Franchise Opportunity: Western Union in Somaliland

The self-declared republic's economy is based on remittances from abroad -- which are good business, too. So why is the money-transfer industry under threat?

HARGEISA, Somaliland — Halima Mohamed, an expert on infectious diseases, was working on a primary-health project in the town of Erigavo in eastern Somaliland when she began feeling ill. "I realized I'd caught pneumonia," she says. "The drugs I needed were available, but expensive, and I didn't have the cash on me."

Mohamed, a Canadian member of the Somali diaspora, knew that Erigavo, one of the most inaccessible parts of Somaliland, had no banks. So she called the chief executive of the region's largest money-transfer company, Dahabshiil, at his London office.

"You don't happen to have a money-transfer office here, do you?" she asked.

"Of course," he replied.

The money arrived within minutes.

That swift, cheap transaction was the perfect illustration of the pragmatic versatility of the money-transfer industry in the Horn of Africa. Remittances to the Somali region alone are estimated at $1.3 billion each year. But these transfers now risk becoming impossible: Long-standing Western worries that remittance flows serve as a cover for money laundering and the funding of armed Islamist groups mean the taps could soon be turned off.

Barclays's decision in May 2013 to close the accounts of the money-transfer operators that dominate remittance flows in the region -- postponed but not rescinded as a result of a British High Court injunction -- is fueling mounting dismay in Hargeisa, the capital of Somaliland, a self-declared republic in northwestern Somalia. "I really don't know what is going to happen. We have been shouting and screaming," says Minister of Planning Saad Ali Shire, a man so soft-spoken it is hard to imagine him doing any such thing. "The president has been writing letters, we have made appeal after appeal, but nothing has been done. We are a creative people, but I fear the price will end up being paid by the poorest in our society."

The remittance issue raises the specter of a financial crisis, which would coincide with what agricultural experts predict will be the region's worst drought since 2011, expected to lay waste to crops and livestock. For political and business leaders in Somaliland, it brutally exposes the continuing vulnerability of the 23-year-old effort of collective will that is this still-unrecognized nation state.

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The summer months are usually a time of celebration in Somaliland, as members of the diaspora who fled into exile when civil war raged in the late 1980s and early 1990s reconnect with their roots. In contrast to their fellows in Somalia -- dismissively dubbed "the south" here -- they can pretty easily satisfy their human homing instinct. While suicide bombings and armed attacks by al-Shabab make Mogadishu and the rest of Somalia one of the world's riskiest destinations, Somaliland, a former British protectorate, is a haven of parochial calm. It has forged its own path since Somali National Movement rebels declared independence from military dictator Mohamed Siad Barre's regime in 1991.

Hotel lobbies in Hargeisa fill up; seats on flights become impossibly expensive. At tables in newly built pizzerias and cafes, the latest model of trainers peep from under traditional diracs (kaftans) and macawis (sarongs). If you eavesdrop on smartphone conversations, you will catch accents from Minnesota, Toronto, Liverpool, London's East End, and Scandinavia. The capital's dusty main drag fills up with four-wheel drives, which shoo sheep and donkeys off the road to cluster bleating in doorways and on veranda steps.

Since Hargeisa's international airport reopened in 2013, the returnees -- teasingly nicknamed "fish and chips" in tribute to dietary habits supposedly picked up abroad -- can fly direct to Somaliland's capital, rather than landing in the dilapidated, oven-hot port of Berbera and making a grueling 160-kilometer drive. The airport's main hall is decorated with a large wall frieze that says a great deal about Somaliland's relationship with the world. It is a montage of photographs of President Ahmed Mahamoud Silanyo shaking hands with former British Foreign Secretary William Hague and the leaders of Djibouti, South Sudan, Ethiopia, and Saudi Arabia. The underlying message is clear: See what respect we've won abroad; see what statesmanship we display.

That craving for respect, the result of Somaliland's unrequited quest for recognition as a sovereign state, distinct from its dysfunctional southern relative, makes itself apparent at incongruous moments. During a question-and-answer session at Hargeisa's recent International Book Fair, for instance, I was disconcerted to be asked by a young man in the audience: "Are you for us or against us, and if you are against us, what are your reasons?" A diplomatic answer -- "The writers attending this festival wouldn't be here unless they were sympathetic" -- triggered a surprisingly loud round of applause.

In truth, there is plenty to admire. Western donors may balk at making a formal gesture of recognition that would simultaneously undermine decades of costly support for the fragile Transitional Federal Government (TFG) in Mogadishu and give a fillip to secession movements across Africa.

