Money-transfer services (MTS) are often the easiest way for people to send money abroad. A sender gives his money to a service either online or in a branch office, and is charged a small fee according to the size of the amount to be transferred. Almost instantly, the MTS’ branch offices in the destination country are authorized to pay out cash to the designated recipient. The branch offices have access to the company’s bank account, which aggregates all the profits made from service charges and stores all the money entrusted to the MTS to transfer abroad until it is paid out. MTS operations cannot function without this type of business bank account that allows them to store their profits and their customers’ money. In the United Kingdom, most MTS firms have bank accounts at Barclays.
However, this past June, Barclays announced that it would close hundreds of accounts belonging to its MTS organizations. These include several accounts of notable organizations through which remittances are sent to Somalia. Without a secure bank account, most legitimate UK-based MTS companies will likely have to shut down; like all businesses, they simply need a bank account to function. Since the Barclays announcement, the Somali diaspora and the aid community have desperately raced to prevent or forestall the account closings, hoping to enable the MTS companies to continue their operations.
While remittances are sent to countries all over the world through MTS firms, Somalia is especially dependent upon these funds. Wracked by two decades of destructive civil war, Somalia has no formal banking sector and 43% of its population lives on less than $1 a day. The United Nations has calculated that 40% of the Somali population receives remittances, mostly from the United States and the United Kingdom. In fact, as much as $162 million is sent from the United Kingdom alone. Most international aid organizations also rely upon these same money transfer services to operate in Somalia.
Unfortunately, as the governments of the United States and the United Kingdom crack down on money laundering, terrorist financing, and sanctions violations, Barclays has determined that the risk of being party to financial crimes through its money transfer services is too great. The bank fears that “some money service businesses don’t have the necessary checks in place to spot criminal activity with the degree of confidence required by the regulatory environment under which Barclays operates.” As the only major British bank that still provides accounts for money transfer operations in Somalia, though, it has been put in an awkward position – it is being criticized much more heavily than the other banks which have already forced out their money transfer service clients.
Since Barclays’ announcement, Somali MTS businesses have attempted to open business accounts at other UK banks. However, those banks have refused to take the MTS firms on as clients, citing the same risks stated by Barclays. The MTS companies have been unable to find any financial institution to store their money in the United Kingdom.
Facing pressure from the Somali diaspora and the NGO community, Barclays has extended the account closing deadlines to the end of September, but further extensions seem unlikely. Barclays’ clients at risk of being forced out of business by a denial of bank accounts and transfer services include Dahabshiil, the massive money transfer service which has 286 locations across Somalia and is used by 95% of the international organizations operating in the country.
If Dahbshiil and other money transfer service firms close, few legitimate options will remain for the Somali diaspora in the UK to send money home. Western Union, with which Barclays will continue to do business, has only one office in all of Somalia and charges twice as much as Dahabshiil for money transfers to Somalia. A few other small transfer businesses with limited operations within Somalia may also continue to operate legitimately. Still, Donald Kaberuka, the president of the African Development Bank, has warned that most money transfers to Somalia would likely “be driven to high-risk, high-cost informal channels” with little oversight, where it would be much harder to prevent laundering and terrorist financing.
It is completely reasonable for Barclays and other banks to demand that their money transfer service clients carefully oversee and regulate their operations, so that neither the organizations or their bank are unknowingly involved in financial crime and terrorist financing. However, banks should come up with a list of requirements through which money transfer organizations can assure their banks that they are preventing financial crime, instead of simply excluding the industry altogether.
The money transfer services are eager to comply with whatever Barclays demands of them in order to keep their accounts, but have been given little guidance thus far. Major money transfer services including Dahabshiil, have already invested heavily in anti-financial crime controls to ensure that they comply with all legal requirements of their banking partners and the UK government. Now, major NGOs have begun to put pressure on the UK government to assist the money transfer organizations to find alternative banking partners and “develop the enhanced due diligence required by banks.”
The original impetus for Barclays’ decision was the UK government’s pressure on banks to prevent financial crime. Ironically, the shutdown of major money transfer services will soon open more opportunities for financial crime than ever by forcing the crucial money transfers to countries like Somalia into underground, unregulated operations.