Somali-Americans' Remittance Demands Put Banks in Bind
The Office of the Comptroller of the Currency issued a cease and desist order against Citibank Thursday for violations of the Bank Secrecy Act dating back to 2006.
U.S. Bancorp (USB) and Wells Fargo (WFC) have been dragged into an international fight that could cost them thousands of customers.
A group that represents thousands of Somalis living in Minnesota is demanding the two banks provide them remittance services by Friday or they will close their accounts. Since December most Somalis there have been unable to wire money to family and friends back home because the community bank that handled the bulk of those transactions ceased the service. It blamed the difficulty of compliance with U.S. anti-money-laundering rules.
The Minneapolis-St. Paul area — where U.S. Bancorp and Wells combined hold more than half of the market share — is home to one of the largest Somali populations outside of the war-torn country. If anyone can help reopen the remittance lines, it is these two banks, the Somali leaders say.
"They are among the biggest banks nationwide, and we want them to take the lead," Abdirahman Muse, a community organizer, said in an interview. "We bank with them, we do business with them here, but we need them to help us find a solution to this humanitarian crisis."
Bank officials say they sympathize with the plight of the expatriates but that there is no clear way to process the payments comfortably within federal rules.
"We recognize there is a tragic situation in Somalia and we have a large community here that wants nothing more than to send money safely to their families," Tom Joyce, a spokesman for U.S. Bancorp, said in an interview. "We have a responsibility to the nation and the regulators to adhere to the laws and ensure that the money that gets transmitted ends up in the right hands."
The problem lies in Somalia's money-services businesses. Remittance there is done through a loose network of MSBs known as hawalas. U.S.-based hawalas work with banks to wire the money to hawalas in Somalia.
However, the country in the horn of Africa has no functioning government or banking system, and the hawalas are unregulated. U.S. government officials worry that such intermediaries assist in funding terrorism. Though a U.S.-based Somali might send money to help feed his family, the fee the hawala in Somalia collects might fall into dangerous hands.
As much as $1.6 billion flows into the country of 10 million people through remittance annually, according to the Central Intelligence Agency's website. The Star Tribune in Minneapolis, which has extensively covered the Somali remittance issue, has cited a United Nations figure that says $100 million is sent annually from the United States.
The Treasury Department, however, says that such businesses have also handled transfers to Al-Shabaab, an international terrorist group.
In October, two Somali women in Minnesota each were convicted on a conspiracy charge for sending money through remittance to Al-Shabaab. The women, both of whom are U.S. citizens, raised money by going door to door in Somali communities in the U.S. and Canada, telling donors they were doing so for the poor and needy, the Federal Bureau of Investigation says.
Shortly after the convictions, University Financial Corp. — an $822 million-asset company in St. Paul that does business as Sunrise Community Banks — suspended services to the hawalas; it had worked with them for three years.
Overall, banks have isolated MSBs in the post-9/11 era because of the potential risks of doing business with companies that exchange large amounts of cash. Customers are hard to track, and banks worry about having to pay heavy fines for violating federal rules. Given the costs of complying with the Bank Secrecy and USA Patriot acts, banks have simply chosen to stay away.
But for Somalis in the U.S., the bigger concern is the stories of suffering family members who need the aid they send.
Big Banks Hesitate
At U.S. Bancorp's annual meeting last month, a Somali-American asked Chief Executive Richard Davis whether his bank would provide them the service they are demanding.
"We want to do what is right for you and what is right for our company," Davis told the man, according to a recording from Minnesotans for a Fair Economy, a coalition of labor, community and faith-based groups that has taken up the Somalis' cause.
Davis, who told the man he was "proud to have him here," said he would give the community members "the answer they deserve" soon.
Outside the meeting at the Minneapolis Convention Center, Minnesotans for a Fair Economy led a 200-person protest for a host of issues ranging from the Somali remittance issue to the foreclosure crisis. The protest then marched to the nearby local Wells Fargo headquarters.
For now though, a solution doesn't appear to be on the horizon.
Wells Fargo is open to helping the U.S. Somalis should an appropriate avenue open up, officials of the San Francisco bank say.
"We've tried to demonstrate a level of commitment to our customers, but we need to get individuals to understand the realities and what the policies are," Alan Elias, a spokesman for the company, said in an interview. "It is not a personal affront; we just have to take a broader picture view on this issue."
Muse, however, said Wells "shut the doors on our face." The early conversations with U.S. Bancorp started well but sputtered, Muse said.
There are between 28,000 and 40,000 people of Somali descent in Minnesota, according to 2010 U.S. Census estimates. But there is no way to tell how many Somalis use either bank. More importantly, it is impossible to know how many would withdraw their money.
U.S. Bancorp has not found a solution, but it did make a good-faith attempt, Joyce said last week.
"We are proud to be their bank, and we hope that they would keep their business with us," Joyce said. "If they choose not, that is their decision."
Muse, whose last name translates to Moses, the biblical figure who led the Israelites out of Egypt, said he and his compatriots will continue to search for a bank that can help, but observers say the problem is at the government level. The laws are structured in a way that even the most daring of banks would likely shy away.
"Banks need a specific set of expectations which, if followed, would shield them from blame. Right now they do not have that," said David Landsman, the executive director of the National Money Transmitters Association. "It is because government refuses to grant any safe harbor at all. It comes to a point where you either want to have licensed remittance channels, or you don't. What government has damaged, only government can fix."
The Treasury Department, which oversees the Financial Crimes Enforcement Network, disagrees that U.S. rules provide no flexibility.
"It appears the money transmitters serving the Somali community in the United States continue to have banking relationships, which allow them to wire remittances abroad and allow Somali-Americans to send money to their loved ones," a department spokesman wrote in an email.
The Treasury also said in a December blog post on the Somali remittance issue that it believes banks can safely do remittance to the country, or anywhere.
The Treasury "expects financial institutions, in their compliance with the Bank Secrecy Act, to reasonably discharge their due-diligence obligations — not that they be infallible in doing so," it said. "There is no assumption on the part of Treasury that money transmitters present a uniform or unacceptably high risk of money laundering, terrorist financing or sanctions violations."
The truth is regulators expect the operators to be infallible, said Ann Graham, a banking attorney and director of the Business Law Institute at Hamline University in St. Paul. "I don't think any bank will be able to do it unless there is some regulatory willingness. Certainly the banks are smart enough to recognize that."
Sunrise has said it remains willing to help if it can find a way to do so. Nikki Foster, its chief corporate responsibility officer, directed American Banker to a statement it made in January.
"Our commitment to the Somali community has not wavered," the statement reads. "The laws and regulations associated with this service are complex and carry strict penalties for non-compliance, but as Sunrise has told the federal government, the bank is convinced that a solution is within reach."
Some of the hawalas have managed to find a few unnamed banks to help wire money in small amounts, Muse says. It is frustrating, he says, that it is red tape, and not a lack of money, that is keeping the Somalis living in America from helping their loved ones. He typically sent $100 to $150 a month to his relatives. Now, he is not sending anything.
"We are the lifelines for these people," Muse said. "Imagine your grandmother is sick and you have the money to help, but you are not able to get it to her."