tight-knit, clan-based society, this means that anyone who robs or blows up a Dahabshiil office, as the jihadi group al-Shabaab did this past April, will answer for it. “In the United States, people say ‘get down, get down!’ during a bank robbery, and people will do it”, said Ahmed. “They don’t do that here.” Somalia is a place where anyone could be armed, or could be connected to people who are. In more placid parts of the world, NGO or UN vehicles have a “no guns” icon pasted to the side of their land cruisers, indicating that there are no weapons onboard. The icons are a much rarer sight in Mogadishu.
Even amid the violent realities of daily life, Somalia’s now globally powerful money transfer industry is key to preventing the country from plunging into even more poverty and political uncertainty. It’s a social and economic success that speaks to the deeper health of a society coping with decades of famine, state collapse and war.
But the tranquil scene at the Dahabshiil branch office in downtown Mogadishu also points to a contradictory strain in American policy. The main, linked U.S. objectives in Somalia are the restoration of the country’s federal government, which has only been re-based in Mogadishu since 2012, and the neutralization of al-Shabaab, an al-Qaeda-aligned jihadi group that controlled most of Somalia’s major cities (including Mogadishu) as recently as 2011 and still rules nearly half of the country’s territory. The state of play today is as tangled and delicate. U.S. ally Kenya invaded the country’s south after a string of al-Shabaab attacks along the countries’ shared border; al-Shabaab responded to Kenya’s actions by savaging an upscale shopping mall in Nairobi in September. It has threatened more attacks, and its threats are obviously credible. The prospect keeps the Kenyan army, air force and navy active in southern Somalia, and explains the presence of U.S. drones over Somali airspace. Most recently, an American drone strike in late October targeted a vehicle carrying several senior Shabaab leaders, killing two of them.
At the same time, however, U.S. anti-terror financing laws threaten to halt the flow of remittance money into Somalia, which in turn threatens to arrest whatever tentative progress Somalia has made since al-Shabaab’s retreat from the country’s population centers. The organic and inevitably uncontrollable nature of Somalia’s money transfer infrastructure is actually one of the system’s upsides, notwithstanding the fact that remittances also have the potential to fund terrorist violence. For Somalis, official U.S. suspicion of the remittance industry is just more proof that the United States doesn’t trust them to rebuild their country on their own terms. It is only the latest data point in over two decades of tone-deaf and even paternalistic U.S. policy toward the country: It was the American anti-famine intervention in Somalia in 1992–93 that, by inadvertently destroying the local agricultural economy with cheap food donations and by abetting the rise of a mafia-like, qat-dominated economy, played a major role in the final collapse of a Somali state weakened by nearly a decade of civil war.1
Map courtesy of Lindsey Burrows
D
ahabshiil is the legacy of a Somali refugee who fled to Ethiopia in the late 1980s. Traditional hawalanetworks, which are informal, limited in size and without legal protection, simply could not deal with the increasing volume of remittances during the civil war years of the 1980s, when Somalia’s formal economy cratered and as much as 80 percent of the country’s GDP became remittance-based. Civil war has since given way to an informal division of the country into the former Italian and British colonial areas (the latter still called Somaliland). The main cleavage in the former, much more populous area is between the newly established government and self-declared regional authorities, clan militias and jihadi organizations—including al-Shabaab. As all of this has been going on, Dahabshiil became Africa’s largest money transfer company, with branches in 150 countries, including the United States and parts of Europe, and more than 2,000 employees.
The company is now building a new operations hub in Hargeisa, Somaliland that will be the largest single building anywhere in Somali territory, a modern, glass-clad complex that already dominates the desert city’s concrete and tin-roof skyline even in its incomplete state. At Dahabshiil’s current offices in Hargeisa, I visited a fully computerized 24/7 nerve center—companies like Dahabshiil are systematized enough for the UN’s assistance mission in Somalia to trust them. Transactions are processed in minutes and, just as in the West, a recipient gets a text-message notification moments after a transfer is entered into Dahabshiil’s computer system. Despite these modern trappings, Dahabshiil simply offers a global-scale version of a system that Somalis already know and trust, because they built it themselves. There is a Western Union office in Hargeisa, but few people actually use it.
