A bill scheduled for a vote on the House floor Tuesday afternoon highlights the longstanding tension between anti-money-laundering regulations and global financial inclusion.

AML regulations are meant to stop drug cartels and terrorists from using banks to conduct criminal activity. But the strict interpretation of those rules may be causing inadvertent harm to people in Somalia — a war-torn country where large numbers of people depend on money transfers from friends and relatives abroad to cover their basic needs.

The Money Remittances Improvement Act (H.R. 4386) was introduced by Democrat Keith Ellison and Republican Erik Paulsen, both from Minnesota, which has a large Somali-American population. The measure aims to make it easier to for such immigrants to route funds to their home country by simplifying regulatory supervision of money-service businesses and other nonbank financial firms.

The bill would authorize federal and state regulators to share information about those firms. Its supporters hope this measure would provide reassurance to banks that are gun-shy about partnering with money-transfer businesses, many of which are perceived as high-risk. The bill would also ease the burden on MSBs by permitting the Treasury Department's Financial Crimes Enforcement Network to rely on state compliance exams that meet federal regulatory requirements. (Currently, these firms must undergo separate Internal Revenue Service and state examinations.)

"We've seen the difficulties that people are having getting money back to Somalia because of banks in the U.S. and the U.K. closing money-transfer companies' accounts," says Anne-Marie Schryer-Roy, the communications and advocacy manager for the development organization Adeso Africa. "Because of anti-money laundering regulations, there's been extra scrutiny on money transfer accounts. But since Somalia doesn't have a functioning banking system, these companies are one of the only ways to remit money back to Somalia."

Over 40% of Somalis receive money transfers from friends and relatives abroad, according to a June 2013 report by the United Nations Food and Agriculture Organization. The vast majority use those funds to buy food for themselves and their families. Other common uses include rent, school fees and medical expenses.

Somalis in the U.S. have limited ways to send funds to their families, according to Schryer-Roy. Western Union (WU) has a branch in Somalia. But it charges much higher fees than the network of Somalia's money-services businesses, known as hawalas. An April report by the Overseas Development Institute, an international think tank, found that people worldwide typically pay a 12% charge to send $200 to African countries. That is almost double the global average, and significantly above the 5% target agreed to by the leaders of the Group of Eight industrialized nations.

"In effect, Africans are paying a remittance 'super tax,'" the report concludes. "Reducing charges to world average levels and to the 5% G-8 target would increase transfers by $1.8 billion annually." But "there is no evidence of any decline in the fees incurred by Africa's diaspora."

Mobile fund transfer services have helped some people work around the high fees charged to send money to African countries. But mobile payment options are of little use in Somalia, according to Schryer-Roy. "A lot of people who receive remittances don't have cell phones or cell phone signals," she says.

These factors have made remittance services crucial for Somalis. When a Minnesota community bank wary of AML compliance violations stopped doing business with hawalas serving the country in 2012, thousands of Somalis living in the state threatened to close their accounts with Wells Fargo (WFC) and U.S. Bancorp (USB) unless they agreed to help.

"They are among the biggest banks nationwide, and we want them to take the lead," Abdirahman Muse, a community organizer, told American Banker in May 2012. "We bank with them, we do business with them here, but we need them to help us find a solution to this humanitarian crisis."

The Minneapolis-based U.S. Bancorp (USB) appeared ready to accommodate the activists' wishes last year, announcing in April that it was in discussions with the African money transfer firm Dahabshiil. But the discussions fell through.

"For the past year, we've worked very closely with [Dahabshiil] and with the independent auditor they hired to conduct an extensive review of their business," U.S. Bancorp spokeswoman Nicole Garrison-Sprenger wrote in an email. "Unfortunately, because of some items identified in the independent review of Dahabshiil and the inherent risks of doing business in Somalia, we are not able to open an account as we had hoped."

Banks in other major economies are also erring on the side of caution. Barclays in the U.K. announced plans to close the accounts of some money service businesses last year, including Dahabshiil, triggering a public-relations fiasco. Barclays and Dahabshiil agreed to end their banking relationship in a settlement last month.

By strengthening and clarifying regulation of money-service businesses, the Money Remittances Improvement Act could provide reassurance to skittish banks, according to Schryer-Roy. But even with bipartisan support and a companion Senate bill, it's unclear how the measure will fare in a midterm election year. Even if it is enacted, the changes would be only one step toward solving a larger problem.

"The presumption of risk and the fact that anti-money laundering statutes are still in place means that banks will continue perceiving money-transfer companies as a high-risk sector," says Schryer-Roy.

The Treasury Department tried to dissuade banks from allowing this concern to guide their decisions about relationships with money transmitters in a December 2011 blog post, writing:

The Treasury Department 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 … 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.

But many observers believe banks are right to be on guard. "Banks need a specific set of expectations which, if followed, would shield them from blame," David Landsman, the executive director of the National Money Transmitters Association, told American Banker in 2012. "Right now they do not have that."

One way to help banks overcome hesitations about working with money transfer companies would be to offer a legal safe harbor designation to institutions that do their due diligence, according to Schryer-Roy. This would protect banks from prosecution for money laundering charges. As it stands, banks fear being held liable if funds sent through money transmitters reach terrorist organizations or other criminal groups. In one such case, two Somali-American women were found guilty of sending money transfers to the terrorist organization al Shabaab.

"It's important that banks and regulators and money-transfer companies work together to find a sustainable way forward," Schryer-Roy says. "These flows are literally a lifeline for millions of people."