Terror Money Crackdown Also Complicates Life for Ordinary Somali-Americans

Rules designed to thwart criminals also disrupt immigrants sending money home.

Aden Hassan is getting used to rejection. He's been driving all over North Dakota and Minnesota over the past couple months looking for a bank that will do business with his company, Kaah Express, which helps Somali immigrants living in the United States wire money back home. Most of the banks won't even look at his application. If he can't find a partner, he may have to shut down some of his company's branches in far-flung places like Fargo, N.D.

"All the banks and credit unions seem to be reading from the same script," Hassan said from Minneapolis, where Kaah is based. Kaah is a privately-held money services company that operates in 13 U.S. states and transfers about $70 million a year to Africa and other parts of the U.S. Hassan is its compliance manager, so he's the one that banks want to talk to when they're considering whether or not to do business with the company. Kaah's branches use accounts at commercial banks to send money to the company's headquarters in Minneapolis, which then sends the funds to Somalia. Without those accounts, Kaah staffers across the country would have to drive the money to Minnesota themselves.

Hassan's struggles are an all too familiar problem for many Somalis. Growing numbers of banks are refusing to do business with Somali money transmitters like Hassan because they worry the Treasury Department will hold them responsible if any of the funds wind up in the hands of terrorists or criminals. In a stark illustration of the law of unintended consequences, the banks' eagerness to comply with U.S. rules designed to thwart the financing of terrorist groups are also making it harder for law-abiding immigrants to support their families in war-torn Somalia.

"It's making it more expensive, more difficult, and the level of anxiety is skyrocketing," said Rep. Keith Ellison (D-Minn.). He said the pool of banks willing to do business with the money transmitters in his district, which is home to more than a third of the total Somali-American population in the country, is rapidly shrinking. Ellison has drafted legislation designed to address the issue by streamlining regulations, but it hasn't gone anywhere.

"Treasury's job is to stop any terrorist financing and they've been successful at that," he said. "The problem is that they've stopped a whole lot of legitimate transfers, too."

In an email, a Treasury spokesperson said that the department remained engaged with the Somali-American community and that channels to transmit funds back to Somalia remain open. The spokesperson declined to offer any further details.

Many of the Somalis living in the United States would disagree. They complain that the Treasury crackdown could threaten the livelihood of friends and relatives back home, who are heavily dependent on remittances from abroad. Somalis abroad send home about $1.3 billion a year, which includes about $215 million from the United States, according to Oxfam. It's hard to get more precise figures because Somalia doesn't have a functioning central bank that keeps track of such things. The money is a vital source of income for people in Somalia, as the country has been gripped with violence and instability first from civil war and now from an insurgency led by Islamist militants belonging to a group called al-Shabaab. Though the instability makes the remittances all that more important, it also makes banks wary of doing business there for fear of accidentally handling a transfer for a terrorist, criminal, or someone else on a U.S. blacklist.

It's not an abstract concern for the banks. In 2012, HSBC paid $1.9 billion to settle charges that the bank's lack of rigorous oversight led it to do business with Mexican drug cartels and people in sanctioned countries like Iran and Libya. Last month, when Bell State Bank closed accounts that belonged to Kaah Express and other money transmitters in Fargo, the bank's security officer told the Associated Press that it made the move because of the risk of massive fines. The bank did not respond to requests for comment.

In a report earlier this month, the World Bank called the closing of accounts used to transmit money to Somalia and other fragile countries from the U.S. and Britain "worrying." "More needs to be done to ensure that anti-money laundering and combating the financing of terrorism (AML/CFT) regulations do not unduly undermine development objectives and harm the poor," the World Bank said in its biannual report on remittances.

In the years since the September 11, 2001 terrorist attacks, the Treasury Department has worked to make it harder for terror groups to raise needed funds. The huge fines imposed against banks like HSBC that are found to have transferred money to terrorists or criminals have grabbed the attention of other financial institutions and made them leery of sending money to countries where the local banking system is not up to U.S standards. Somalia is perceived as one of the riskiest countries to do business and many of the country's connections to the international financial system have fallen victim to the country's ongoing instability. When Barclays announced last summer that it was cutting ties with Somali money transmitters, a British court stalled the move because it was the only bank in the U.K. still working with Somalia.