Privately, however, foreign officials have overwhelmingly warm words for what Somaliland has achieved: A rare, hybrid system of government that juxtaposes multiparty democracy with traditional rule by clan elders. Monitored elections. Crime rates of which many industrialized nations would be proud. An enviable record on security (though, as a visitor, one of the disadvantages of dealing with a government determined to establish a whiter-than-white reputation is being assigned an obligatory detail of armed guards on any trip outside the capital, to ward against a repeat of 2008 bombings by al-Shabab in which some 30 people died).

If Somaliland's failure to win nation status has made it difficult to attract investment and aid, the inadvertent benefit has been a vigorous "can-do" attitude. The recent establishment of a Somaliland Development Fund to channel donor support into a government works program is expected to soon start delivering clean water, better roads, and electrification. Bombed to rubble by Siad Barre's air force in 1988 -- black-and-white photographs of the era are reminiscent of post-World War II Dresden -- Hargeisa is now a jostling city of 800,000 inhabitants with, it seems, a building site on virtually every street corner. It is all a far cry from the continuing drama in "the south," where an African Union peacekeeping force, AMISOM, battles both al-Shabab and local warlords, and the non-elected TFG's credibility continues to be undermined by factionalism and gross corruption.

But Somaliland's uneasy transition from informal coping mechanisms to the formal systems of a conventional state remains deeply incomplete, leaving its 4 million inhabitants trapped in an ambiguous limbo-land, juggling a host of anomalies and idiosyncrasies.

Somaliland may issue passports -- and its missions abroad certainly issue entry visas to the rare tourist -- but few foreign countries accept them. To win a valid passport, Somalilanders must travel east to Puntland, a region that harbors its own autonomous leanings vis-à-vis Mogadishu, to get the necessary papers. Somaliland currently does not control its own airspace, and it is in talks with the TFG and the United Nations, to which airlines currently pay their fees, to claim that right. Somaliland has no national postal service, so letters and packages are usually sent to DHL offices in Nairobi, Kenya, or Addis Ababa, Ethiopia, and then flown in. It has no insurance industry, either, which scares off foreign investment. The recent opening of a Coca-Cola bottling factory, whose day-glo drinks are now on sale in every Hargeisa restaurant, has been a rare exception.

And then there's the absence of an internationally recognized banking sector, which makes Somaliland particularly reliant on remittances -- an industry that is now in jeopardy.

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Barclays was one of the last major international banks to still accept accounts held by money-transfer operators (MTOs), whose activities are seen in the West as open to abuse. But a record $1.9 billion fine slapped on HSBC by U.S. authorities for conducting business with banks in Mexico and Saudi Arabia with possible links to drug trafficking and terrorism appears to have tipped the balance for Barclays. The profit margins no longer seem worth the reputational risk. Now, ironically, Barclays finds itself in the role of "bad guy" by dint of its slowness in pulling out of the MTO sector.

Barclays's move was delayed when MTO Dahabshiil took the bank to court in 2013. But if allowed to go through, it will have huge implications for the whole of the Horn of Africa. Thousands of families in Djibouti, Uganda, Ethiopia, Kenya, Sudan, and South Sudan depend on regular remittances from hardworking relatives abroad -- payments so modest they make the fees charged by conventional banks impractical. Dahabshiil, the biggest regional MTO, with 400 payout locations in the Horn of Africa, points out that the United Nations, the World Health Organization, the World Bank, Oxfam, and Save the Children also rely on its services to pay staff, contractors, government departments, and partner NGOs. Humanitarian agencies, which prefer giving drought-hit farmers cash disbursements instead of market-distorting deliveries of food aid, are also alarmed.

But the level of vulnerability in Somaliland and Somalia dwarfs those of other countries in the neighborhood. Officials say Somaliland alone receives an annual $400 million in remittances, accounting for 25 to 40 percent of the republic's GDP. Critically, neither it nor Somalia has functioning private banks to fill the void.

For the past year, Somaliland's parliament has failed to enact legislation allowing the creation of a commercial banking sector. The reluctance, government insiders say, is rooted in the belief that sends the muezzin's call to prayer echoing from every corner of Hargeisa five times a day: the Islamic faith. Mindful of a constitution explicitly drafted according to Islamic principles, Somaliland's parliamentarians have approved an Islamic Banking Law, but have yet to pass its commercial equivalent. They fear it could introduce the charging of interest on economic activity, which is unacceptable under sharia law.

"We've visited parliament; we have sat down with the chairman to explain how important this is, how much we need these foreign banks. We push and push and push," says Abdilahi Hassan Aden, director general of Somaliland's (unrecognized) central bank. "But we are still waiting."

