A US bank, which helps Somalis based in the country to transfer money to relatives back home, is closing its service over growing concerns that it might have been facilitating movement of funds to militants.

Last week, Merchants Bank of California, announced in a letter obtained by Oxfam, that it would end its partnerships with Money Transfer Operators (MTOs) serving Somalia this week. According to the BBC, the bank handles up to 80 percent of such transfers from the US, believed to be worth about $200 million annually. The lender says it will close the accounts of companies offering the service due to new money-laundering regulations.

The Office of the Comptroller of the Currency (OCC), a federal regulator that supervises banks and thrift institutions, told the Californian bank last year, that it found its anti-money laundering procedures inadequate. The regulator required the bank to ensure that all the transfers it handles are used for legitimate purposes. Bank directors in the US are held responsible for what the funds that pass through them are used for.

The OCC also asked the bank to determine the exact destination of the money it was wiring. But the bank’s officials said in the letter, that they could not meet the requirements of the regulator and would have to stop the service.

Apart from sending money home, Somalis in the US also send money to people in refugee camps in Kenya and Ethiopia, Mr Hassan of Minneapolis-based Kaah Express told WSJ. He said his company still has an account with a bank in the US state, but doubts if the small bank would be able to handle additional wire transfers because of its size.

A lot of people are going to die

“It’s just like seeing a famine coming and not being able to do anything,” Seattle Times quoted Aynab Abdirahman, chairman of the Washington state Refugee Advisory Council, as saying, while reacting to the announcement. “A lot of people are going to die.”

The Wall Street Journal also quoted a US congressman as describing the decision as “catastrophic”.

“For the past few years, I have been warning every regulator and official about the devastating effects of closing the last safe and legal pipeline to provide humanitarian remittances to Somalia,” a statement by Keith Ellison, who represents the large Somali-American community in Minnesota, said.

A report published in 2013, by Oxfam America, a humanitarian organization working on this issue, put the value of transfers by Somali Americans and Somalis in the US to Mogadishu at an estimated $215 million annually. This accounts for about 4 percent of the country’s GDP.

Jonathan Scanlon, who works for the organization described the funds sent by these people as comparable to the total amount of development and humanitarian assistance that the US government sent to Somalia in fiscal year 2012 ($242 million).

“It really is the largest and most important financial flow going into Somalia, and most of it goes to families” says Scanlon. “… Money going home to help out the family business, money going home to just keep food on the table. It really is a lifeline for the country.”

Despite being ravaged by years of civil war and Islamic extremism, Somalia has maintained a healthy informal economy, based mainly on livestock, remittance/money transfer companies and telecommunications. But it lacks access to international banking system, hence the reliance on money transfer companies.

The effect of the decision by Merchants Bank of California on Somalis will be felt in the coming weeks, as people in Mogadishu await the usual support from relatives abroad.

Ahead of Friday, when the bank is expected to close the MTO accounts, the OCC said on Wednesday, that it did not order banks to close specific accounts. The regulator said, it only wanted banks to have adequate controls in place to manage the risks posed by each customer.

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