In May 2013, Barclays informed three-quarters of its clients in the money services business that it was closing their bank accounts. These included many handling overseas money transfers from diaspora communities in the UK to destinations as diverse as Somalia, Bangladesh, Pakistan, Yemen, Sri Lanka and Poland.
The International Association of Money Transfer Networks (IAMTN) says that up to 250 companies have been affected by the decision. Notice periods of no more than two months were given. Barclays justified its actions as a move to reduce the risk of being implicated in money-laundering or terrorist financing.
Edward Paice, director of Africa Research Institute, talked to Abdirashid Duale, chief executive of Dahabshiil, the largest money transfer business in the Horn of Africa, about the crucial importance of remittances to the Somali region and the potential impact if money transfers are reduced.
What will be the impact on Somalia, Somaliland and Puntland if money transfers from the UK are curtailed because Dahabshiil and other money transfer agencies are denied access to UK banking facilities?
I can honestly say it would be a recipe for disaster. It is estimated that remittances from the diaspora provide essential support to 40% of the Somali territories. We have nearly 300 branches in the territories and thousands of agents servicing people in towns and rural areas. For them, money sent from relatives overseas is an economic lifeline. It is mainly spent on food, medicines and school fees - for the absolute basics, not for luxuries.
How substantial are these remittances?
More than US$1.2 billion is remitted to the Somali territories annually. This is over half of Somalia's gross national income. So you can see the importance of remittances to the region. About US$500m is sent from the UK. At Dahabshiil's branches in the UK, we process hundreds of thousands of transactions each year. The average transaction size is US$200-300.
Are people sending money to their relatives the only users of money transfer services to the Somali region?
Not at all. All the international aid agencies and NGOs use money transfer businesses (MTBs) to operate. They and their partners use us to pay staff, buy equipment and supplies, and make cash payments as part of social safety net programmes.
Oxfam, Save the Children, UNDP, CARE, BBC Media Action, Islamic humanitarian agencies - you name it, they use MTBs. Even Somali veterans who fought for the British in World War II, and their widows, are paid their grants through Dahabshiil.
A great many local charities and NGOs use MTBs to collect donations, pay salaries and buy things. At the weekend, when Olympic double gold medal winner Mo Farah protested about the imminent closure of the bank accounts of Somali MTBs, he highlighted the impact it would have on the activities of the Mo Farah Foundation.
Finally, I would mention the private sector. In Somaliland and Puntland, which have been relatively peaceful for many years, many people are investing in businesses and property. Now the same is happening in southern and central Somalia as well. Investors send their money through MTBs.
This investment is crucially important for economic development in the region. Factories are being built. If I am a local businessman, how do I pay for building materials or diesel from the Gulf or Ethiopia? I use an MTB. International oil and mining companies are also prospecting in the region now and they too use MTBs. No business can operate without them.
NO SOMALI BANKING SYSTEM
Will the impact on the Somali region be different to that on other countries affected by the Barclays decision?
It will be much more acute. You see, in Somalia there is really no alternative to using MTBs. The whole banking infrastructure collapsed in the civil war in the early 1990s and it has never been rebuilt. So MTBs are the banking system now. That's the way things are. Under the circumstances, which have been as difficult as you can imagine, it's a system that works very well. The larger firms are very professional and efficient.
We also provide a service for the people who might not use banks even if they could - for the unbanked in the UK, Somalia and elsewhere. Forget the Somalia end of things for a moment. We fill a gap for diaspora communities.
If you go to a Dahabshiil location or agent in the UK - where there are more than 100,000 people of Somali origin - most open early in the morning and work up to 10 o'clock at night, 7 days a week. You deal with people you know, the service is fast and friendly, it is easy to use, and it is half the cost of the big Western money transfer companies.
If you go to any bank in the world and say you want to send money to Somalia or Somaliland, they cannot do it. The big global money transfer companies like Western Union can't do it either. They have one branch in Hargeisa, in Somaliland. Western financial institutions have no links to the Somali banking network because there isn't one.
If the Somali MTBs are forced to pack up in the UK and elsewhere, how would money get to the Horn of Africa?
Well, a great many people would simply stop sending money altogether. That is a certainty. For some, it has to be said, remittances are an unpopular obligation. They can be quite a burden. Any excuse to stop sending money would be seized upon by these people.
If Somalis could no longer send remittances it is likely that the UK taxpayer and other foreign taxpayers would be asked for more aid. Will they willingly fill the gap caused by a drastic reduction of remittances? I don't think so - not in the middle of a financial crisis in the West.
Others would resort to sending cash with unregulated couriers - which will be much more expensive and less reliable than the current system - and by illegal means. Lorries and planes of cash would come in from neighbouring countries. Lots of small informal operators would fill the gap left by Dahabshiil and the regulated firms whose transaction records can be inspected.
We have seen this before - when al-Barakat's money transfer business was closed down in the USA after 9/11. As far as aid agencies and businesses are concerned, I have no idea how they could carry on operating as usual.
Basically, the transfer business would be driven underground. It would be much smaller and it would be exploited. I understand the global concern about money-laundering and terrorist financing by a small minority of MTBs, but bashing the regulated and reputable firms like Dahabshiil is not the way to counter this. When law enforcement agencies come to us, we always help them.