In the United States, the issue came to a head at the end of 2011, when Somalia was suffering from famine and the main bank serving the Somali community in Minnesota, Sunrise Community Bank, decided to close the accounts that connected the Somalis to their home country. Companies that send money to Somalia, like Kaah, found new banks to work with at the time, but they still live with the constant threat that they'll be dropped. The latest issue with local accounts being closed only stokes the fear that eventually there may be no bank left willing to work with them.

Kaah Express has already had three accounts closed this year in Minnesota, North Dakota and Nebraska. That's why Hassan is scrambling to find a new bank. The accounts weren't the ones used to wire money to Somalia, but they were smaller accounts used by Kaah's branch offices to store customers' money. Now, Hassan says, agents from locations like Fargo have to drive the money to Minneapolis.

"We're trying very hard to avoid having to close our offices in the affected areas," Hassan said. But, Hassan added, he's not very optimistic that the situation will change.

Simon Maina/AFP/Getty


Digging Themselves in Deeper

Why Big Oil is doubling down on Putin's Russia.

Russia may have become an international outcast in the wake of its annexation of Crimea and continued destabilization of eastern Ukraine. But for one group of powerful multinationals, Russia these days is less pariah than promised land.

Big Western oil companies from BP to Shell have not just stayed the course in Russia in recent months -- many have essentially doubled down on oil and gas investments there and built even closer ties with Russian energy firms. Taken together, the deals could send billions of dollars flowing into the Russian economy just when Barack Obama's administration is trying to hammer it hard enough to persuade Russian President Vladimir Putin to reverse his annexation of Crimea and stop menacing eastern Ukraine.

"We've made clear that we'd be prepared to target certain sectors of the Russian economy if we see a significant escalation, including direct Russian military intervention in eastern Ukraine," White House spokesperson Laura Lucas Magnuson has said.

It's unclear how successful the American efforts will be if giant multinational energy firms continue investing in Russia. The deals are a boon to Putin and a blow to President Obama for reasons that go beyond mere dollars and cents. The Western companies that sign the agreements also bring much-needed technical know-how, which is critical to Russian efforts to tap oil and gas in an array of inhospitable sites.

"Basically, they are torpedoing whatever the United States and the EU are trying to do, which is rattle Putin's cage," said Fadel Gheit, an oil analyst with Oppenheimer & Co. in New York. "I'm very surprised the oil companies are going out of their way to assure Russia and Putin that they are going to do business as usual."

Indeed, international oil firms are flocking to do more business in Moscow despite international outrage at the annexation of the Crimean peninsula, fears about Russia's use of natural gas exports to blackmail Europe, and growing signs that Russia is trying to stir up tensions in eastern Ukraine as a prelude to a potential military incursion there.

The continued Western investment in Russia reflects the simple fact that the country's energy potential is simply massive, with still-untapped deposits of oil and gas in Siberia and the Arctic and a huge Asian market for energy exports just next door. The prospect of getting in on the ground floor of the opening of Russia's liquefied natural gas export market is especially attractive to many firms, which see demand for gas in China, Japan, South Korea, and India as a guaranteed market for years to come.

As a result, a parade of Western CEOs have made clear that they have no plans to end, or even delay, their joint projects with Russia. Shell Chief Executive Ben van Beurden, for instance, met with Putin at the latter's residence outside Moscow on April 18. According to Bloomberg, van Beurden told Putin that his company is "very keen to grow our position in the Russian Federation," including through fresh investments to increase the capacity of the Sakhalin offshore gas field and export terminal in Russia's Far East. Kelly op de Weegh, a spokesperson for Shell, told Foreign Policy that the company's commitment to Russia hasn't been diminished by recent events.

"Our strategy for working in Russia, in partnership with Russian companies, has not changed," op de Weegh said. "Russia is a country of great importance for Shell; it is a major hydrocarbons resource holder and a growing consumer market."

