Minn. hawalas prepare to shut down this week

Somali money-transfer companies in Minnesota are preparing to close as early as Friday, unless a solution can be reached with one of the last remaining U.S. banks to do business with them.

Shutting down the so-called "hawalas" could have devastating effects in Somalia, which is experiencing its worst famine in decades. Minnesota is home to the largest Somali-American population in the United States, and members of the community rely on the money-wiring shops to send cash to family and loved ones in their homeland.

Last week, Franklin Bank announced it would close all of its hawala accounts Dec. 15, citing security concerns. The news sent the money transmitters scrambling. Hawala owners met with bank officials, and asked for a three-month extension.

On Tuesday, bank officials denied their request.

Aden Hassan, a representative of 14 Somali-owned money-wiring services in Minnesota, said many of the shops will likely close Friday to allow time for the transactions to clear before everything is completely shut off next week.

"This is going to have a massive negative effect on Somali, Kenyan, and Ethiopian populations who are facing one of the worst recorded famines and droughts in recent history," said Hassan, a compliance officer for Kaah Express of Minneapolis.

Franklin Bank officials say they did not take the decision lightly, given the huge humanitarian crisis that is broiling in the Horn of Africa.

But the bank is concerned about the risks involved, said David Reiling, CEO of Sunrise Community Banks, the parent company of Franklin Bank.

The recent case of two Rochester women convicted of funneling money to the Somali terrorist group al-Shabab exposed the bank's vulnerabilities, he said. And last Thursday, a young San Diego woman pleaded guilty to using the services to sending money to al-Shabab fighters.

Even though bank officials don't believe Franklin was involved in either case, Reiling said the incidents prompted bank officials to look at its own security procedures. They concluded that they could not prevent someone from routing money to terrorists, especially if that person was not already under scrutiny by federal authorities.

"We don't want to be involved in money getting into the hands of the wrong people in any way, shape or form," Reiling said. "So the only way we know at the moment to mitigate that risk is to close these accounts, until we can find another solution or work with government to re-establish those lines."

Reiling said he remained optimistic that a solution could be reached soon. He said one option is a government waiver that could afford banks some protection. Reiling points out the State Department has handed out similar waivers to humanitarian organizations working in Somalia.

Meanwhile, U.S. Sen. Al Franken wrote a letter Wednesday to Secretary of State Hillary Clinton and Treasury Secretary Tim Geithner urging them to explain how Somali Americans can continue to remit cash to their homeland. The Treasury Department has indicated there will remain legitimate channels to send money to Somalia, Franken noted in the letter.

Franken also told Clinton and Geithner that Somalis rely on the remittances to survive.

"I am concerned that the inability to transmit money back to Somalia would intensify the human suffering," he wrote.

Removing legitimate channels for Somalis to send money may drive people to "difficult-to-track" means, heightening the risk for money ending in the wrong hands.

Franken also said ending remittances from the United States would be a victory for al-Shabab, which could claim "America was preventing needed funds from getting to suffering Somalis."

There has been a long precedent for banks getting out of the hawala business.

Wells Fargo, U.S. Bank, and TCF have all stopped providing services to Somali hawalas in the years following the Sept. 11, 2001, terrorist attacks, Hassan said. Sunrise, a family-owned Twin Cities community banking group, started working with the remittance companies about three years ago.

Hassan said the banks have overreacted to the fear of being held liable for involvement in possible terror financing.

"What's happening is the banks are reacting to that fear, and responding to it by blacklisting us and avoiding us completely," Hassan said. "I can't say it's unfounded or baseless, but we're not aware of any bank that has been penalized for our behavior or for the behavior of our clients."

Word about the likely closure of the hawalas has gone viral in the local Somali community, Hassan said. Customers are coming into his shops worried about how their families will be able to feed themselves.

Somalia lacks a formal banking system. When the country's government collapsed in 1991, so did its financial institutions. Remittances from the diaspora keep the Somali economy functioning. A Somali American in Minnesota can go to a local hawala and write a check to his mom in Mogadishu for $200. Within 24 hours, she'll have received it. The CIA estimates that Somalia receives about $1.6 billion a year in remittances from Somalis around the world.

International aid organizations also use hawalas to deliver aid to Somalia. Mohamed Idris, executive director of the Minneapolis-based American Relief Agency for the Horn of Africa, said his organization is lucky because it has staff and partners in Ethiopia and Kenya who can wire money into Somalia from those locations.

He said closing the Minnesota money transmitters may increase his group's administrative costs. But much worse, he said, it could be a big blow to the Somali people.

"This system has worked for decades. It has more advantages than a traditional banking system," he said. "It's fast. It's open 24 hours, seven days a week. It requires minimal paperwork and reaches every town and village in Somalia."

EDITOR'S NOTE: An earlier version of this story incorrectly stated the estimated amount of remittances Somalia receives from Somalis around the world. The current version is correct.