Minnesota Investigation Reveals Complex Somali Money Transfer System Vulnerable to Terrorist Exploitation

Minnesota’s $1 Billion Welfare Fraud Raises Concerns About Hawala Money Transfers to Somalia

MINNEAPOLIS, Minn. – The sprawling $1 billion welfare-fraud schemes unfolding in Minnesota have cast a spotlight on hawala, a centuries-old money-transfer network used by Somali Americans to send remittances to their homeland. U.S. officials have now raised alarms that these informal channels might inadvertently benefit terrorist groups like al-Shabaab.

Treasury Secretary Scott Bessent announced last month that his department has launched a formal investigation into whether fraudulently obtained Minnesota taxpayer dollars were diverted through financial channels that could benefit al-Shabaab, which controls significant territory in Somalia. The House Oversight Committee has initiated a parallel inquiry examining both the fraud and potential terror-finance risks.

“Because there’s more than a billion dollars that’s been stolen and a significant portion of those dollars have been directed overseas, there are concerns this money could be either directly or indirectly funding terrorist organizations like al-Shabaab,” Minnesota State Sen. Jordan Rasmusson told Fox News Digital.

Hawala functions outside traditional banking infrastructure, operating through a network of trusted agents rather than formal institutions. A sender gives money to an agent in the United States, who then instructs a partner in Somalia to pay the recipient directly, with no money physically crossing borders. The system is especially critical in Somalia, where formal banking is practically nonexistent in many regions.

For Minnesota’s substantial Somali American community, hawala represents a vital economic lifeline. “Most families like my family, we still send between 10 to 15, or even 30 percent of our income to loved ones back home,” explained Jaylani Hussein, executive director of the Council on American-Islamic Relations, Minnesota chapter (CAIR-MN).

According to Oxfam, Somalis living in the United States send approximately $215 million home each year. Globally, the Somali diaspora remits about $1.3 billion annually, equivalent to 15-20 percent of Somalia’s total economic output based on World Bank estimates. These transfers represent a crucial financial lifeline in a country where millions rely on money from relatives abroad for basic survival.

In Minneapolis’ Cedar-Riverside neighborhood, known locally as “Little Mogadishu” due to its concentrated Somali population, at least three wire-transfer storefronts operate alongside just one brick-and-mortar bank branch. These money wire businesses are licensed money-service providers operating legally within the United States, functioning similarly to Western Union counters by collecting cash and transmitting transaction data.

However, experts note that the vulnerability typically emerges once money reaches Somalia, where limited banking options mean local agents pay out remittances from personal cash reserves and settle accounts privately. This Somalia-side portion of the transaction is where transfers often shift into hawala networks, becoming susceptible to corruption or extremist taxation in regions controlled by al-Shabaab.

“Hawala reaches places Western Union cannot. Much of Somalia, especially rural areas, has no formal banks or Western Union locations, but hawala agents exist almost everywhere,” explained Anna Mahjar-Barducci, a Middle East analyst with the Middle East Media Research Institute (MEMRI).

The practical functioning of hawala means money never actually crosses borders. An agent in the sending country collects funds while a counterpart in Somalia pays out an equivalent amount from their own cash reserves. Operators later settle debts privately through offsetting transactions, trade arrangements or bulk cash shipments—mechanisms that regulatory authorities cannot effectively monitor.

Al-Shabaab’s presence complicates this financial ecosystem, particularly in south-central Somalia where the group maintains control or co-governance over rural districts, key transport routes and local markets. The group has established a sophisticated taxation system in these areas, though its influence is significantly weaker in northern Somalia and largely absent in the autonomous regions of Somaliland and Puntland.

Even more modern financial technologies aren’t immune to the group’s reach. Mahjar-Barducci noted that al-Shabaab can compel local shopkeepers to pay monthly “license” fees plus percentages of every transaction they process, including those conducted via mobile money systems.

The current situation revives long-standing security concerns in Minnesota, where approximately 20 young Somali Americans left to join al-Shabaab in the late 2000s. This included Shirwa Ahmed, who became the first known American Islamist suicide bomber in 2008. More recently, 23-year-old Abdisatar Ahmed Hassan pleaded guilty last year to attempting to provide material support to ISIS after twice trying to travel to Somalia.

Regarding Minnesota’s massive fraud schemes, Mahjar-Barducci warned that the risk of funds reaching extremist groups is real: “In theory, once money from fraud is converted into cash, it can move through the same informal channels as ordinary remittances, like hawala.”

For Minnesota’s Somali community, the scrutiny presents a painful paradox—a system essential for supporting vulnerable family members abroad now faces intensified investigation for its potential exploitation by both fraudsters and terrorist organizations operating thousands of miles away.