Bill to ease money transfers to East Africa

A federal bill signed last month will streamline oversight of money transfers, but locals involved say problems persist.

by Kevin Karner

To Mohamud Abdi, sending money to family and friends is routine.

“I don’t think I know a single Somali family who doesn’t send money back home,” the sociology sophomore said, adding that his family has done so ever since immigrating to the United States in 2003.

Transferring money overseas, and especially to Somalia, has proven difficult for many years due to federal regulations, but a bill signed by President Barack Obama early last month could make it easier. Still, some in the money-wiring business say there’s much more to be done.

Money transfer operators, known as hawalas, are used by many recent immigrants who live and work in the U.S. and wire a portion of their income back to support loved ones abroad.

But due to stricter federal anti-money laundering laws enacted after 9/11, hawalas have had trouble partnering with banks that wire money to East Africa.

Rep. Keith Ellison, DFL-Minneapolis, sponsored the recently signed bill that streamlines government oversight of businesses like hawalas, in an attempt to simplify regulation.

The effort is a start, but it doesn’t get at the heart of the problem, said Aden Hassan, a manager at Kaah Express, a money transfer organization with a location in the Cedar-Riverside neighborhood.

Although Hassan said he’s grateful for the attention to the issue, he added that he’s skeptical about the scope and the authority of the bill to address the core problem — that money transfer operators are considered risky assets, making banks disinclined to hold their accounts.

“For the banks, having accounts owned by a money service business is like a driver having 10 accidents on their record,” Hassan said. “You know what that does to your insurance.”

Many banks have dropped accounts belonging to money transfer operators that deal with East African countries, out of fear of increased government inspection, Hassan said, adding that four banks have closed on Kaah Express in the past year.

“It’s been getting worse,” he said. “We have fewer banks today than we had two months ago, and that is the process of strangulation, basically, that we’ve been going through for the past several years.”

The new bill aims to give financial institutions greater confidence that money transfer operators are well-regulated and less risky, according to Ellison’s office. A timeline for the bill’s implementation is so far uncertain, his office said.

“With the signing of this new law, Congress and the President took an important first step to improve the processes by which families and businesses send money home, making them simpler and easier to follow,” Ellison said in a statement after the bill’s signing.

While official figures aren’t available, these money transfers can make up as much as 40 percent of the gross domestic product in parts of Somalia, according to research by Oxfam, an organization that fights global poverty.

In Somalia, where the political system is unstable, maintaining steady work is difficult, Abdi said.

His mother will send several hundred dollars overseas in times of need, he said, adding that the money is worth more in Somalia than it is in the U.S.

“It helps kids go to school and get the food they need,” Abdi said.