Second of two parts. Part one here.

Undersecretary of State Wendy Sherman stood before an audience in Washington early this summer and delivered a major speech on U.S. foreign policy in Somalia.

The United States has not had an ambassador to the war-torn African nation since 1991, but Sherman declared that would soon be changing, because of a number of recent improvements in Somalia's governance.

Sherman also spoke about the importance of international money transfers to Somalia's impoverished people. "Today, an estimated one-third of the country's total income is derived from remittances," she said.

But Sherman's remarks were as notable for what they did not include as what they did. In her 31-minute speech, Sherman completely skipped over the increasingly dire situation faced by Somali money transmitters in the United States.

Over the last several years, the ability of these companies to access the U.S. banking system, and in turn to keep their doors open, has grown precarious. Few banks are willing to serve the Somali money transmitters at a time when regulators have become more aggressive in their efforts to prevent money laundering and terrorist financing. The loss of the remittance pipeline could prove catastrophic to a country where famine claimed more than 250,000 lives between 2010 and 2012.

The State Department's reticence on the issue may have stemmed from the fact that lots of other U.S. government agencies also have a stake in money transfers to Somalia.

At least eight different agencies play some role, making it difficult for the government to speak with one voice. What's more, there's a basic disconnect between agencies that have foreign policy or humanitarian aims and those that are focused on protecting the financial system, according to critics of the Obama administration's efforts.

The government's approach to the Somali remittance issue has been marked by a shortage of coordination, a lack of transparency and a hefty dose of buck-passing, these critics argue.

"When we're talking about choking off a lifeline for hundreds of thousands of families who are already on the brink of crisis, we have to have a plan. And we have to have a plan that will work," said Scott Paul, a policy advisor at the aid group Oxfam America. "The thing that actually keeps me up at night is that there's no short-term plan."

Policy Fiefdoms
The tenuous situation carries huge implications for the future of Somalia, but four agencies at the center of it have no real role in U.S. foreign policy.

The Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., the Federal Reserve Board and the National Credit Union Administration are all responsible for enforcing rules designed to stop money laundering and terrorist financing. It is not their job to look at the wider effects of their actions.

"Theirs is not really a broader public-policy mandate," said Carol Beaumier, a former bank examiner who is now an industry consultant at Protiviti.

At the same time, the banking regulators are independent agencies that are largely shielded from interference by other parts of the government, such as the State Department.

"All of the agencies involved have been deliberately careful not to influence how the bank regulators do their job," Beaumier said.

Some of the sharpest criticism from members of the Somali-American community is being aimed at the OCC.

In June, the OCC issued an enforcement action against Merchants Bank of California, which specializes in banking money transmitters, and is one of the few U.S. banks that still does business with transmitters operating in Somalia. Around the same time, Merchants notified numerous money-transmitter customers that their accounts would soon be terminated. Merchants declined to comment for this story.

Right now, it is unclear to U.S. banks what standards Somali money transmitters need to meet, since regulators have not provided specific guidance on that issue, said Aden Hassan, anti-money-laundering compliance officer at Kaah Express, a money transmitter that serves Somali-Americans.

"The banks don't know what to do. They don't know what standards to ask of us," Hassan said.

An OCC spokesman responded that banks are generally expected to implement controls that are strong enough to manage the risks presented by a particular customer.

"Such controls must be commensurate with the risks presented, and can vary from customer to customer as well as from bank to bank," the OCC spokesman said in an email. "It is not something that is reducible to a single set of standards that can be applied across the board to all banks and all customers."

The OCC spokesman added: "The Somali situation is a terrible human tragedy that cannot be solved by bank regulators; rather, it requires an international government and private-sector effort involving organizations that have greater expertise in providing humanitarian assistance and building the infrastructure necessary."

Other federal agencies have also suggested recently that any solutions to the Somalia problem lie beyond their own reach.

Fed Chair Janet Yellen testified to Congress in July that her agency supervises banks to determine whether they're living up to their anti-money-laundering obligations, but it doesn't prohibit them from serving Somali money transmitters.

"Now, it's a decision that they make, whether or not they want to take these risks," Yellen added. "Some firms may be reluctant to undertake those risks."

That argument does not sit well with foreign-aid workers, who rely on the remittance system to do their work in Somalia. The aid workers have watched bank after bank drop out of the money transfer business, and they largely blame tighter regulatory expectations.

"Everybody's passing the buck in terms of responsibility," said Degan Ali, executive director of the aid group Adeso.

Details Are Scarce
The U.S. government has mechanisms for coordination among the various agencies with a role to play on the Somalia issue.

In November 2012, the Obama Administration announced the formation of an anti-money-laundering task force, headed by the Treasury Department, to examine which aspects of AML enforcement are working and which are not.

