Rules designed to keep money out of the hands of terrorists could soon cut off support to millions of ordinary East Africans too. Last week, another financial institution -- Merchants Bank of California -- started closing accounts belonging to companies that collect money from African immigrants in the United States and send it to Somalia, Eritrea, Ethiopia, and other African countries.
The money-transmitter companies function like smaller versions of Western Union and MoneyGram, but they can send money to far-flung African villages that the big guys don't serve. They rely on banks to make the international wire transfers necessary to get the money there. It's part of a worldwide system of informal financial transactions between residents of impoverished countries and the friends and relatives living abroad who regularly send them money. The World Bank estimates that immigrants will send home $436 billion this year.
Merchants Bank sent out letters terminating its relationship with at least 20 money transfer businesses in Minnesota that serve the Somali immigrant community. In a May 8 letter viewed by Foreign Policy, the bank said it was closing the account of Amaana Money Transfer Co. due "to the ever-changing regulatory requirements and expenses imposed upon Merchants Bank of California." The financial institution said that Amaana's account would be closed on June 20 and that the remaining balance would be sent as a cashier's check.
The move is the latest in a string of account closures -- affecting everyone from porn stars to foreign diplomats -- as banks try to rid their books of customers that regulators might consider risky. Adult film actress Leyton Benton said she has decided to sue JPMorgan Chase, according to the Daily Mail, for suddenly closing her account in a sweep designed to rid the bank's books of accounts linked to industries that regulators consider risky. And José Antonio Ocampo, a former finance minister of Colombia, told the Financial Times that he is asking the Consumer Financial Protection Bureau to forbid "such discriminatory and arbitrary practices" after JPMorgan Chase dropped him. The bank said it was closing accounts of current and former non-U.S. officials to cut compliance costs.
Banks say they are simply responding to increasing scrutiny from regulators and to the skyrocketing fines being levied against them for banking fraudsters, criminals, and terrorists. U.S. prosecutors, for instance, are pushing for French bank BNP Paribas to pay more than $3 billion, a new record, for violating sanctions that prohibit financial transactions with Iran and other countries, according to the Wall Street Journal. That would top the $1.9 billion HSBC paid in 2012 to settle charges that the bank's lack of rigorous oversight led it to do business with Mexican drug cartels and blacklisted people in Iran and Libya.
Somalia presents a particular challenge. With no functioning government or central bank, the war-torn country has no formal banking system. That lack of oversight, combined with the U.S. intelligence community's concerns that banks could be used to send funds to blacklisted militants, makes Somalia one of the riskiest places to which to transfer money. In March, when Bell State Bank closed accounts that belonged to money transmitter Kaah Express, the bank's security officer told the Associated Press that it made the move because of the risk of massive fines. Two Somali-American women from Minnesota were sentenced to decades in prison last year after they were convicted of sending money to terrorist group al-Shabab. No banks or money transmitters were implicated in that case, and none of the money-transfer businesses whose accounts have been terminated are accused of any wrongdoing.
Yet the desperate situation in Somalia is also what makes the remittances all the more crucial to Somali family members who receive payments from U.S.-based immigrants. Rep. Keith Ellison (D-Minn.), whose district includes the country's largest Somali-American population, is asking bank regulators not to get in the way of his constituents sending money home. "Please act quickly to avoid exacerbating the humanitarian crisis in Somalia," Ellison said in a May 9 letter to Comptroller of the Currency Thomas Curry. Merchants Bank dropped the Somali money transmitters in response to concerns raised by examiners with the Office of the Comptroller of the Currency (OCC), according to people familiar with the matter. A spokesman for the OCC declined to comment. Merchants Bank of California did not respond to requests for comment.
The Somali money transmitters have been struggling since 2005 to find banks that will work with them. The problem came to a head in 2011 when Sunrise Community Bank, which many of the companies relied on, started closing accounts. Wells Fargo dumped them as well. Now, many of the companies have only one or two banks left that will transfer money for them.
"It's kind of a strangulation for us," said Aden Hassan, who works for Kaah Express and acts as a spokesman for the Somali Money Services Association.
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