The ability of Somali-Americans to send cash home to their relatives is again in peril after a California bank decided to stop facilitating the money transfers, according to a foreign aid organization that has been monitoring the situation.
Over the last few years, more and more U.S. banks have cut ties with the remittance houses that offer the only legitimate way to wire money to a war-torn country that lacks formal banks. The money-transfer firms are seen as ripe for exploitation by criminals who want to launder money or finance terrorism. At the same time, remittances offer a critical lifeline for many impoverished Somalis.
One of the few U.S. banks still in the business is the $81 million-asset Merchants Bank of California in Carson, Calif., which specializes in banking money transmitters.
But earlier this week, Merchants Bank informed clients that are in the business of sending money to Somalia that their accounts will be closed on Feb. 6, according to Scott Paul, a policy adviser at the aid group Oxfam America.
Merchants Bank signed a consent order with the Office of the Comptroller of the Currency over its Bank Secrecy Act compliance in June. The bank had threatened clients that send money to Somalia that their accounts would be closed at the end of September 2014, but it later reversed course.
The new letter, a copy of which Oxfam provided to American Banker, describes the OCC consent order, and then states: "We cannot in good faith meet the obligations of the consent order given the complexity of your business."
Paul said that all the U.S.-based Somali money transmitters he has spoken with have received the letter from Merchants Bank. The outlook is currently more dire than it was over the summer, he said, because the earlier round of letters from Merchants Bank went to only some of the Somali remittance houses.
Merchants Bank declined to comment.
Paul said that a small number of other U.S. banks do allow Somali money transmitters to move money overseas, but they allow the transactions only in small volumes. He said that if Merchants Bank follows through on its plan, and no other solution is found, the legal flow of cash to Somalia will be slowed late next week.
"We're looking at a pretty significant disruption, unless someone comes up with a creative solution very quickly," he said.
Rep. Keith Ellison, D-Minn., who represents a large community of Somali-Americans, called the decision by Merchants Bank "catastrophic for the Somali community."
"Will shutting bank accounts for money services businesses serving Somalia increase opportunities for illicit activities as remittance flows are pushed underground?" Ellison said in a news release distributed by Oxfam, echoing the long-standing concern that a shutdown of legal money transfers will give rise to a black market.
"There is no doubt that a decline in remittances will exacerbate the humanitarian crisis and erode the gains Somalia has made in recent years," Ellison said.
Ellison is scheduled Tuesday to participate in a hastily called briefing for members of Congress about the Somali remittance situation. Also expected to participate are representatives from two aid groups and a former governor of Somalia's central bank.