US money-transfer clampdown dismays immigrants: African and other developing world immigrants have used the tried and tested hawala system to send money back to their families for decades. Now they are under the cosh as US authorities clamp down in a bid to dry up funds for terrorists.

With large immigrant communities settling in the Washington and New York areas in recent times, the informal money-transmitting business--or hawalas in Arabic--has flourished. Often the only way for immigrants to send money back home, these private money-transmitting businesses have long been a thorn in the side of US federal authorities. The pressure to deal with them increased markedly after the 9/11 attacks on the World Trade Center.

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In April 2004, US Federal agents raided 17 Washington-based money businesses that allegedly had sent millions of dollars abroad without legal approval. Part of a nationwide crackdown aimed at curbing the ability of terrorists to move cash in and out of the US, the raids have been cloaked in secrecy. What is known is that $3.6m of cash was seized, even though no terrorist-related charges have been brought against the money-changers themselves. That no charges have been made led skeptics and immigrant-community activists to charge that the raids were designed to grab headlines rather then to stifle the flow of illicit money to terrorist organisations. "They targeted mom and pop businesses that have nothing to do with terrorism," one critic charged, adding that "these people simply lacked the resources to meet all of the stringent licensing requirements".

"We are alienating communities that we should be bringing together in our corner for coalitions against terrorism," Professor Nikos Passas, an expert on terrorism at Northeastern University, said. "It is counter-productive."

SENSE OF OUTRAGE

Targeting the Eritrean Cultural and Civic Center at Sixth and L Streets NW Washington, federal agents swept into the centre's second floor office and seized documents and computers as well as payment records and office literature. Situated in a rented building, the centre is alleged to have been sending hundreds of thousands of dollars overseas, most, if not all, to Eritrean immigrant families back home.

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Justifying the US government's actions, Kevin Delli-Colli, assistant special agent in charge of the local Bureau of Immigration and Customs Enforcement, said: "When you have an underground banking system it tends to make us very vulnerable to terrorist activity."

Immigrants who use the club for social activities and to watch Eritrean TV programmes were outraged by the raid. "To include us within a terrorist group is unacceptable. Of course we are offended," Eritrean cab driver Estefanos Mesmea told the press. Other Eritreans working in the Washington area echoed his sense of outrage.

"We started using the informal cash sending channels decades ago," one member told African Business. "This was when our homeland was controlled by a Marxist government. The money centre has been run for the last few years by the Eritrean Embassy itself as a service to the community." Dr Haile Mezghebe, a prominent Eritrean surgeon at the Howard University Hospital concurred. "It was a well-intentioned community service done by volunteers initially," he said.

The September 11 2001 attacks on the US caused the Bush administration to rush through a series of laws under the Patriot Act. Money-transmitters were suddenly required to register with the Treasury Department and to obtain state licences requiring them to report suspicious transactions. In addition, they were required to put in place programmes to prevent money-laundering.

Even as these regulations were coming into effect, however, FBI and US customs agents raided the Somali Al Barakat institution offices in six US cities. This organisation is used frequently by Somali cab-drivers and hotel workers in the north-eastern states. "It has been used as a main conduit by Al Quaida for financing terrorist operations," US officials claimed at the time of the shutdowns.

President Bush echoed the same theme in his speeches to the American nation following the traumatic events of September 11. "The entry point for these networks may be a small storefront operation," he claimed. "But follow the network to its centre and you discover wealthy banks and sophisticated technology, all at the service of mass murderers."

For their part, Al Barakat officials have denied any criminal wrongdoing, claiming that they had simply operated a money service for Somali immigrants in the US.

UNDERGROUND BANKING SYSTEM

The Patriot Act gave US law-enforcement agencies new tools with which to fight money-laundering. Delving into the informal money-transferring business they discovered a thriving underground banking system that had never popped-up on any law-enforcement agency's radar screen.

Its operations ranged from an Afghan grocery store in Alexandria, Virginia, collecting sums for a local hawala to the Towfiiq group sending millions of dollars to the Middle East from an imposing office on Leesburg Pike. Shutting down this substantial company, the agents seized $523,386 from its Virginia bank accounts, even though no criminal charges were ever filed in connection with the Towfiiq group's activities.

US authorities have continued to target a wide-ranging number of money-changing and transfer businesses, scrutinising them for possible terrorist and money-laundering links. "Three money changers in the Washington area are suspected of transferring money to the Sudan, something that is prohibited under US regulations," Allen J Doody, the head of the local Immigration and Customs Enforcement office, said. Money may also have been sent to Libya, he claimed, something that was illegal until very recently.

The issue that seems to have alarmed law enforcement agencies most is that almost all of the informal money-transmitters are unlicensed. This is suspicious in itself, they claim. But immigrants and local financial experts counter this by pointing out that to obtain a money-transferring licence is both expensive and time consuming.

Osman Yusuf, 49, a Somali refugee, said he was eager to comply with the regulations but that it took six months and thousands of dollars in lawyers' fees for him to obtain his Dahabshil Inc company licence. "It costs a lot, a lot of documentation is involved," he said, pointing out that until Somalia's Al Barakat was shut down he had not realised that a local Virginian state licence was required in addition to the Federal licence. "To get such a licence each senior officer in a business must file a biographical and personal financial history as well as post a $500,000 bond," he added.

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Professor Nikos Passas believes that the state authorities are applying the wrong criteria to licensing such businesses. "They are applying consumer protection regulations to ethnic businesses that do not need them," he said. "The hawalas have a stellar record of delivering customers' cash."

Pointing out that hawalas function through clan or family ties in hard-to-reach areas, Passas says that cash does not always change hands as an IOU or trade-financing arrangement is more often than not being set up.

Joe Face, Virginia's commissioner of financial institutions, disputes such arguments. "As a consumer, I would certainly like some protection before I give money to someone to send halfway around the world," he said, ignoring the fact that in many cases US banks have no way of getting payments through to obscure villages in the Somali or Eritrean hinterland as they have no corresponding bank in those countries to deal with.

For his part, Doody claims that the federal crackdown is not aimed at immigrant workers but at ensuring that the financial system cannot be exploited by terrorist organisations. "We are not concerned with someone trying to get $100 home to mom," he pointed out. "That is not what we are about."

The crackdown on the informal money-transmitters has caused tremendous difficulties for immigrants supporting families back home. Unable to use a system in which they have developed a trust and with mainstream financial institutions unable, or unwilling, to service their needs, these immigrants will inevitably turn to far riskier methods of transferring the money, civic leaders claim. "Many immigrants are already giving wads of cash to friends to carry home, thus raising the risk of losing it altogether should their friends abscond, or should it be confiscated by over-zealous officials en route," they pointed out.

"We are simply stuck," Eritrean cab driver Mesmea said. "In the end we'll all be worried how to send the money." The use of hawalas has long been a tradition in Middle Eastern and Muslim African countries. A system of trust has been built up that convinced many immigrants to the US and Europe to use the hawalas services. In the case of the US, the authorities are understandably concerned at the unregulated nature of this invisible money flow, but to just shut the dealers down will surely drive the business underground. This raises the real possibility that terrorists will still find ways to fund their despicable operations, only this time with less likelihood of detection.

By shutting down the Eritrean Cultural Center and its relatively minor money-transmitting business, federal authorities appear to have alienated the very US residents that the agencies have a duty to protect, something that is not in the best interests of either party. To defuse the situation, civil activists and the law enforcement agencies should come up a workable plan suitable to both.