A Western advisor to the government sees parliament as ultimately persuadable, but not without work. "A lot of this is about changing the narrative when it comes to religion, changing mentalities," the advisor says. "Islamic countries like Malaysia or Indonesia, for example, still manage to have commercial banking sectors."

In private, some officials voice the suspicion that a commercial banking law has been so long in coming because the MTOs, influential local economic players that they are, until recently preferred the remittance system to remain just as it was. It’s a charge Dahabshiil, for its part, rejects. Abdirashid Duale, chief executive officer, insists the company is keen to see legislation allowing commercial banking passed. "Dahabshiil is very supportive of any law or other initiative that supports the commercial banking sector," he says.*

Dahabshiil, which says it does background checks on all the customers it can, sees itself instead as a victim of world events. "All of this started because of 9/11," Duale says. "Before then, there was no difference between us and a grocery store opening a bank account to deposit its earnings. With 9/11, the world changed, especially for Muslims."

MTO operators say Barclays's move would do the opposite of improving competition on a continent whose inhabitants already pay well over the odds for their money transfers. U.S.-based Western Union and MoneyGram, which the Barclays decision would not affect, charge far higher fees than Dahabshiil, which prides itself on being the cheapest MTO in the world.

Dahabshiil has now applied for and been granted a banking license under Somaliland's existing Islamic banking legislation. But if that materializes, there would still be an open question of how thousands of rural families who will never see the inside of a bank -- too far away, too expensive -- would survive financially.

After a spirited lobbying campaign by the Somali diaspora, fronted by Olympic sprinter Mo Farah, whose family lives in Somaliland, the British government set up an action group in the fall of 2013 to try to hammer out a solution. The Department for International Development (DFID), alongside the British Treasury, is working on establishing a "safer corridor" for remittances. Its feasibility study explores ways of improving customer due diligence, from biometric fingerprinting to PINs to bar codes, and the establishment of an independent "trusted third party" to audit transactions. But more than a year after the remittance issue first blew up, the "safer corridor" remains a distant aspiration.

British consultants who were in Hargeisa to address a conference on money laundering, attended by Somaliland government ministers, remittance companies, the local Chamber of Commerce, and the World Bank, dismiss the "safer corridor" idea as a non-starter. (They have been commissioned by Dahabshiil to carry out a regional banking survey.) "It's a Hans Christian Andersen story concocted by DFID, a case of the emperor's new clothes," says Peter Norris of Obiter Consult. "It's been very unhelpful in luring everyone into a false sense of security."

"The idea that you can have some massive computer system and somehow feed all this information in … and the computer will somehow work out which clients are dodgy and which are clean is a nonsense," he adds.

Norris think that a different approach is needed. The governments of Somaliland, Puntland, and Somalia each need to set up a supervisory body to police money-transfer and banking activities in their respective regions and then feed the information back to financial intelligence units, monitoring bodies set up by Western governments to regulate their own financial markets.

For Somaliland, that would mark another, arguably overdue step in the country's transition from post-conflict outlier, reliant on the survival instincts of its adaptable, entrepreneurial citizens, to conventional state.

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Whatever solution is adopted in the coming months, money transfers loom too large in the lives of local residents to disappear overnight. In the old days, Somalilanders simply stuffed suitcases full of cash and boarded planes; friends of friends and strangers were, by necessity, entrusted to do the right thing. The irony, people say now, is that Barclays's move will drive money transfers underground, beyond any scrutiny at all.

"At the end of the day, the money will still come in, but at much higher transaction cost and with less transparency," says Shire, Somaliland's minister of planning. "So who do you punish by doing this? Is it the pirate, the terrorist, or the poor man?"

*Update, Aug. 26, 2014: This story has been updated to reflect a response from Dahabshiil. (Return to reading.)

Photo by SIMON MAINA/AFP/Getty Images


Mission Leap

5 signs your "limited" Iraq intervention is spiraling out of control.

On Feb. 12, 1993, journalist Christopher Burns filed a story from Somalia containing a term that had never before appeared in English language press: "The U.S.-led military mission to halt clan warfare and get aid to the needy has unofficially widened its role to include such tasks as rebuilding houses, digging wells and creating police forces. Officials call it 'mission creep.'"

As America's recent intervention in Iraq gathers steam, the phrase and its implicit warnings have reemerged among policymakers and public commentators. Worryingly, though, it seems some top officials don't get it. As President Barack Obama noted on Tuesday: "Typically, what happens with mission creep is when we start deciding that we're the ones who have to do it all ourselves. And because of the excellence of our military that can work for a time. We learned that in Iraq." This is a puzzling lesson to take away from Iraq: rather than preferring unilateralism, the Bush administration begged every country with deployable military forces to participate in the invasion and occupation.

