Making a Living (and a Life) Abroad

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DealBook: JPMorgan Case Tests U.S. Law on Buying Influence Abroad

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Somalis Face a Snag in Lifelines From Abroad

In a country where 40 percent of the population depends on remittances from relatives abroad, however, these transactions are a lifeline. And because Somalia has little in the way of financial infrastructure, the money transfer companies that make them possible play a central role in keeping the financial ties to the diaspora open, a few hundred dollars at a time.

But in an echo of politically charged fights over aid that have vexed Somalia before, the same money transfer services that help keep children in school and elder relatives off the streets also can be used to send money to help finance dangerous groups like the Shabab, the feared Islamist militants who once controlled much of the country.

Humanitarian groups, politicians and Somalis themselves are now sounding the alarm over plans by the British bank Barclays to suspend the accounts of a number of money transfer companies used to send money to developing countries — rather than risk a run-in with regulators over potentially abetting the financing of terrorists or money laundering.

“Millions of people depend on the remittances from outside,” said Shukri Ismail, one of the founders of Candlelight, a nonprofit in the northern region of Somaliland. “If those remittances stop, it will be literally chaos.”

The looming cutoff, expected to occur next Saturday, comes at a time when more and more Somalis have returned from abroad to invest in their home country, build new businesses and jump-start the nation’s economy after years of chaos. In June, the International Monetary Fund established relations with Somalia for the first time in more than two decades.

Last week in Mogadishu, the capital, Somalis lined up at a branch of Dahabshiil, the largest money transfer business in Somalia and one of those facing a shutdown by Barclays. It was busier than usual for the Ramadan holiday.

A cutoff would be “a disaster and result in a new phase of hunger and famine,” said Abdinasir Jamal, who relies on money from his sister abroad to survive.

Activists, academics and politicians in Somalia and abroad have asked the British government to intercede with Barclays. In June, the Somali president, Hassan Sheik Mohamud, appealed directly to the bank in a letter to keep the money transfer businesses’ accounts open.

Mo Farah, the British Olympic gold medalist born in Somalia, has lent his celebrity to the cause, asking for a 12-month extension before the cutoff. “Everyone following the issue understands that Barclays has a bank to run, but this decision could mean life or death to millions of Somalis,” Mr. Farah said in a statement.

The move by Barclays would affect not just Somalia but also countries like Bangladesh, Nigeria and Haiti. But Somalia is uniquely exposed because decades of violence and chaos have left it without a functioning banking system. If the money transfer businesses are shut down, experts say, the transfers will not go through other official channels but will be driven underground instead, making it harder to track money going to militant groups.

“The alternative is bulk cash smuggling, carrying suitcases of cash across the border from other places,” said Jonathan Schanzer, the vice president for research at the Foundation for Defense of Democracies and a former terrorism finance analyst at the United States Treasury.

“If you’re trying to assist people on the ground in Somalia, you have to work with the same remittance houses that are committing violations and assisting groups like Al Shabab,” Mr. Schanzer said.

When the militant group’s clandestine division needed money to pay for a planned wave of assassinations of government officials late last year, the Shabab turned to supporters in the Somali community in Qatar for donations. Shabab operatives used Dahabshiil to send the funds back to Somalia, according to a United Nations report.

Many major American banks have already stopped working with Somali money transfer businesses. In May, a federal court in Minnesota sentenced two women to prison for sending money to the Shabab.

The problem of keeping resources out of the Shabab’s hands has bedeviled Somalia and its donors before. In recent years the United States, concerned that some Somali contractors working for the United Nations were diverting food and money to the Shabab, suspended millions of dollars of food aid, prompting an outcry from United Nations officials who said the decision cut rations to starving people.

“Leakage to Al Shabab is the cost of doing business in Somalia,” said a diplomat involved in Somalia issues.

Anne-Marie Schryer-Roy, a spokeswoman for Adeso, a humanitarian and development organization active in Somalia that has used money transfer businesses, including Dahabshiil, to distribute money in the country, said, “There’s no equivalent to Citibank that could receive those funds and distribute them.”

Western Union has only one office in Somalia — in the relatively stable Somaliland. Elsewhere, Somalis turn to companies like Dahabshiil, which operates in 286 locations around the country.

Abdirashid Duale, Dahabshiil’s chief executive, said his company had worked with Barclays for 15 years without incident. “We’re asking them to be fair and transparent,” he said. “We have never committed any violations or assisted any extremist groups.”

Mohammed Ibrahim contributed reporting from Mogadishu, Somalia.

DealBook: U.S. Regulators Approve Stricter Trading Rules Abroad

Federal regulators reached a last-minute compromise on Friday to expand their oversight far beyond American shores, overcoming internal squabbles and Wall Street lobbying to rein in some of the overseas trading that imploded during the financial crisis.

