Two weeks after U.S. bank remittances to Somalia dried up, regulators and lawmakers are making only slow progress at preventing a potential humanitarian crisis.

The Office of the Comptroller of the Currency reiterated its stance that U.S. banks can provide Somali money transfers if they obey applicable laws, but it offered no new guidance for how to avoid compliance risk, in a letter last week to Rep. Keith Ellison, D-Minn.

"The OCC recognizes the tragedy that is occurring in Somalia, as well as the role remittances play in the overall welfare of this delicate economic and political situation," said the agency's Feb. 12 letter, which was provided to American Banker by Oxfam, a nonprofit. "However, the OCC is not in the position to provide humanitarian assistance to a foreign country or to encourage the banks we supervise to do the same."

Ellison, whose district has one of the country's largest populations of Somali-Americans,  has pressed regulators to make it possible for U.S. banks to send remittances through Somali money-transfer companies. The last bank that made such transfers, Merchants Bank of California, ceased sending Somali remittances on Feb. 6, in order to satisfy an OCC consent order about its Bank Secrecy Act compliance.

The OCC said Ellison's efforts were "a vital step to beginning the necessary dialogue," and stressed that it "is prepared and willing to be part of that discussion," but did not expand on its November bulletin on dealing with money transmitters.

Ellison and other members of Congress have scheduled a meeting with representatives of nine federal agencies on Feb. 26 to discuss the problem, Oxfam said.

Remittances to Somalia have been all but stopped by regulators' efforts to cut off transactions that have a strong possibility of being money laundering or terrorist financing. Somalia has no banking system, and Merchants Bank had been responsible for as much as 60% of the remittances sent from the U.S. to Somalia, the nonprofit said. Foreign money transfers to Somalia add up to $1.3 billion a year, or as much as 45% of the country's GDP, making them indispensible for many Somalis' survival.

Some of the Somali remittance firms have closed since Merchants Bank stopped working with them, said Scott Paul, Oxfam's senior humanitarian policy adviser. Others have resorted to sending cash into Somalia by couriers, he said.

"Everybody is in desperation mode and trying to work things out on the fly," he said.

The U.S. and U.K. have made some initial progress toward a policy that will allow banks to take Somali remittances, but much remains to be done to prevent a crisis, Oxfam, Adeso and the Global Center on Cooperative Security said in a report set to be released Thursday. The U.S. Treasury Department has emphasized the need to keep remittances open, and has worked with the Somali Central Bank to improve the security of the country's payments system. 

The Treasury has also said it would clarify the rules for banks that work with Somali money transfers — a good start, but not enough, Oxfam said.

"These important steps have not stemmed the tide of bank account closures that have been largely driven by government regulation," the nonprofit's report said. "Unless the U.S. government takes urgent and extraordinary action to restore the full flow of remittances through formal channels, many Somali families will struggle to survive."

Meanwhile, it is unclear whether banking regulators understand the urgency of the problem, Paul said. While the lack of a Somali banking system is the chief reason for the crisis, he also blames banking regulators' risk policies.

"The long-term solution is a banking system in Somalia that works," he said. "In the interim we'd like to see an approach by regulators that is balanced and that encourages banks to manage risk rather than run away from it."

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