Last week, Minnesota’s legislative auditor announced an investigation into allegations that some child care providers are defrauding the state’s Child Care Assistance Program, or CCAP, which subsidizes the child-care expenses of low-income children and is overseen by the Minnesota Department of Human Services.
The investigation was prompted by a report aired by Fox 9, which alleged that the child care providers were illegally obtaining millions of dollars in subsidies by overbilling the state.
The story didn’t stop there, though. It also suggested a connection between the alleged fraud, which centered on child care centers owned and operated by Somali-Americans, and “mysterious suitcases filled with cash” flying out of MSP International Airport by couriers working for money-transfer shops known as hawala. The story’s main source — a former Seattle police detective named Glenn Kerns — alleged that some of that cash was going to areas in Somalia controlled by the al-Shabab terrorist group, which would get a cut of the money. (At least the “bags full of cash” part was similar to a story done by Seattle TV station KING5 two years ago, a report that also relied heavily on Kerns.)
It’s also sparked frustration among members of the Somali community, who accused the report of conflating several issues and tainting the reputation of the community.
Given the long history of the hawala system in Minnesota and its central role in this whole story, it seems worthwhile for people to know a little more about it: how it works; where the cash comes from; and why it’s transferred in bags:
OK, first things first: What is hawala and who uses it?
Hawalas are part of a traditional system of informal banking in Muslim communities — the word is derived from the Arabic word for “transfer” — that became popular in Somalia in the early 1990s, after civil war broke out. The war led to the collapse of pretty much all major government institutions, including the banking system.
The war also led hundreds of thousands of people to leave Somalia for other countries, including the United States, Canada, Europe, Australia and the United Arab Emirates. Escaping the war — which decimated much of the country’s economy — didn’t mean severing ties with family they left behind, of course, and the hawala system allowed the people who lived in the U.S. (and other developed countries) to safely get funds to those back in Somalia, and the businesses became popular in cities with large Somali populations. In Minnesota, dozens of such businesses have operated inside Somali malls and halal markets for nearly three decades now. Some of the main locations of these shops today include Minneapolis, St. Paul, Burnsville, St. Cloud and Rochester.
How does the system work, exactly?
Say you want to send $100 to a family member in Mogadishu: First, you need to tell the recipient which company you plan to use. (There are nearly 20 money transfer companies in the Twin Cities). You then need to take your money to the local branch of the business, present a photo ID for it to keep a record of what you send and who receives it, and pay a fee of $6 for each $100 you send. The money reaches Mogadishu within hours. When it does, the recipient gets a text message or a phone call from a local branch notifying him or her to come pick up the money.
How common is the system among Somalis in Minnesota?
Very common. Like many immigrant communities, Somalis in Minnesota tend to have many family members, relatives and friends who still live in Somalia or other lesser developed nations. With the high unemployment rate and the lack of opportunities in some of those countries, Somalis in Minnesota often represent a significant source of income for their relatives. It’s not uncommon for Somalis in Minnesota to send funds on a monthly basis to sustain family members living in other places.
According to a 2013 study from Oxfam American, an international humanitarian organization, the worldwide Somali diaspora sends home about $1.3 billion annually in remittances, with 16 percent of that coming from Somali living in the U.S.
OK, so is it true that people fly out of MSP with suitcases full of cash?
Absolutely, though that wasn’t always the case. Before 2010, there was no need for couriers from the money-transfer companies to transport cash across continents. They simply used mainstream financial institutions — Wells Fargo, US Bank, Sunrise Banks and others — to transfer the money for the hawala.
Today, none of these institutions will work with the money-transfer companies, which has forced owners of these companies to send the only way they can: by carrying cash in suitcases all the way to Dubai or Mogadishu, where most of them are headquartered.
Are they mysterious?
Not really. The system has never been a secret. In fact, the reason we know that the money is there — and how much of it is going through MSP — is because the couriers for the hawala companies have to fill out forms and notify security officials at the airport of exactly how much they are carrying and where it’s going.
Wait, American banks won’t deal with hawala anymore? Why?
In 2010, two Somali-American women in Minnesota were convicted of sending al-Shabab fighters in Somalia $8,600 through the hawala system. In the years that followed the conviction, almost all U.S. banks refused to work with the money-transfer companies because the U.S. government had begun to put more scrutiny on any bank that works with the hawala.
So people can actually use the hawala system to support terrorists?
The money-transfer companies aren’t that different than any other financial institution. They’re international companies serving millions of clients across the world. That means, some people can — and will — try to take advantage to commit wire fraud or provide unlawful financing. That said, the system is actually now more secure than it’s ever been. Shop operators are required to record the personal information of anyone sending money through the system. That wasn’t the case before 2010.
So what is the connection between Somali-owned child care centers and the money transfer companies?
The short answer is: none. But it’s worth noting a couple of things: First, the U.S. government doesn’t know much about the hawala system, even though it’s been around for decades and allows thousands of people across the country to allocate funds to their loved ones. To remedy that, for the past eight years representatives from the money-wire industry have been trying to work with the banks as well as the federal and state governments to find a way to improve the system — to no avail.
Then you have the story of the Somali-owned child care centers. In recent years, these businesses have seen increased scrutiny from federal and state agencies, largely because some of these centers have been, in fact, involved in fraud. Some owners and operators of child care providers have been convicted for stealing government money; others are still under investigation.
That said, there is no evidence directly connecting the money legally flown out of MSP to the money obtained from child care subsidy fraud, let alone connecting that money to terrorism, which is why many in the community are upset with Fox9.