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Why on earth is Barclays (still) cutting the remittance lifeline to Somalia?

October 1, 2013
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Oxfam’s tame ex-banker Will Martindale wonders what on earth Barclays is up to in cutting the remittance lifeline to SomaliaWillMartindale

“I can skype my mum, and see her, and watch her go hungry, fall ill. But they’re saying I can’t transfer money for food or to see a doctor. How can that be?”

Istarlin lives in South London. She’s one of thousands of Somali migrants around the world who send approximately $1.3 billion every year to friends and families at home. Generosity on this scale is laudable. It’s far more money than Somalia receives in humanitarian aid.

Barclays is the only remaining major bank in the UK still providing this service to Somalia. But earlier in the year, due to a perceived increase in risk, it published plans to close all Somali money transfer accounts. The deadline was yesterday.

Over 100,000 signatories, an Olympic double gold medallist and Somali community groups joined together in an unlikely coalition. They were up against Barclays and the Treasury. The call was clear. Barclays needs to extend for at least 12 months, long enough for the Treasury to work closely with banks  to re-write problematic regulation and strengthen due diligence checks so that banks can once again be confident in servicing Somali money transfer organisations.

As Mo Farah explained, failure to do so is life or death for millions of Somalis. A recent UN report shows that 40 percent of families in Somaliland and Puntland receive remittances. This money is integral to their survival.

There are few options: Somalia has no formal banking sector. The remittance corridor is the only official means of getting money into the country. Istarlin explains “there’s a money transfer organisation on the high street. Every month I’ll transfer £100. It costs me just £2.50.”

Money eventually reaches Somalia having criss-crossed multiple regulatory jurisdictions. In recent months, banks’ interpretation of legislation on money laundering and counter terrorism has become tighter and more risk averse.

Mo Farah BarclaysIn late 2012, HSBC was fined a record £1.2 billion by US regulators. Reports suggested HSBC accounts in Mexico and the US were being used by drug barons to launder money. HSBC is not alone in falling foul of the regulators following large-scale money laundering as regulatory authorities on both sides of the Atlantic have stepped up efforts to combat illicit flows of money.

But this has little to do with Somalia. The similarities are slight. Most Somalis living in the UK are not wealthy. Individual transfers are usually less than £200, and often as little as £25: average income in Somalia is under £200 a year. So far no Somali operators have had any accusations against them. Failing to find a solution risks driving transfers underground which is in no-one’s interest, not least the regulators.

In my short time at Oxfam I’ve seen the very best of banking; impact investment, financial inclusion and socially responsible investment – for example our Behind the Brands financial sector engagement. Banks can and do facilitate development.

But Barclays is getting it seriously wrong at a time when it is desperately trying to re-brand. Instead of championing its ability to channel money safely to poor people in a remote land, Barclays is in effect imposing a financial boycott on some of the world’s most vulnerable people.

Somalia has been torn by more than two decades of conflict. Over 2 million people remain displaced, inside and outside the country. 43% of the population survives on under a dollar a day.

At the time of writing (Monday, 10pm) there is brief respite for one major Somali money transfer organisation. Barclays will extend for two weeks, with details emerging of another bank facilitating corporate and aid money transfers, but not yet the crucial individual remittances. Barclays still planned to close the other three money transfer organisations’ accounts.

If sustainability is central to the way Barclays does business, the moral implications of this decision must be considered alongside the financial. On thatSomalia protests basis there remains an obligation to ensure that remittance channels remain open.

Barclays is no monster. I have several friends that work there. They can cite a dozen good things Barclays does, but they too are frustrated at this spectacular own goal and the needless suffering it will cause. It’s time for Barclays to show some leadership.

If Barclays decides to keep open a lifeline to some of the world’s most vulnerable people, is it really going to run a serious risk of prosecution under laws designed for entirely different circumstances? The Treasury ought to be able to put their minds at rest on that.

But even if there is some small risk, Barclays could count on a lot of allies to back them in keeping the lifeline open – not least the 100,000 signatories, Mo Farah and international NGOs who’ve been campaigning for them to see sense.

over 100,000 signatories, Mo Farah and a growing number of international NGOs.

5 comments

  1. I saw this in the news but I can’t understand if Barclays are being blamed disproportionately to other banks that have also closed this service. Was their similar outcry when others stopped?

    Whose fault is it that the legislation is in such a mess? Banks? Somali government?

  2. Hi David – Good question.

    You’re right. We should have made more noise when other banks withdrew from the market.

    We are now engaging several major UK banks. Our US colleagues are doing the same State-side. We’re also calling on Somali authorities to pass legislation to strengthen the Somali banking system. The Treasury can support this process.

    Having said that, given Barclays remains the only major bank facilitating money transfers, there is a moral dimension that they must consider. Their convening power is considerable. If any institution can get the changes we need, it’s Barclays.

    One of the reasons the regulation is a mess is that it has developed in a national context for an international market. A transfer from the UK to Somalia would be made in dollars, and therefore subject to US regulation too. We’re also calling on the government to engage key international regulators to ensure other countries’ regulations do not adversely impact remittance flows.

    The experts we’re working with believe a 12 month extension gives enough time to achieve this to give banks the confidence to return to the market. That’s our message to Barclays.

    Hope that helps.

    Will

  3. ” is it really going to run a serious risk of prosecution under laws designed for entirely different circumstances? The Treasury ought to be able to put their minds at rest on that.”
    Will – surely the issue is that Barclays are worried about the US authorities and its not at all clear that the UK authorities can give them any assurances on what the US will or won’t do

  4. I wonder – and this is just speculation – if Barclays (and the regulators) have information that no one else has? In the wake of the ‘Westgate’ attack, is it not possible that there is evidence that Al-Shabab is being partially funded by remitance inflows? And, not wishing to be accused of aiding and abetting terrorists, banks like Barclays simply prefer to shut down that line of business? Otherwise, it would seem to make no business sense on their part. It does of course mean that the rest of the Somali population suffers, but then, when has that worried extremists? Support for Al-Shabab among the somali disapora may not involve a huge number of people, but it might be of significant concern for regulators to ask for the remittance channel to be shut down. Just a thought….

  5. Hi Gerry –

    You’re right. Oxfam America launched a report on Capitol Hill a month ago: http://www.oxfamamerica.org/files/somalia-remittance-report-web.pdf.

    One of the recommendations is a ‘clearinghouse’ which would aggregate transactions helping regulators and MTOs identify remitters sending funds through multiple MTOs. The UK (and US) treasury could also set up a ‘safe corridor’ – there’s more in the report.

    We’re calling on Barclays to give a 12 month extension to give Oxfam and others the opportunity to lobby the treasury to implement such policies.

    It’s also worth taking a look at the below blog taken from the US treasury website, written in 2011:

    “It is the view of the Treasury Department that financial institutions that establish and maintain appropriate risk-based anti-money laundering programs will be well-positioned to appropriately manage such accounts, prevent illicit transactions, and avoid enforcement action.”

    http://www.treasury.gov/connect/blog/Pages/Importance-of-Remittances-through-Legal-Channels-to-Somalia.aspx

    Thanks, Will

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