The Commodity Futures Trading Commission voted 3 to 1 to adopt its so-called cross-border guidance, a deal struck just hours before a self-imposed deadline was set to expire. Gary Gensler, the agency’s chairman and a fierce critic of Wall Street risk-taking, spearheaded the decision to approve the guidance, which dictates how to apply United States regulations to American banks doing business in London and beyond.

Yet the agency’s battle, both internally and with Wall Street, will drag on for months.

While firms like Goldman Sachs International and the London branch of Citigroup will face a wave of new scrutiny, the agency made crucial concessions to big banks, including a delay in the new oversight.

The oversight, Mr. Gensler said, will be phased in over several months and his agency will defer to European regulators if they adopt similar rules.

The agency also afforded Wall Street additional time to comment on the plan to phase in the regulation, inviting an onslaught of lobbying from banks that could seek additional delays. One financial group, the Institute of International Bankers, called the agency’s announcements “a big step forward” to a “workable approach.”

Dennis M. Kelleher, president and chief executive of Better Markets, a nonprofit advocacy group, called it, “the lobbyist full employment act.”

While he praised Mr. Gensler for securing a deal, he added that “this mixed bag of some very good, some not-so-good and some to-be-determined provisions will mean that Wall Street’s war on regulation of high-risk cross-border derivatives dealing will not end today.”

This delay could be costly. Mr. Gensler, a former Goldman Sachs executive who has been an aggressive regulator, is expected to leave the agency before the end of the year. His departure could leave certain aspects of the cross-border plan in the hands of someone with a softer stance toward the banks.

Even with the compromise, however, the guidance is a victory for Mr. Gensler, who had vowed to meet the Friday deadline without fully caving in to Wall Street’s demands. The 2008 crisis, he noted, demonstrated the huge risks of overseas trading to financial stability.

“At the center of this crisis were the far-flung operations of U.S. financial institutions,” he said in an interview. “What we did is kept those lessons in mind and kept our eye on protecting the American public.”

Trades by a London unit of the insurance giant American International Group, he noted, nearly toppled the company. And JPMorgan Chase’s $6 billion trading loss in London last year reignited concerns that risk-taking could come crashing back to American shores.

The crisis led Congress to enact the Dodd-Frank Act in 2010, a law that mandated an overhaul of the $700 trillion marketplace for derivatives, financial contracts that derive their value from an underlying asset like a bond or an interest rate. Under that law, the trading commission is supposed to extend new derivatives changes overseas — including tougher capital standards, a requirement that trades go through regulated clearinghouses and other requirements — if the foreign trading has “a direct and significant connection with activities” of the United States.

Over the last year, the agency has battled infighting over how aggressively to interpret the law, and when to do it.

The guidance, the most contentious issue facing the agency, had strong support from Mr. Gensler and Bart Chilton, a fellow Democratic commissioner at the agency who also supported completing the guidance by the Friday deadline. Mr. Chilton noted that, with the deadline coming three years after Dodd-Frank was passed, “It didn’t just sneak up on us.”

But Mark P. Wetjen, a Democratic commissioner with an independent streak, had expressed concern that the Friday deadline was “arbitrary.”

With the agency’s Republican commissioner, Scott D. O’Malia, opposing the guidance, Mr. Wetjen held the swing vote.

A compromise appeared unlikely until Wednesday, people close to the agency said, when Mr. Wetjen and Mr. Gensler reached a tentative deal.

A central component of Mr. Gensler’s final plan will apply the Dodd-Frank rules to overseas firms that are guaranteed by an American bank, including Goldman Sachs International. Foreign branches like the British branch of JPMorgan Chase, where the recent losses occurred, will also face the agency’s oversight.

Mr. Gensler also included offshore hedge funds, many based in the Cayman Islands, so long as their “nerve center” is based in the United States.

But Mr. Gensler’s victory came with some sacrifice. He agreed, for example, to defer to foreign regulators in Europe and elsewhere that have adopted “comparable and comprehensive” regulations to Dodd-Frank. It is up to Mr. Gensler’s agency to decide whether the other regulators’ rules meet the standard.

While European regulators have adopted many similar rules, authorities in Hong Kong, Switzerland and elsewhere have fallen far behind. Unless those regulators catch up by December, Dodd-Frank will apply to American banks doing business in those regions.

In a concession to Mr. Wetjen, Mr. Gensler agreed to delay the requirements, so the start date for most banks for the new rules would be Dec. 21. By soliciting additional comments from Wall Street, the agency also signaled that it was open to a longer delay.

The compromise traces to a plan that Mr. Chilton floated in June. While he noted that foreign regulators could use the additional time to catch up, he also argued that the agency should not delay indefinitely.

“Like in the movie ‘Field of Dreams,’ when the voice from the corn field says, ‘If you build it, he will come,’ ” Mr. Chilton said on Friday. “I’ve said repeatedly that if we and the E.U. build balanced and fairly harmonized financial regulatory regimes, the rest of the world will come.”