A billion dollars vanished from Minnesota’s social safety net, and now a decades-old financial system is under intense scrutiny. The system, known as hawala, is a lifeline for Somali families sending money home, but U.S. officials fear it’s also a potential conduit for funding terrorism.
Hawala operates outside the traditional banking world, a network built on trust and centuries of tradition. Money doesn’t physically cross borders; instead, a promise to pay is exchanged between agents in the United States and Somalia, reaching even the most remote villages where banks simply don’t exist.
For Somali Minnesotans, hawala is often the *only* way to support relatives struggling in a nation where a functioning banking system is a distant dream. Each year, approximately $215 million flows from the Somali diaspora in the U.S. alone, representing a staggering 15 to 20 percent of Somalia’s entire economic output.
But this vital system is now at the center of a federal investigation. Treasury Secretary Scott Bessent has launched a formal inquiry into whether stolen taxpayer dollars were diverted through these channels, potentially landing in the hands of al-Shabaab, a terrorist organization known for extortion and control of key trade routes.
The House Oversight Committee is also digging into the fraud, and Minnesota State Senator Jordan Rasmusson voiced serious concerns: “A significant portion of those dollars have been directed overseas…this money could be either directly or indirectly funding terrorist organizations.”
Somalia’s economic reality makes remittances essential for survival. Millions depend on funds from abroad to meet basic needs, navigating a landscape riddled with corruption and extremist taxation. Even small amounts sent with good intentions can be diminished by hidden fees and coercion.
The concerns are particularly acute in Minnesota, which has a large Somali-American population and a history of residents attempting to join extremist groups. In the late 2000s, roughly 20 young Somali Americans left to fight with al-Shabaab, including Shirwa Ahmed, who carried out a suicide bombing in 2008.
In Minneapolis’ “Little Mogadishu,” wire-transfer storefronts vastly outnumber traditional banks. While these businesses legally initiate the U.S. side of the transfer, experts say the vulnerability lies in Somalia, where funds often transition into informal hawala networks beyond the reach of regulators.
Anna Mahjar-Barducci, a Middle East analyst, explains that hawala’s reach is unparalleled. “Hawala reaches places Western Union cannot,” she stated. “Much of Somalia…has no formal banks, but hawala agents exist almost everywhere.”
The process is deceptively simple: money never actually *moves*. A hawaladar in the U.S. collects funds, and a counterpart in Somalia immediately pays out the equivalent from their own reserves. Debts are settled later through private arrangements, invisible to oversight.
Al-Shabaab exploits this system in areas it controls, imposing “taxes” on businesses and transactions. Even legitimate remittances can be eroded by these hidden costs, and the risk is real that fraudulently obtained funds could easily be absorbed into this network.
The fear isn’t just theoretical. Once converted to cash, stolen funds can seamlessly blend with ordinary remittances, making it nearly impossible to trace their final destination. The investigation aims to unravel this complex web and determine the extent to which Minnesota’s stolen billions may be fueling instability and terror in Somalia.
