Many banks consider money transmission to Somalia too risky because of concerns about terrorism. But U.S. Bancorp continues to pursue a relationship with Dahabshiil, the largest Somali money transmitter, whereas Barclays dropped the business citing the risk.
The concern is understandable. Two years ago, two women from Rochester, N.Y. were
But because of the countrys lack of a financial system, remittance is a much needed service in the African country.
When banks started cutting off remittances to Somalia, several humanitarian groups pushed back urging financial institutions to reopen the relationships. NGOs and political leaders have called this a humanitarian crisis as many
However, some smaller banks are seeing the benefit in keeping ties with Somali remittance companies. The relationships help differentiate smaller banks from larger rivals that ignore this segment of the population.
Smaller banks can tap a segment being ignored by the big ones, says Juan Llanos, executive vice president and compliance officer at Unidos Financial Services Inc. [U.S.] Bancorp will invest in managing the risks of these businesses because in the future they see by tapping the underserved they will have an edge.
Money remittance to unbanked recipients is one of the only expanding segments of financial services, says Llanos. Its the largest potential treasure trove for banks all other segments are plateauing, he says.
Regulatory pressures increased after
Barclays confirmed the end of its relationship with Dahabshiil and three other money transmitters working in Somalia. These money service businesses were asked to find new banking relationships.
Two of the four money transmitters have already found other options in the U.K., says Daniel Hunter, head of media relations at Barclays.
"It is important to note that of the 16 members of the U.K. Somali Remitters association, 12 of them banked with banks other than Barclays," says Hunter. "Clearly Barclays isn't the last bank in this space, and there are multiple other U.K. remitters who claim to send money to Somalia that have never banked with Barclays."
Other firms asked about the criteria for getting under compliance, and Barclays has extended the deadline of termination of those relationships to the end of September, says Hunter. Money transmitters must have a properly qualified auditor to review compliance controls every year and must have robust corporate governance, he says.
The problem with [the lack of financial system] is you dont have visibility of where that money is coming from and going to, says Lauren Verner, a spokeswoman at Barclays.
While Barclays wont discuss specific companies, Verner says, It is recognized that some money service businesses dont have the necessary checks in place to spot criminal activity, with the degree of confidence required by the regulatory environment under which Barclays operates.
As a global bank we must comply with the rules and regulations in all the jurisdictions in which we operate, she says. The risk of financial crime is an important regulatory concern and we take our responsibilities in relation to this very seriously.
By contrast, U.S. Bancorp began a trial relationship with Dahabshiil
We continue to work with Dahabshiil through the due diligence process but have not reached the point of transactions yet, says Teri Charest, spokeswoman for U.S. Bancorp.
We recognize the need and want to be able to help families send money to their relatives in Somalia, Charest says. We also recognize the risk, which is why we are taking a very careful and measured approach in working through the sure diligence process.
Somalia remains a high-risk country
Dahabshiil did not respond to interview requests for this story.
This past May, many Somali-Americans in Minnesota
There is constant regulatory pressure and banks have to sort of rearrange their inventory every time a regulator does another review, says Pervees Faisal Islam, director at Centra Payments Solutions. Islam is also a part of the compliance advisory board at the company.
Because risk appetite is determined in part by a banks margins, its common for banks to have different risk structures, Islam says. Therefore one bank might decide to work with a business while another wont take on the risk, he says.
Money transmitters that have had long relationships with banks have followed every single word and every single direction that the bank has directed on them, Islam says. A money transmitter has to start deciding, 'Do I enjoy jumping from bank to bank or do I invest the resources to do it right once and for all?'
But remitting to Somalia goes beyond business opportunities, Islam says. Because of the strife in Somalia, banks should see a social responsibility to assist family members inside and outside Somalia, he says.
Larger banks, like Barclays, have much more to lose than smaller banks, Llanos says. Some banks have the luxury of ignoring some segments of the population.
Large banks dont want the reputational or non-compliance risks associated with businesses that work with unbanked consumers, he says.
Money transmitters are constantly facing rejection from banks, says Islam. Banks can suddenly drop money transmitting companies because of changes of direction in business operations such as mergers, he says.
This
A bank will always look at the potential revenue first, says Llanos. After that, the bank calculates if the margin of benefits outweighs the margin of costs by looking at things like the businesses sustainability, legitimacy and management team. Then the bank looks at whether the business itself can handle risk by reviewing the companys customer service, government relationships, monitoring operations and compliance procedures, he says.