The transfer industry serves an essential need: Pick any three Somalis at random, and there’s a good possibility that between them they have relatives on five different continents and are receiving remittances from all of them. “Without hawalas, there is no life here in Somalia”, one resident of the Badbado internally displaced persons camp in Mogadishu told me. On the other end of the country’s power spectrum, prime ministerial adviser Hassan Warsame equated the remittance industry to the Somali economy itself: “Without remittances, families can’t eat. Kids don’t go to school. Loved ones don’t get access to health care. Trade doesn’t take place.” Another government official spoke in even more dire terms: “If we stopped remittances, life would be destroyed completely here.”
The UN, NGOs and nearly every Somali I met not only participate in the money transfer industry, but believe it to be essential to the country’s well-being. To be sure, a hawala-style company isn’t the same as a stringently regulated Western bank: Recipients don’t always need an ID to receive payments, and Dahabshiil allows people to pick up money if they’re in the company of someone the branch agent considers to be a trusted individual. In many circumstances, there is no way Dahabshiil could vouch for the identity of its customers. “Poor people use hawalas because they’ve got no other choice, and jihadis use them because they’ve got no other choice”, says Jonathan Schanzer, a former Treasury Department official and vice president of research at the Foundation for Defense of Democracies. Within a dysfunctional state, the hawala system is a double-edged sword. Although easily abused, it is more practical than a Western-style bank and works better than any non-native alternative. “Without money transfer companies, people would be bringing in suitcases full of cash”, one NGO program officer told me.
None of this experience seems to matter much for current U.S. policy. Under the Patriot Act (specifically, its update to the Bank Secrecy Act of 1970), banks are additionally liable for third-party abuse of their services in the assistance of international terrorism, and the onus for stopping money laundering falls largely on their compliance departments. There are legitimate reasons for this approach: It increases U.S. leverage over the banks and gives them an added incentive to purge themselves of any potentially criminal accounts. The Patriot Act also vastly expanded the Treasury Department’s ability to fight terrorist organizations and other threats to U.S. national security. Recently, Treasury has been successful in using its regulatory leverage to convince banks around the world to stop doing business with companies whose activities might aid in Iran’s nuclear program. The law’s banking provisions have been a powerful weapon in the U.S. national security arsenal. But in Somalia’s specific case, this broadly successful policy leads to an inverted official view on how Somali society can recover from the past two decades of chaos.
Map courtesy of Lindsey Burrows
One problem among many is that U.S. policy (in this case, anti-terrorism law) has not institutionalized any connections between development objectives and security objectives, despite a broad understanding that the two are codependent. In this case, a private American bank, which is legally obligated to police its customers’ compliance with terror-financing regulation, will not concern itself with how and whether people in food-strapped sections of the Horn of Africa make ends meet. But from both development and stabilization perspectives, the fact that the money transfer industry still operates in al-Shabaab-controlled areas is one of its strengths. NGOs often can’t access communities living under jihadi rule, many of which are in southern regions hardest hit during the arguably still-ongoing 2010 famine, which has killed more than a quarter-million people. But remittance money can reach them. There are money transfer company offices in virtually every village in the country. There’s moral hazard in risking that some amount of money falls into terrorists’ hands, but on a national level, the money that passes through Somali money transfer offices outstrips foreign aid and foreign investment totals combined. Remittance money could have a benign security impact too, by lessening the individual financial imperative for many young Somali males to join militant groups like al-Shabaab.
In response to legitimate concerns over terrorist abuse of money transfer companies, the U.S. approach needs to support and encourage the Somali state to build a more rigorous financial regulation apparatus, capable of reassuring potential banking partners in places with more rigorous regulatory standards. A good starting point would be to exert added pressure on the government of the United Arab Emirates, which is where most of the Somali money transfer companies are officially based—and which has an infamously permissive attitude toward banking. Nearly every money transfer transaction to Somalia is processed through the UAE. If the Emirates created and then enforced a list of sanctioned entities and individuals, suspicious transactions could be stopped in Dubai before they reached the Somali hinterlands, and Western financial institutions could deal with companies like Dahabshiil with far greater confidence.