THE BARCLAYS DECISION
When did you first receive notice from Barclays that they would be closing your banking facilities with them?
Well, this is a funny thing. Barclays wrote to the board of Dahabshiil on May 8th. That was exactly the same day that I had been asked by the Foreign Office to speak at their Somali "Trade and Investment Forum" during the UK-Somalia government conference. I was asked to speak about financing, and the role of the diaspora in development.
There were members of the Barclays senior management also present at these events. They met Hassan Sheikh Mohamud, President of Somalia, and they were talking about the importance of developing the private sector in Somalia, and the opportunities. So were people from the Department for International Development (DFID).
The special role of money transfers in Somalia, the diaspora, and their importance to the country's reconstruction was recognised by everyone at the conference, including the Prime Minister, David Cameron. The recent World Bank and UK government-sponsored review of Somalia's public financial management system even envisaged using Somali money service businesses to pay civil servants and the salaries of the security services.
Anyway, I gave my talk and the next day I received the termination letter from Barclays. They said that Dahabshiil did not meet their "amended eligibility criteria". That was that.
We were given two months' notice to find another bank and no opportunity to try and meet the new criteria - despite the fact that we had banked with them for 15 years and are an authorised payment institution (API) regulated by the Financial Conduct Authority (FCA).
It was all very sudden. The process was not at all transparent and it came out of the blue. We've never been given the chance to understand what the game was about. There are many companies in our position.
Did anyone at the FCA or at Barclays voice any concerns about the way you conduct your business in the months preceding the decision to close your accounts?
No. If they had, our response would have been to comply with their requests no matter what the cost. Barclays has regularly inspected and monitored our systems, as have the regulatory and tax authorities.
If any of them had demanded a special forensic audit, we would have done it gladly. If they had asked for changes in our "Know Your Customer" - or KYC - procedures, we would have made them. But we've never actually been reprimanded or accused of anything by Barclays or the regulators. Our business has been based on compliance.
It is ironic that a letter we received from Barclays on 20 June stated "please understand that the decision to exit our business relationship with you is not a negative reflection of your Anti-Money-Laundering standards, nor a belief that your business has unwittingly been a conduct for financial crime. It is, however, a commercial decision we have taken due to the risks of the sector in which we operate".
Can't Dahabshiil and others simply transfer their accounts to another bank?
Well, it is not so easy. Despite what was said at the UK-Somalia conference, Barclays has told us that the money transfer business is "at particular risk" of being used for money-laundering and financing terrorist activity.
Other leading banks share this concern and have already withdrawn from the sector or are not taking on new clients. HSBC pulled out of the sector in February.
I understand that the new management at Barclays have problems like the LIBOR fixing scandal and the mis-selling scandals to deal with and they want to put all that behind them. But I also share their determination to prevent money-laundering and terrorist financing.
SOMALI REACTIONS AND IMPACT ON UK GOVERNMENT FOREIGN POLICY, DEVELOPMENT AND HUMANITARIAN OBJECTIVES
What will be the reaction of Somalis towards the British government if money transfers from the UK diminish markedly because MTBs can't get anyone in the UK to provide them with banking facilities?
The situation in the Horn of Africa remains very fragile at the moment and very sensitive. When the system is under stress bad things emerge - like piracy and violent extremism.
If money transfers stop, or are much less, there is a real danger that Somalis will start saying the West is against them. It may also increase sympathy for radicals who already fight and preach against the West and the people who say the West is in our country to destroy it, not to help.
If people become desperate as a result of economic hardship, they can become angry. Foreign governments need to understand the potential consequences of their banks effectively cutting off the money supply to Somalia at this crucial time.
The presidents of Somalia and Somaliland have written to the UK government to make this clear. People in the Somali region don't distinguish between the UK government and British businesses.
As for Somalis in the UK, apart from job losses and closed businesses there would be a great sense of disillusionment. I know this for certain.
What is the solution? How can the transfer of remittances and investment to Somalia be maintained?
I can say one thing - shutting down the bank accounts of money transfer companies in two months, which was what we were told in May, is not the solution to anything.
In June, we asked Barclays for a 6 month extension to enable us to explore our options properly. We were given one month more - until 12 August. Today we received a second extension to the end of September.
The UK government needs to take the lead. It has significant foreign policy involvement in Somalia. It is pumping DFID money into Somalia and in the UK there are many Somali businesses and voters. I can't speak for Bangladesh and other countries affected, but I am sure the UK government has interests and objectives in them as well.
The British government has often called on Somalis to help themselves. This is what we are determined to do. But we can't rebuild everything if the key component of the region's economic infrastructure is knocked out. That is a fact.
If everyone gets together - government, banks, money service businesses, lawyers and other experts - and there is real consultation, I am sure that a solution can be found.
This needs to happen quickly, or at least an interim solution must happen quickly, because if everyone just talks for 2 years it will be too late. Where will that leave the UK government and other foreign governments, let alone Somalis?
Edward Paice is director at Africa Research Institute. This interview was conducted on 29 July 2013. The views expressed by Abdirashid Duale are not necessarily those of Africa Research Institute.