Barclays’ Somalia remittance accounts win stay of execution

NGOs welcome Barclays’ move to extend deadline for money transfer accounts but say more time is needed to find solution


MDG : Money exchange shop in Hargeysa, Somaliland, Somalia

Barclays wants to close the accounts of about 250 remittance firms. Above: a money exchange shop in Hargeysa, Somaliland, Somalia. Photograph: Liba Taylor/Alamy

Aid agencies are urging Barclays to further postpone its decision to close the accounts of money transfer companies beyond 30 September amid fears the move will cut a financial lifeline to Somalia just as it is getting back on its feet after years of war.

“It is a welcome sign that Barclays is reconsidering its decision to close accounts but a 20 days’ grace period is just a short stay of execution,” said Oxfam’s chief executive, Mark Goldring.

“What is needed is a comprehensive solution, and there is clearly not enough time for the banks and the government to produce this by the end of the month.

“People in Somalia who rely on money sent to them from loved ones in the UK to pay for the very basics of life need some guarantee that this financial lifeline is kept open. The government and the bank do have come together and agree a workable solution.”

Oxfam, Care and others say Barclays needs to wait for a year to allow time for governments and banks to agree appropriate regulations to keep open the flow of remittances to Somalis while addressing concerns relating to money laundering. Barclays has also come under pressure from Mo Farah, the double Olympic gold medallist, and Rushanara Ali, the Labour MP, to hold off.

About half of the 10 million population of Somalia and the self-declared breakaway Republic of Somaliland depend on remittances – worth more than $1bn (£639m) a year – from among the 1.5 million Somalis living overseas. The amount far surpasses aid to the country. Somalis living in the UK send more than £100m a year to friends and families.

Barclays wants to close the accounts of about 100 remittance companies on the grounds that many money service businesses do not have the necessary checks in place to spot criminal activity in compliance with anti-money-laundering laws, which have been tightened since the September 11 attacks of 2001.

Last week, the Somali government expressed its concern over the plan to close the accounts, which would affect Somalia more than other countries as it has no banking system.

“We are deeply concerned the situation of the money-transfer business, which is the main source of income to millions of people and contributes a significant percentage to the regional economy,” said the deputy prime minister, Fauzia Yusuf Haji Adan. “Stopping the diaspora support system will have a negative impact to the livelihood of the Somali community and other similar communities around the region.”

Development experts have criticised the decision as heavy handed. Kevin Watkins, the director of the Overseas Development Institute (ODI), last week described the move as “unwarranted, unnecessary and a threat to some of the world’s most vulnerable people”.

In a letter to Antony Jenkins, the chief executive of Barclays, Watkins cited new research demonstrating that it is possible to maintain cash transfers to Somalia while maintaining due diligence.

“We found no evidence of large-scale diversion due to the money-transfer system,” said Watkins. “To cite our report: ‘despite the significant security and access challenges faced by humanitarian agencies, Somalia is an appropriate environment for cash interventions: it has an innovative, national system of money-transfer agents (*hawala), which regularly deals with billions of dollars from the diaspora. The market system is highly integrated and competitive as the country relies heavily on imported food’.”

The introduction of strict anti-money-laundering laws in the US has been cited as a reason for Barclays’ decision, after a $1.9bn (£1.2bn) fine imposed on HSBC bank by US authorities for failing to prevent money laundering by drug barons in Mexico. Barclays is the last UK bank to deal with remittance companies.

But Watkins said: “There is a world of difference between providing banking services to drug barons in Mexico and delivering a service that pays for health, education, food, housing materials and small enterprises in Somalia. If aid agencies can find a way to operate efficiently in Somalia then surely it’s not beyond the capability of Barclays.”

Barclays said it agreed with the ODI that this was not a crisis of its own making but rather the result of regulatory pressures. “As a global bank, we must comply with the rules and regulations in all the jurisdictions in which we operate,” it said. “The risk of financial crime is an important regulatory concern and we take our responsibilities in relation to this very seriously.”

Dahabshiil, a remittance company with extensive operations in Somalia and Somaliland, had previously had its deadline extended twice but had been told by Barclays that 30 September was the final cut-off date. Abdirashid Duale, chief executive, insists that Dahabshiil, which has 286 payout locations across Somalia is “fully compliant with all applicable legal requirements and industry best practice, and no breach of compliance has ever been indentified regarding our procedures or controls”.

The remittances problem will be the subject of a UK government roundtable with banks, regulators and money service operators next Monday, the same day as a conference on Somalia in Brussels hosted by the EU and the Somali government to discuss national reconstruction.

The NGOs also called on the UK government to work with the banks and money-transfer agencies to find a long-term comprehensive solution.

Goldring said: “The banking rules are illogical, cold hearted and counter-productive. It leaves families already struggling to make ends meet to go without. Closing money-transfer companies’ bank accounts is likely to drive the money transfer business underground making it even more difficult to regulate. It will also hit the Somali economy hard just when the country is trying to get back on its feet.”