To be sure, there is a potential middle path between the Somali hawala system and the way an imported Western institution would work. Unfortunately, current trends point toward less connectivity between Western banks and Somali transfer companies. As of this writing, perhaps as few as one relatively small U.S. bank is willing to facilitate money transfers using Somali companies, and as few as six are willing to do any form of business with them. Advocates and industry figures are understandably reluctant to reveal partner banks’ identities, and the roster changes frequently. There is a major potential cost in reputation, legal fees and government fines if one is accused of aiding in money laundering. It’s a problem most banks avoid by simply staying out of the Somali transfer market.
T
he most recent bank to reach this conclusion—yet not at all a small one—is Barclays, which announced in early August that it was canceling the accounts of 250 money transfer companies. At Dahabshiil’s offices in Hargeisa, I was told that Barclays offered no explanation for the impending closures. “Barclays has so far refused to disclose the criteria against which it made this decision . . . . [W]e are ready to meet any of Barclays’s concerns, but first we need to know what these are, as well as any revised criteria that Dahabshiil needs to meet”, a spokesperson told me during a meeting in Hargeisa. The bank later explained its decision in a September 30 press release. Without mentioning any company by name, the statement explained that
it is well recognized in the industry as well as by regulators and law enforcement agencies that some money service businesses (including some money remitters) don’t have the necessary checks in place to spot criminal activity with the degree of confidence required by Barclays’s regulatory environment.
It’s easy enough to grasp how Barclays reached its decision. For the past year, HSBC has been mired in a money laundering scandal involving the bank’s alleged criminal tolerance of illegal financial activities by Mexican drug cartels and government-linked Iranian companies. The HSBC prosecution seems to have triggered a company-wide review of Barclays’s exposure to major U.S. legal liability in the United States. (The Barclays statement mentioned that “global banks [received] fines of hundreds of millions for anti-financial crime failures”, likely a euphemistic reference to the HSBC case.)
In early November, Dahabshiil won a court-ordered injunction delaying the closure of its accounts with Barclays. But if Barclays is allowed to go through with its decision, it would not be the first bank to cancel Somali transfer accounts in the face of a seemingly unrelated case. In January 2012, perhaps the bleakest period of Somalia’s most recent famine, Minnesota-based Sunrise Bank canceled its Somali transfer accounts after two local women were prosecuted for material support of terrorism. Minneapolis is the center of the Somali-American community, and the account closures have precipitated a period of uncertainty for the money transfer industry’s U.S. operations. The Barclays decision has alarming implications for Somalia. Barclays is the only British bank that works with Somali money transfer companies, and Britain represents 10–15 percent of Somali remittance flows.
This sense of uncertainty reverberates, especially given the shaky state of Somalia’s nascent public sector. The Somali government’s only current sources of revenue are foreign aid and duties collected at Mogadishu’s airport and seaport, the latter of which is corrupt to the point of being effectively outside the government’s direct control. There is no local tax base or revenue collection capacity, and Mogadishu’s vaunted new construction—the hotels, walled compounds, restaurants and even housing developments that have sprouted up between the city’s shantytowns and bombed-out husks of concrete—is largely diaspora-driven. “You’ll see people selling hand grenades in front of ice cream parlors opened by returnees”, one Somali civil society activist quipped to me. Whether this is literally true, the country’s fragile gains are vulnerable to an unstable security environment and continue to rest overwhelmingly on a massive influx of outside money.
The new government provides few social services—not that a lack of money is the only reason. The military consists of deputized clan militias. African Union peacekeepers still police major pieces of infrastructure, including Mogadishu’s airport. In the capital, public trust in government runs thin. That is unlikely to change until the government can provide basic services. And that requires a normal flow of resources, not from international aid spigots alone, but from Somali society—including an engaged and prosperous diaspora—in a way that binds society and government together into something approaching a normal social contract. By slowly freezing out the remittance industry, arguably the most widely trusted institution in Somali life, U.S. policy threatens one of Somalia’s most crucial instruments of stability in the name of keeping unknown amounts of money out of the hands of terrorists.