On Wednesday, Pentagon spokesperson Rear Adm. John Kirby offered a more concise definition: "mission creep doesn't refer to numbers of sorties, numbers of troops, numbers of anything. It doesn't refer to timelines. It doesn't even refer to intensity. It's about the mission itself." This is true in the technical sense of how the Pentagon defines a mission: "The task, together with the purpose, that clearly indicates the action to be taken and the reason therefore."

The problem with relying upon U.S. officials' articulation and description of military missions is that there is a time-honored history of denying, dissembling, or outright lying about mission creep -- while it occurs. This includes the U.S. bombing of 113,716 sites in Cambodia between 1965 to 1973 while the Johnson and Nixon administrations claimed otherwise; Reagan's deployment of 1,800 Marines to Lebanon, initially "to provide an interposition force at agreed locations," but later openly taking sides in that country's civil war; and the 2011 intervention in Libya to provide airpower for regime change, just after the Obama repeatedly said this would not happen. "Saying one thing and doing another" has also characterized U.S. non-battlefield drone strikes from their introduction in November 2002.

Given the tendency of the United States to routinely undertake additional military missions, all while contending that they are not, everyone should be skeptical of how officials justify and depict the ongoing intervention in Iraq. Nevertheless, here are five clues to look for and things to think about, when considering whether mission creep is occurring now in Iraq.

1. Don't fence me in.

Presidents articulate missions in a manner to assure they have the greatest flexibility to do whatever they want. Even the supposedly limited missions for the current airstrikes -- humanitarian assistance and protecting U.S. personnel -- are broad enough to justify practically anything. Indeed, most countries claim that their uses of force are strictly to protect their citizens or save someone's life -- in the Western world, rarely is vengeance or bloodlust an acceptable reason to bomb someone. Given that there are more than 10,000 U.S. government employees or contractors in Iraq -- and militant groups seeking to attack them or the critical infrastructure that supports them -- there are many new types of combat operations that could be justified to protect them. Moreover, the Obama administration already contends the right to use force anywhere on Earth where "the relevant governmental authorities ... cannot or will not effectively address the threat to U.S. persons." Iraq is only the most recent country where this broad remit has been exercised.

2. We've got people on the ground.

The need for such force protection airstrikes only increases with each additional troop or "advisor" and contractor sent to Iraq. The number of U.S. troops in Iraq has steadily grown since the June 16 announcement of a deployment of up to 300 military personnel. By June 30, three Special Forces units had deployed, and just one day later President Obama stated that an additional 200 troops would be sent to Baghdad. On Aug. 13, it was announced that 130 military advisers would be sent -- bringing the total number of American military personnel in Iraq to more than 1,000 -- and the Pentagon is discussing sending another 300 troops.

Alongside these acknowledged forces are thousands of private contractors providing logistics and security support on behalf of the United States. In January, U.S. Central Command (CENTCOM) quit providing data for Iraq when it optimistically announced: "This will be the final USCENTCOM report on Iraq contractor numbers." Until CENTCOM republishes this data in its quarterly reports, it will be impossible to know how many contractors are in Iraq, and what percentage of them are U.S. citizens. But as a point of comparison, during the height of the Iraq and Afghanistan deployments there were slightly more Pentagon-employed private contractors than U.S. troops. Thus, when U.S. officials provide an updated estimate for troop levels in Iraq, it is safe to double it -- since that number will not include contractors. Again, more U.S. personnel and facilities dispersed throughout Iraq raise the prospect of more force protection strikes.

3. Call the exterminator.

Adam Siegel's excellent 1998 examination of the concept provides a useful typology for diagnosing the onset of mission creep:

• Task accretion is the general assumption of tasks necessary to achieve the mission's initial objective.

• Mission shift occurs when forces adopt tasks that expand the mission.

• Mission transition is an unclear or unstated transition to a new set of objectives.

• Mission leap occurs with a clear decision -- an explicit choice -- to change the mission and, therefore, the military's tasks.

Any of these changes could occur in the near-term with or without a clear decision. There are indicators that future airstrikes could expand to simply kill suspected Islamic State (IS) members as policymakers and officials increasingly demand the defeat or total destruction of the terrorist organization. On Sunday, Sen. Ron Johnson (R-WI) termed IS as "evil people that need to be defeated." Similarly, Rep. Adam Schiff (D-CA) offered his belief that the United States has "a compelling strategic interest in defeating this group." The following day, State Department spokesperson Marie Harf stated: "Look, we believe that ISIS needs to be taken out." And on Aug. 20, Secretary of State John Kerry agreed, declaring: "ISIL and the wickedness it represents must be destroyed." On Aug. 21, the chairman of the Joint Chiefs of Staff, Gen. Martin Dempsey, capped it off, saying, "This is an organization that has an apocalyptic, end-of-days strategic vision which will eventually have to be defeated." 

