Minnesota welfare fraud probe targets Somali hawala money transfers

Minneapolis, Minnesota – Huge, sprawling, billion-dollar welfare fraud schemes are sweeping across the country Minnesota U.S. officials are now casting new scrutiny on an outdated and opaque money transfer network used by Somali Americans to send remittances to their loved ones and friends — a system that U.S. officials have warned could be embezzled or taxed by the terrorist group Al-Shabab.

This system, known as hawala, has been operating for centuries, moving money without the need for banks, wiring infrastructure or standardized documentation, yet it remains a lifeline for families in Somalia, where there is barely a national banking system. The system works by having the sender give the money to an agent in the United States, who then instructs an associate in Somalia to pay the recipient directly, with no money actually crossing the border.

Hawala acts as an alternative remittance system, relying on trusted agents rather than banks. It is fast, inexpensive and reaches remote areas of Somalia where there is no formal banking system. For many Somali Minnesotans, hawala-linked payments are the only practical way to support their relatives abroad.

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A file photo shows Al-Shabaab fighters in Somalia (left), next to a woman counting Somali shilling notes at a currency exchange kiosk in Hargeisa on November 8, 2024 (right). Somalia’s limited banking system means that many families rely on informal money transfer networks such as hawala, channels that experts say may be vulnerable to taxation or exploitation in areas controlled by Al-Shabaab. (Abdul Rashid Abdullah/AFP via Getty Images; Louis Tatou/AFP via Getty Images.)

But American officials are sounding the alarm about the system, along with the Secretary of the Treasury Scott Besant It was announced last month that the Treasury Department opened a formal investigation into whether Minnesota taxpayer money spent in various schemes was diverted into financial channels that might benefit Al-Shabaab, which imposes taxes, extorts businesses or controls trade routes.

The House Oversight Committee also launched its own investigation into fraud and potential terrorist financing risks, while Minnesota Senator Jordan Rasmuson said the concern was serious.

“Given that there was over a billion dollars stolen and a significant portion of those dollars were directed abroad, there are concerns that this money may directly or indirectly fund terrorist organizations like Al-Shabaab,” Rasmusson told Fox News Digital.

Amal Money Wire in Minneapolis handles legal US transfers for clients sending money abroad. The company has not been accused of any wrongdoing and is not a hawala operator. (Michael Dorgan/Fox News Digital)

Remittances are essential for survival in Somalia, where millions depend on the money of their relatives abroad to meet basic needs in a country where corruption and extreme taxes shape daily economic life.

Every year, according to the World Anti-Poverty Organization OxfamSomalis living in the United States send about $215 million home every year. Globally, Somalis in the diaspora send nearly $1.3 billion, equivalent to 15 to 20 percent of Somalia’s total economic output, according to recent World Bank estimates.

For many Somalis in Minnesota, these payments are part of their monthly budgets, Jelani Hussein, executive director of the Council on American-Islamic Relations, Minnesota Chapter (CAIR-MN), previously told Fox News Digital.

“Most families like mine, we still send 10 to 15, or even 30 percent of our income to our loved ones back home,” he said.

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Somali Americans are among the poorest populations in the United States, yet many face intense pressure to send significant portions of their income abroad, even as they struggle themselves. The result is that the community is under financial pressure on both sides with hundreds of millions of dollars flowing through a system that becomes vulnerable once the money reaches Somalia.

The warnings revive long-standing fears in Minnesota, where nearly two dozen young Somali-Americans left in the late 2000s to join al-Shabab — including Shirwa Ahmed, who became the first known American Islamist suicide bomber in 2008. Last year, Abdul Sattar Ahmed Hassan, 23, pleaded guilty to trying to provide material support to ISIS after twice trying to travel to Somalia.

A money transfer storefront in the Cedar-Riverside neighborhood of Minneapolis. Similar companies are licensed financial services providers and are not alleged to be involved in any illegal activity. (Michael Dorgan/Fox News Digital)

in MinneapolisThe Cedar-Riverside neighborhood, known as “Little Mogadishu” because of its dense Somali population, Fox News Digital noted at least three wire transfer storefronts in the area on Wednesday, while the only actual bank was a branch of Associated Bank. Inside the bank transfer storefronts, workers refused to speak on the record.

These money transfer shops operate legally in the United States and are licensed money service providers. They have never been accused of any wrongdoing and are not hawala shops and their role is to initiate the US side of the transfer. They work similarly to Western Union counters, collecting cash from customers and sending transaction data out.

The hawala system usually begins only after the money reaches Somalia, where limited banking options mean that local agents pay remittances from their own cash reserves and settle accounts privately. Experts say this stage of the process on the Somali side is where remittances often funnel into hawala networks, making them vulnerable to corruption or extreme taxation in Al-Shabaab-controlled areas.

Anna Mager-Parducci, a Middle East analyst at the Middle East Media Research Institute (MEMRI), explained why hawala dominates the Somali economy.

“Remittance reaches places that Western Union cannot. Most of Somalia, especially rural areas, do not have formal banks or Western Union locations, but remittance agents are almost everywhere,” she told Fox News Digital.

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In practice, she said, money never crosses borders. She added that a remittance agent in the sending country collects the money and his counterpart in Somalia immediately pays the equivalent amount from his own cash reserves.

A Ramad Pay banner hangs above a licensed money transfer company in Minneapolis. These companies process US money transfers legally and are not involved in remittance activity within the United States. (Michael Dorgan/Fox News Digital)

Behind the scenes, operators later settle debts privately through offsetting transactions, commercial arrangements, or large cash shipments — mechanisms that regulators cannot monitor, she said.

Major Parducci said Al-Shabaab tax system The movement is concentrated in south-central Somalia, where the group maintains control or shared governance over rural areas, major transport routes and local markets. Its influence is much weaker in northern Somalia and is largely absent in the autonomous regions of Somaliland and Puntland, with only a limited presence in pockets on the outskirts of major cities such as Mogadishu.

However, she noted that even mobile money systems are vulnerable and that Al-Shabaab could force local shop owners to pay a monthly “licensing” fee and a percentage of every transaction they process.

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Taj Money Transfer storefront in Minneapolis’ Little Mogadishu neighborhood. The Company is a licensed financial services company in the United States and is not accused of any wrongdoing; It handles legal remittances before transferring the money abroad for final delivery. (Michael Dorgan/Fox News Digital)

“In general, in Somalia, Corruption affects daily life. Many people need connections or small payments to get services or jobs, she said.

“The expatriate sender is usually not aware of the exact tax,” she added, noting that even legitimate remittances can lose value through hidden fees, coercion or toll collection points controlled by extremists.

When it comes to fraud in Minnesota, she said the risk is real.

“In theory, once fraudulent funds are converted into cash, they can move through the same informal channels as regular transfers, such as hawala.”