She added that the expansion of the Sakhalin liquefied natural gas terminal, which liquefies natural gas taken from offshore fields in sub-Arctic conditions, has been in discussions for years due to its importance as a supply point for the big and growing Asia-Pacific market.

BP head Bob Dudley, meanwhile, said on April 15 that "it's business as usual" in Russia, despite some angst among shareholders, and suggested that BP could serve as a bridge between Russia and the West. BP holds a 20 percent stake in Rosneft, Russia's state-dominated oil giant, which is worth about $13.6 billion.

Norway's Statoil also reaffirmed its desire to stay active in the Russian market and ink joint ventures with Russian oil firms, despite the crisis and the looming threat of further sanctions on Russia. Meanwhile, Exxon Mobil is quietly pressing ahead with plans to look for oil in the Arctic alongside Rosneft; it is also reportedly in talks to join Rosneft for oil deals in northern Iraq.

France's Total, for its part, recently underscored its commitment to the Russian market. That includes a sizable shareholding in Russian gas firm Novatek -- controlled by billionaire oligarch Gennady Timchenko, who was put on the U.S. Treasury Department's sanctions list after Russia's intervention in Crimea -- and a joint venture with Russian oil company Lukoil.

"When deciding to invest in Russia, we assessed the risk of doing so, including a degree of political risk," a spokesperson for Total told FP. "Despite the short-term context, we still consider it acceptable with a long-term vision, and we continue to do business in Russia alongside other Western companies."

Many Western oil firms note that, in the absence of tougher economic sanctions on Russia's energy sector, the Ukraine crisis by itself provides little disincentive to doing business with Moscow.

"We are following the situation in Ukraine closely, but our activities in Russia are not affected by the situation or the sanctions today. We will monitor the situation closely to ensure compliance with sanctions," said a spokesman for Statoil.

Magnuson, the White House spokesperson, said the administration expects "those companies to make their own assessments of the political, financial, and legal risks associated with exposure to Russia" due to the current crisis.

"But given the large capital flight we have seen out of Russia this past quarter, it's clear many companies are thinking twice about investing in Russia," she said.

In a way, Big Oil's rush to keep doing business in Moscow mirrors the continuing appeal of Russian nuclear energy despite all the fallout from the Ukraine crisis. Several European countries are looking to seal multibillion-dollar deals with Russia to build nuclear power plants, and so far the politics of the Ukraine crisis have not affected Russia's nuclear business.

Oil and gas exploration and production, like nuclear power, is a very long-term game: Most companies sign production agreements lasting 25 years or more. That helps insulate, to a certain extent, oil and gas production deals from short-term ups and downs in the geopolitical situation.

What's more, despite the latest political uncertainty, Russia's appeal to the oil and gas industry is especially bright compared with that of many other oil-rich regions of the world, the United States apart.

Latin American energy resources usually come with excessive political strings attached; legal and security issues still dog Iraq's oil renaissance, despite a recent surge in oil output; and a lack of infrastructure, prevalent corruption, and a sketchy security environment make many in the industry cautious about Africa's energy future.

Russia, in contrast, has seen steady Western investment in oil and gas for the last 20 years and the painstaking creation of long-standing business relationships between Russian energy giants and their Western peers.

"It would be very hard for me to see major foreign oil players, who have probably the best understanding of these geopolitical risks, backing away from any of those investments. If anything it would just open the door for someone else to come in," said Robert Abad, an emerging-markets portfolio manager at Western Asset Management.

Indeed, stock markets have not yet punished big oil companies for their Russian exposure. On the contrary, after a small dip in early February due to fears that the West would sanction Russia's energy sector, the energy giants' share prices have kept rising. Stock prices in Shell, Exxon, Statoil, BP, and Total are all flirting with 52-week highs, a reflection that most investors aren't pressing those firms to retreat from Moscow. That means big business may be shoring up Putin just as Washington is trying to knock him down a peg.

"The international oil companies are sending very, very bad signals to Putin and their own governments," said Oppenheimer's Gheit. "Basically they are taking Putin's side."

Jamila Trindle contributed to this article.

Photo: Shell