Recognizing the risks of Somali remittances

March 11, 2014

This piece is also appearing over at Terror Finance Blog today:

Last week, Bell State Bank in North Dakota announced that it would stop doing business with companies that remit money to Somalia.  The move follows decisions by Minnesota banks in 2011 to stop providing Somali remittance services, and an attempt by Barclays last year to cut off its partnership with Dahabshiil, a money transfer company with primary operations in Somalia.  The banks have been challenged in courts on both sides of the Atlantic, and advocacy groups have heavily criticized the banks’ decisions on humanitarian grounds.

Indeed, humanitarian considerations are of the utmost importance.  Unfortunately, money transferred to Somalia, particularly through Dahabshiil, all too often falls into the wrong hands and perpetuates the cycle of violence in Somalia.  Banks should stand fast in their original decisions, and here are five reasons why:

  1. The risks are real.  The frequency of cases involving Somalis in the West transferring funds to al-Shabaab over the last few years presents genuine concerns to financial institutions.  For instance, four men in California were found guilty last year of transferring money to al-Shabaab through Shidaal Express, a Somali hawala business.  Two Somali women in Minnesota were sentenced in 2013 for sending money to al-Shabaab through several remittance channels including local hawala dealers and Dahabshiil.  A Saudi-American was also indicted last year for wiring money to al-Shabaab.  In 2012, a man in London admitting transferring £8,900 to fighters in Somalia.  Danish intelligence revealed in 2012 that the equivalent of thousands of dollars a day is sent to terrorist organizations outside of Denmark—mostly to Somalia, and often unwittingly.  In addition to genuine risks on the ground in Somalia, Western banks have real reasons for concern that if they continue relationships with Dahabshiil, they could subsequently be fined by regulators at a future date if political winds change.  U.S. banks are surely aware, for example, that decisions on whether to fine, settle with, or prosecute banks with lax compliance programs have a great deal to do with the shifting political and prosecutorial priorities of whoever happens to be in charge at the Department of Justice and the financial regulatory agencies.  One official may take a very friendly view toward facilitating Somali remittances this year, but a different person will be calling the shots two years from now.
  2. The risks are not decreasing.  Gone are the days of 2012 when al-Shabaab appeared to be on the ropes in 2012 both financially and militarily.  Al-Shabaab was able to turn around its financial situation after the fall of Kismayo by cutting deals with occupying forces.  Al-Shabaab continues to profit from imposing taxes on commodities such as charcoal and sugar, and their role as ivory trade middlemen between poachers and buyers appears to be growing.  Al-Shabaab is still capable of carrying out devastating strikes such as the Westgate Mall attack and the recent assault against Somalia’s presidential palace that left 11 dead.
  3. Dahabshiil poses a unique risk.  Western readers should be aware of alleged failures in Dahabshiil’s anti-money laundering and counter-terror finance compliance programs to include possible extortion payments made to al-Shabaab to operate in Somalia (which Dahabshiil denies).  One Guantanamo Bay detainee previously worked for Dahabshiil, and the presiding officer at a hearing for that detainee determined that his Dahabshiil branch transferred money for terrorism.  However, coverage of these allegations has been limited partly due from legal threats against journalists and online reputation management by Dahabshiil.
  4. There are alternatives to Dahabshiil. Suna Times reports that Somalis in Britain can use Zaad Service or Kaah Express, which were unaffected by Barclays’s plans.  These money transfer services must be carefully examined, of course, but it would be quite misleading to say that the only wire service that Western banks can partner with to send money to Somalia is Dahabshiil.
  5. Well-intentioned remittances to Somalia carry significant risk.  Cleanly transferred funds through well-vetted companies to legitimate recipients are at significant risk of being subsequently “taxed” by al-Shabaab. When charcoal or sugar is brought to market, for instance, these commodities are taxed by al-Shabaab at 2½ percent according to reports from the UN Monitoring Group on Somalia and Eritrea.  Al-Shabaab uses these tax revenues to purchase more weapons, pay fighters’ salaries, and extend their control in Somalia, thus perpetuating the cycle of violence.  Even money that is not directly channeled toward terrorist purposes is at risk of being intercepted by corrupt government officials.  Somalia still rates dead last in Transparency International’s annual corruption index.  A recently leaked UN report tells of “‘high level and systematic abuses’ by Somali government officials who have passed weapons and ammunition to Al Shabaab.”

In light of these risks, Western banks and businesses have an affirmative obligation to tread with extraordinary caution before entering any relationships with Somali financial entities in general, and Dahabshiil in particular.


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