The situation in Somalia is much too parlous to sustain this kind of mistake. The logic might be backwards, but in the tortured recent history of the Western world’s engagement with Somalia, it is also typical; the remittance portfolio is really a symptom of larger conceptual problem embedded in U.S. policy.
S
ince the disintegration of the Somali state in 1991, U.S. officials have understandably focused on the re-creation of a stable, non-jihadi-plagued government in Mogadishu. This objective underpinned U.S. and allied financing of 15 abortive peace conferences during the civil war years. It explains the U.S. cooperation with Ethiopia during its invasion of Somalia in 2006, which dislodged the jihadi Union of Islamic Courts, prefacing the rise of the even more radical al-Shabaab. It explains U.S. cooperation with Kenya as well. The same desire for a normal, federal state was also behind the premature lifting of the UN small-arms embargo on Somalia this past March.
During Somalia’s long period of anarchy, the international community had no central authority to work through in Mogadishu, even as piracy and terrorism originating in the country grew into major global security issues. Anything seems an improvement over an exiled government, a jihadi government or no government at all. But the international community’s relief at having a semi-legitimate partner in the capital hasn’t necessarily made for smart policy. The lifting of the small-arms embargo, which reportedly occurred at U.S. insistence, represents yet another unforced error of U.S. policy. It went forward despite persistent questions about the government’s stockpile control capacity and the professionalism of the Somali military. Although it could be independent of the embargo’s lifting, five months after the decision the street price of a Kalashnikov had plunged to around $400–800, down from nearly $1,400 a year earlier. A grenade will set you back a mere $5.
The quick U.S. recognition of the new Mogadishu government in early 2013 was likely aimed at spurring it toward some overarching federal project—a constitutional order that could resolve simmering regional autonomy issues in the ever-restive Puntland region, and maybe even the self-declared independent country of Somaliland as well. But the government was selected by a council of 85 Somali clan elders working under international auspices and is viewed even by some non-insurgents as a foreign creation. The rhetoric from Puntland’s leaders is taking on an increasingly separatist character, and at one point, the southern region of Jubbaland had no fewer than six self-declared presidents. When a delegation from Mogadishu arrived to sort out various clan and militia claims on the southern port city of Kismayo in November 2012, they were turned away at the airport. (The government reached a widely heralded agreement with Jubbaland’s most powerful militia and regained nominal control of the Kismayo port and airport this past August.)
U.S. policy remains hostile to the single biggest source of stability and prosperity in Somalia.
The current situation is arguably an improvement over the stateless vacuum it has replaced, but the Somali federal government’s position is still precarious—far more so than that of the money transfer companies. Nevertheless, U.S. policy remains hostile to the single biggest source of stability and prosperity in Somalia. The policy is not deliberately pernicious, of course. It reflects U.S. policy’s habitual focus on state-building and counterterror, as well as a tendency to divide aspects of a problem—in this case between the Treasury, Justice and Defense Departments—so that no single driver of policy can see the whole picture.
There is also a deeper bias at work: the reflexive American bias in favor of Westphalian units, and ancillaries of such units like Western-style banks. Americans and their government understand a world divided into states, and foreign policy is organized overwhelmingly to deal with states. In those areas of the Horn of Africa where ethnic Somalis live, spilling across several politically drawn frontiers, U.S. national security interests might be better served by facilitating governance at a sub-state level than by futile attempts to resurrect a centralized Somali state where there is little taste for or capacity to sustain one. Both economic stability and basic security might prosper better under a policy less obsessed with centralization.
Unfortunately, this is a possibility that current U.S. policy fails to ponder, despite a Somali reality in which Mogadishu’s oceanside government quarter is still in ruins and a barren grid of bombed-out embassies and ministry buildings peopled with squatters and famine refugees define the urban landscape. Meanwhile, not far up Makka al-Mokharama road, Dahabshiil is building a brand new skyscraper. U.S. policymakers should take notice.
1Those unaware of this sequence of events can consult Michael Maren, The Road to Hell: The Ravaging Effects of Foreign Aid and International Charity (Free Press, 1997).
No comments:
Post a Comment