Tag Archives: Somalia banking

Corruption in Somalia

Somalia_map_states_regions_districts

A United Nations panel that monitors compliance with U.N. sanctions on Somalia has accused Somalia’s  president, a former minister, and a U.S. law firm of conspiring to divert Somali assets recovered abroad, according to a new report.  The Somalia and Eritrea Monitoring Group, an 8-person committee, disclosed the findings in a confidential report to the U.N. Security Council’s Somalia/Eritrea sanctions committee. Reuters reviewed a copy of the 37-page document.  The U.N. Monitoring Group said the information it has gathered so far “reflects exploitation of public authority for private interests and indicates at the minimum a conspiracy to divert the recovery of overseas assets in an irregular manner.”

Most of the overseas assets were frozen at the outset of the civil war in 1991 and include cash and gold held in banks during two decades of chaos and conflict in Somalia, as well as government properties on foreign soil.  What the monitors describe as a conspiracy involved the U.S.-based law firm Shulman Rogers, President Hassan Sheikh Mohamud and his office, former foreign minister Fawzia Yusuf H. Adam, as well as two other individuals whom the monitors said acted as liaisons between Shulman Rogers and Somalia…

All those accused of involvement in the plan to divert assets have denied any wrongdoing. Several accused the chairman of the Monitoring Group, Jarat Chopra, of dubious investigative methods and making baseless assertions….

A 2013 U.N. Monitoring Group report said individuals in Mohamud’s government used the Somali central bank as a personal “slush fund”, with an average 80 percent of withdrawals made for private purposes. The presidency and the then-central bank governor Abdusalam Omer have strongly denied that accusation..  In its latest report, the Monitoring Group said that “a complex architecture of multiple secret contracts, which defied a separation of powers between the Presidency and the Central Bank, created the opportunity and rationalization for the misappropriation of public resources.”  “‘Pie-cutting’ of overseas assets by those involved in the project entailed retention of excessive percentages and direct payments from recovered assets as well as attempts to circumvent deposits in the Central Bank of Somalia,” it added.

Abrar, the former central bank governor who was also a former Citigroup vice president, quit last October after seven weeks on the job, alleging she had been pressured to sign a contract with Shulman Rogers that she feared could invite corruption at the central bank.According to the new report, she sent her resignation from Dubai after fleeing from Mogadishu out of fear for her safety.The Monitoring Group said it had followed up on a number of Abrar’s allegations and her concerns about the contract and the planned scheme for the recovery of Somalia’s overseas assets. One of her main worries, the monitors said, was a clause in a July 2013 contract with Shulman Rogers that gave the law firm a bonus of 5 percent of recovered assets in addition to its fees and for Shulman Rogers to retain a further 6 percent of recovered assets for undefined costs and expenses.

“Ms. Abrar considered this clause for undefined costs and expenses to be for hidden fees and ultimately understood that it was meant as a side payment to be divided two percent each between Foreign Minister Adam, Musa Haji Mohamed Ganjab and Abdiaziz Hassan Giyaajo Amalo,” the report said…

After consulting with the World Bank, the Somali president’s office said in a statement to Reuters that it revoked a power of attorney it had granted to Shulman Rogers in May and was renegotiating its contract with the law firm.

Excerpts from LOUIS CHARBONNEAU AND DRAZEN JORGIC. Exclusive: U.N. monitors allege ‘conspiracy’ to divert Somali assets, Reuters, July 15, 2014

The Economic Choking of Somalia: the role of the United States

somalia currency

For Mohamed Abdulle, sending money to his family in Somalia means a trip to a high street in Stratford, East London, home to a large expatriate community. Once there he hands over cash, a telephone number and a name, usually that of his grandmother who lives in Somalia’s capital, Mogadishu, to an agent. A few minutes later Mr Abdulle, who works as a shop assistant, gets a text message letting him know the cash has arrived on the other side. This fast and reliable system, developed during decades of war in Somalia, is used by hundreds of thousands in the global diaspora, as well as by some UN offices and aid agencies to pay staff.

Perhaps not for much longer. Barclays, a big retail bank, has served notice that it will close the accounts of some 250 money-transfer businesses. The bank said the decision followed a routine legal review. Some money remitters “don’t have the proper checks in place to spot criminal activity,” the bank says, or could “unwittingly” be financing terrorists.

Barclays was among the last British banks willing to deal with agents who cheaply transfer money to poor countries. Many European banks have become nervous about such cash transfers after the American government last year forced HSBC, another big British bank, into a $1.9 billion settlement over allegedly shoddy money-laundering controls…..

Meanwhile, a group of 100 academics and other notables [petition] written to the British government asking it to avert a humanitarian crisis in the Horn of Africa. An estimated 40% of Somalia’s population depends on money sent from abroad. A recent study showed that three-quarters of recipients need the money to buy essentials, such as food and medicine.

“This will mean children being pulled out of school, people going hungry or not getting medicines they need,” said Laura Hammond, a lecturer at the University of London. The Somali Money Services Association, another British trade body, warned that the consequences of the closure of the accounts would be “worse than the drought” that ravaged Somalia two years ago and killed tens of thousands.

So far attention has focused on Somalia, where years of conflict have destroyed the banks and left no real alternatives to cheap money transfers. But the 250 firms put on notice by Barclays also include some serving Ghana and Nigeria, as well as India and Bangladesh. More sophisticated and expensive competitors such as Western Union may now benefit. A reduction in competition in the African remittance market will drive up prices.  Africans already pay more than any other migrant group to send money home. The cost of remitting to sub-Saharan Africa, typically around 12%, is three percentage points higher than the global average…

Some observers are calling for the creation of new institutions that could replace private banks. One suggestion is a “remittance bank” hosted by the UN or a multilateral agency. Another is a code of conduct worked out by remitters, banks and regulators. “This needs to be driven by government,” says Leon Isaacs of the International Association of Money Transfer Networks. “Or the banks won’t get the comfort they want.”

African money transfers: Let them remit, Economist, July 20, 2013, at 43

See also

Family Ties: Remittances and Livelihoods Support in Puntland and Somaliland Study Report (pdf)