Financial remittance provides millions of people around the world, particularly in the Global South, with a lifeline. However, Barclays Bank’s sudden decision to close genuine accounts held by money transfer businesses has jeopardized this. The impact will be particularly felt in Somalia, where the finance sector has collapsed and people rely on these businesses.
World remittances
The concept of remittance (monies sent, spent or invested in a country or continent, other than where the money was earned, usually by migrants) is not a new phenomenon. Since time immemorial international migrants have brought and sent remittances both tangible (such as cash and goods) and intangible (knowledge, skills information, values, beliefs and norms) to both their host and home country.
The true scope of remittances (official and unofficial) can never be known, but according to a UN Conference on Trade And Development (2012) report, the ‘value of remittances began to accelerate markedly, nearly doubling between 1990 and 2000, and then tripling once again in the following decade, touching $489 billion in 2011, despite the global financial crisis’.
As for the current 48 Least Developed Countries (LDCs), the report further estimated that ‘remittance receipts climbed from $3.5 billion in 1990 to $6.3 billion in 2000, subsequently accelerating further to nearly $27 billion in 2011.’
Barclays CEO Antony Jenkins said in a statement that the company was stopping offering banking services to money service businesses because ‘it is recognized that some money service businesses don’t have the proper checks in place to spot criminal activity and could unwittingly be facilitating money laundering and terrorist financing’.
On the contrary, in a letter to Dahabshiil, one of the largest African international payment firms, which has been doing business with Barclays for more than decade, a representative of the bank said that the decision is ‘not a negative reflection of your Anti-Money Laundering standards, nor a belief that your business has unwittingly been a conduit for financial crime. It is, however, a commercial decision that we have taken due to the risks of the sector.’
‘The money service businesses whose accounts are threatened with closure say they have not been told which checks are lacking, and that there is no evidence that they have been engaging in illegal activity,’ says Laura Hammond, a senior lecturer at the School of Oriental and African Studies (SOAS) at the University of London.
The question is: if ‘some [meaning not all] money service businesses don’t have the proper checks in place’ why close all of them? Why does Barclays not take into consideration each individual remittance on a case-by-case basis? Why stop completely a tried-and-tested popular monetary transfer system that offers lower-cost transfer, trust, and a prompt service, coupled with sound local cultural and geographical knowledge that conventional banking services such as Barclays cannot offer?
The money transfer system: one of Somalia’s ‘success’ stories
The Somali money transfer system is a unique, fast, no-nonsense and cost-effective system of transferring money from one country, region or area to another. It has been used by hundreds of thousands of Somalis, non-Somalis and international organizations in Somalia, including the UN, World Health Organization, World Bank, Oxfam and Save the Children. There is no other way for millions of Somalis in the diaspora to send and receive money from abroad – ever since the collapse of the central government in Somalia in 1991, the Somali people have lived largely without an official banking system.
As a result, Somali money transfer services, such as Dahabshiil, have played tremendously roles in private-sector and public-sector banks. In fact, no other banking or money transfer system has ever achieved this milestone of offering fast and trustworthy remittance services that can cover all the zones in Somalia, which include some of the most remote areas on the planet. Despite the Somali diaspora facing bureaucratic barriers and political instability in their home country, money transfer services have sprouted up all over Somalia and its neighbouring regions, handling between $1 billion and $2 billion in remittances annually.
As a member of the Somali diaspora, almost every member of the Somali diaspora that I know sends money home to their families and relatives, to help with basic necessities of life, such as food, clothing, housing, education and medical care, as well as for redevelopment and peacebuilding purposes. It is estimated that 40 per cent of all households in Somalia depend on funds such as this. At least 15 per cent of the Somali population (10 million) lives outside its borders and Britain is home to one of the oldest (since the 1800s) and largest Somali communities (200,000) outside the Horn of Africa.
It is morally indefensible, as well as counter-productive, for Barclays to shut down the money service business (MSB) accounts without either offering them an alternative or reviewing the status quo on a case-by-case basis.
Politically, the closure of Somali MSBs will impact on the political, humanitarian and redevelopment efforts that the British government and its partners are making. In the last two years, after over two decades of conflict and political instability in Somalia, Britain has hosted two historical conferences to support the Somali people and its government to rebuild their country. In each case Britain praised, acknowledged and recognized the important role of the Somali diaspora’s remittance.
Closing Somali MSB accounts will merely lead to underground banking business and money smuggling and this will quickly add fuel to an already well-fed fire in Somalia, the Horn region and beyond.
Barclays’ idea of delaying the closure of MSB accounts by a month is a calculated move. Ramadan, which this year begun on 9 July, is a time of alms or zakat (charitable giving), of generosity in Muslim communities across the world. Barclays realized that shutting the accounts during the month of Ramadan would be a bad move. Given the potentially complex nature of the matter, a month’s delay is not enough for MSBs to find alternative provider(s). There is no light at the end of the tunnel.
Those who live in glass houses…
One can hardly open a newspaper (or read online) these days without learning about some new financial scandal. Barclays itself was hit with penalties of $290 million over Libor interest rate-rigging in 2012.
The financial crisis was not caused by small money transfer operators, but by problems within the banking sector. The public’s trust of the banks is at its lowest yet.
Steps must be taken to establish and maintain trust and to create effective systems and controls for compliance with applicable requirements and standards. Banks and remittance staff should be continuously trained to detect and fight against all financial crimes and dodgy transactions. Academics, researchers, civil society, business, the media, government, transnational corporations and NGOs all have important roles to play in making this happen.
Over 1,200 concerned people from over 40 countries have signed a petition: ‘Remittances matter more than aid – don’t stop this vital flow of funds’. Sign the petition at Change.org.