That Treasury-led task force could play a constructive role in addressing the Somali money transfer issue, an OCC spokesman said. He noted that the OCC has made that suggestion.

But a Treasury spokeswoman declined to answer a series of questions from American Banker about the task force, including which agencies are members, how frequently the group meets and whether it has discussed Somali remittances.

The spokeswoman said in an email that Treasury recognizes the important role that international money transfers play in ordinary Somalis' lives. She added that Treasury has been engaged in ongoing communication with both the Somali community and with relevant financial institutions.

But Hassan, the compliance officer for Kaah Express, expressed dismay over the low level of attention Treasury has given to the Somali remittance issue. He recalled participating in a conference call in which, he said, a Treasury official advised the money transmitters to simply travel to their Dubai headquarters carrying cash, rather than dealing with the banking system.

"Just pack all the money that we have and pack them in suitcases and fly them over to Dubai," Hassan recalled the unnamed Treasury official suggesting.

"That's been the level of engagement," Hassan added in disbelief.

A Treasury official disputed Hassan's account of the conference call, but refused to provide any information about what was said, saying that the call was off the record.

The White House is also involved in the Somali money transfer issue. Earlier this year, Rep. Keith Ellison, D-Minn. — whose congressional district is home to many Somali-American residents — asked the Obama administration to convene an interagency working group on Somali remittances, and National Security Advisor Susan Rice agreed to do so.

Agencies involved with the working group include the Treasury, State and Commerce departments, and the White House, according to National Security Council spokesman Ned Price.

"While we will not discuss specific policy deliberations," Price said in an email, "our approach to this issue has included affirmative guidance to the financial sector and has taken into account views from the diaspora, banking sector, international partners and nongovernmental organizations."

Any progress that federal agencies have made on the issue has mostly happened behind closed doors. That opacity has left outsiders with very little information to judge the U.S. government's approach to the Somalia problem.

"It does seem rather hushed, to tell you the truth," Ellison said in an interview.

He expressed sympathy with bank regulators' need to keep certain information confidential, but added: "There's a whole lot of other information that I think they could release."

Contrast with the U.K.
The tight-lipped, often siloed approach in the U.S. stands in contrast with the actions of their counterparts in the United Kingdom, where Somali money transmitters find themselves in a similar predicament.

Last year, British officials convened a working group that included money transmitters, banks, regulators, nongovernmental organizations and members of the Somali community in the U.K., with the goal of devising a safer way for money to travel to Somalia.

So far progress has been slow, but Oxfam America's Paul said the U.K. government is showing a sustained commitment to find a solution to the Somalia problem. "In the U.S., I don't think we see the same kind of commitment yet," he said.

To be fair, there are no easy answers here, and everyone involved acknowledges that. Somalia lacks basic financial infrastructure, its central government remains extremely weak, and certain regions remain under the control of the terrorist group Al-Shabaab. (U.S. military forces attacked Al-Shabaab on Monday, killing six of the group's members, possibly including its leader.)

Even critics of the U.S. government's response to the situation acknowledge that any long-term solution will require the development of a banking system inside Somalia.

But Ellison said the United States can play a role in helping Somalia modernize. He'd like to see the U.S. government provide training to the Somali central government on how to set up its financial system.

"I think that would be a good start. It would be a very good use of resources," Ellison said. "They've had civil war for 22 years, and they're trying to fight off Al-Shabaab, and they've got a lot of things going on."

Ellison was the sponsor of legislation signed by President Obama on Aug. 8 that's designed to streamline the regulation of money transmitters, allowing federal authorities to accept state examinations. He called the measure "a good start" but not a "panacea" for the problems facing Somali money transmitters.

Ellison also said that he understands the perspective of bank regulators who are tasked with preventing financial crime.

"There are serious money laundering problems," Ellison said. "I mean, a lot of big banks have gotten busted for them. And so that exists. But I think that there's enough expertise in the room for us to figure out what to do next, and so I think convening the players who have a role to play would be very helpful."

That could mean looking at the Somalia issue through a wider lens than just the banking system.

The United States has an interest in seeing Somalia stabilize politically and thrive economically. In the last year and a half, the U.S. has invested $315 million in bilateral aid in the country, Undersecretary Sherman said in her recent speech.

"There's a whole cavalcade of integrated efforts that have to go forward to put terror on its back foot for the long term and allow the good forces of people being able to live their daily lives to come forward," Sherman said.

All of those efforts would become more difficult if the remittance pipeline were interrupted.

Paul said it is problematic that important U.S. foreign policy interests hinge on the business decisions of a few small banks. Merchants Bank of California is a $95-million asset bank with a single branch in Carson, Calif.

"I don't think that an interest of such great importance should rest on whether a small institution such as this thinks it can find a way to do it," Paul said.

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