Eliminationist counterterrorism objectives such as these are fanciful, but not uncommon. In April 2012, then-White House counterterrorism adviser John Brennan claimed: "We're not going to rest until al Qaeda the organization is destroyed and is eliminated from areas in Afghanistan, Pakistan, Yemen, Africa, and other areas." You probably noticed that never happened, and no officials were held accountable for the glaring mismatch of stated objectives and accomplishments.

Similarly, in Iraq, U.S. airpower, even in coordination with local ground forces, will not eliminate IS, which intelligence officials estimate to include at least 10,000 committed fighters. However, as the Wall Street Journal reported, the tactically successful airstrikes around the Mosul Dam are "creating momentum for a broader campaign that could take American air power to the militant group's heartland." That apparent momentum may have been invigorated with the video release of the Islamic State's latest savagery -- the abhorrent beheading of American journalist James Foley. As an anonymous senior Pentagon official crudely described it, "Hunt while the hunting's good" -- meaning kill whoever you can.

4. But they need it!

Watch for the inevitable demands by Kurdish and Iraqi politicians for greater airpower, intelligence, and weapons support to defeat the insurgency in its midst. "[The United States'] technology capability will offer a lot of intelligence information and monitoring of the desert and many things which we are in need of," said Ahmed Khalaf al-Dulaimi, the governor of Anbar province. Note that word: need. As Ghazi Qadir, head of the Kurdistan Democratic Party in Gwer, stated, "U.S. assistance on the ground is very important to us. It needs to continue as we gradually push forward." Iraqi Minister of Parliament Zainab al-Sahlani, framed her expectations a bit differently, but in equally demanding terms: "The U.S. has to provide further military assistance to the Iraqi army per agreements between the two sides to assist with the fight against terrorist groups." Then there's always the guilt trip, as Sunni lawmaker Haider al-Mutlaq put it, noting that Iraqis were "expecting the U.S. to expand their airstrikes," otherwise "Iraq will remain in its broken state and the U.S. will be responsible for that."

President Obama might not believe that the United States is Iraq's air force, but Iraqi politicians and officials increasingly will. And Iraq's security could become America's obligation, especially the use of airpower to assure the newly formed government in Baghdad survives and thrives.

5. Watch out for talking stars.

Beware of those who carelessly use the concept to prevent discussions of military missions. As Richard Holbrooke observed regarding Clinton administration debates: "[Mission creep] was a powerful pejorative, conjuring up images of quagmire. But it was never clearly defined, only invoked, and always in a negative sense, used only to kill someone else's proposal." The planning staffs within CENTCOM and the Joint Staff are developing numerous operational plans for senior civilian and military officials to debate, and which Obama may ultimately authorize. We know, based upon historical precedent, that military officials are more likely to oppose discrete military operations, and will repeatedly raise warnings about their risks, costs, and relative unimportance compared to "vital national interests." These concerns are then expressed via media leaks or through sympathetic retired general officers, even when they have no direct insights into the operations that are being reviewed. As these statements inevitably come forward the experienced opinions should be respected, but readers should be wary of their situational awareness of Iraq or insights into Oval Office discussions.

A few months ago, I interviewed retired U.S. Army Gen. Peter Schoomaker. He was one of the original 22 members of the 1st Special Forces Operational Detachment-Delta, a.k.a. Delta Force, and later commanded every special operations force for which he was eligible. He led one of the three Delta teams used in the failed April 1980 raid to free U.S. hostages in Iran, and many other rescue missions that appropriately have never made the light of day. Schoomaker offered a warning that has resonated with me as I watch events unfold in Syria and Iraq: "Sometimes military force is most effective when it is held in reserve. Once you use it, it takes on a weather of its own."

Mitigating mission creep requires President Obama speaking "clearer than truth" (to borrow Dean Acheson's phrase) about what U.S. forces in Iraq are doing, and then acknowledging adjustments as that "weather" unfolds. Presidents have a poor record in doing this, including Obama. Yet, given that any strategy to counter the threat that the Islamic State poses to the United States will be longer and costlier than most want to admit, it's not only essential to the military, he owes it to the American people.

Win McNamee/Getty Images