THE UNITED Nations Development Programme (UNDP) Somalia Office is launching a programme to formalise and legalise Somalia's largest money transfer system, Al Barakaat, five months after the US shut it down on suspicion of being linked to Osama bin Laden.

Afraid that the closure of Al Barakaat – which is also the country's largest private sector employer – may cause a new humanitarian crisis in the war-ravaged country, UNDP plans to work with foreign governments and Somalia's remaining money transfer and remittance companies "to ensure that internationally recognised procedures are followed in the flow of money in and out of the country."

Ms Sonya Lawrence Green, an information officer at UNDP Somalia, said the UN agency will provide technical support to remittance companies, currently only two, to comply with standard financial rules and regulations and help the firms institute standard book keeping, auditing and reporting. The agency will also help Somalia establish a "Financial Action Task Force" to combat money laundering.

The UNDP project comes amid growing international concern that the US may have no evidence that Al Barakaat had links with the Al Qaeda terrorist network.

The US labelled Al Barakaat "the quartermasters of terror," when they put it out of business, but now some US officials are reported to acknowledge that the evidence of Al Barakaat's backing for terrorism is minimal if not non-existent. Some European countries that assisted in the operation also say that proof of a terror link has not been established.

So far, only four criminal prosecutions have been filed, and none involve charges of aiding terrorists.

Al Barakat was set up as a small remittance company in 1985 for Somalis working in Saudi Arabia to send money to relatives back home. But it was not until 1991 when the business took off after the civil war sent the Somali fleeing to other parts of the world from where they send money to relatives who remained at home. The company was a thriving business network that offered numerous services beyond banking. In 1995 it ventured into fixed and mobile telephone services and started the first locally based Internet service. It operated in 40 countries and handled about $140 million a year from the diaspora.

In Somalia, it was the biggest private sector employer with at least 3,000 workers. It also planned to open a Pepsi bottling plant in Mogadishu.

The closure therefore created a crisis of confidence in the remittance operations and greatly affected investment and labour opportunities in southern Somalia and crippled the construction and transportation sectors. There have also been major disruptions in the country's communications network, the UNDP said.

"The humanitarian impact of the closure has been great," Ms Sonya said. "Money was frozen in transit and large amounts of capital never reached its destination. Many Somalis depended on these remittances. They were the source of business and livelihood. Suddenly, people who used to get $30 or $50 were getting nothing."

The official said remittances were the largest source of money for rebuilding the Somali economy. Last year, she said, remittances like the ones via Al Barakaat provided about $550 million in 75,000 transactions while the UN system raised only about $50 million in the same period. Transfer companies in Nairobi alone remitted about $60 million to Somalia.

"Remittances provided 10 times what the aid agencies were able to provide for Somalia last year. Al Barakaat was a very important sector of the economy, especially given that Somalia is trying to rebuild.

We are not in any way trying to prop-up Al Barakaat. What we want is an acceptable money transfer system. International aid agencies cannot do everything for Somalia. Somalis are trying to do more for themselves than the international agencies are trying to do for them," said Ms Sonya.

Based on research that included discussions with various remittance companies, the UNDP however admits that current money transfer systems in Somalia do not meet "certain acceptable international standards" of management and organisation.

The companies lack transparency and accountability, have no consistency of complying with host country laws and do not have pro-active plans to identify suspicious transactions and money laundering schemes. They also lack management structures to deal with a crisis.

UNDP says it is consulting with Somali authorities and various transfer companies to ensure they comply with all international financial rules, get familiar with Financial Action Task Force against money laundering and develop a sound "Know Your Customer" procedures.

Al Barakaat’s closure destabilised exchange rates before other remittance companies tried to fill the vacuum. But the crisis of confidence and uncertainty raised the cost of transactions and caused a rise in physical transfer of money in bags and briefcases, UNDP says.

Lately, the Wells Fargo Bank in the US said it would close down the accounts of Dahabshill, the largest remaining money transfer company. The bank however has postponed the decision following UNDP’s intervention.

"The closure would have caused a further crisis of confidence and uncertainty in the remittance system and great hardship to Somalia," UNDP says.

The remittances fall into three categories. Money for supporting livelihoods range between $100 and $500 per year per individual, that for investment in Somalia, normally for land, houses and other businesses is about $100,000 a year, the same as that for conducting international trade.

With the help of dozens of countries, the US Treasury Department froze nearly all the company's assets, paralysing the biggest employer in one of the poorest countries in the world.

At the time, American officials announced that they had proof that Al Barakaat, was providing as much as $25 million a year to Osama bin Laden's terrorists in weapons, cash and other support.

Ms Sonya said other countries were concerned that the money transfer system could have been used for illegal purposes.

Al Barakaat's struggle all this time has been to clear its name. The UNDP official said the company promised to be open and invited US officials to scrutinise its records. But even the bid to clear its name is turning out to be unnecessary.

Even as the ban on Al Barakaat continues, according to a recent report in The New York Times, government and international relief officials in Somalia say that the effects may ultimately be a boon to Islamic radicals who drum up antipathy toward the US. The officials have also questioned the sanctions, saying their impact on the poor has been devastating.

"Thousands of Somalis had deposits in Al Barakaat. Depositors cannot access their funds. Businessmen cannot do business. Many are going bankrupt," The New York Times quoted Somalia's ambassador to the UN, Ahmed Abdi Hashi, saying last week.

"We don't want to be seen as defending anyone linked to terrorism. All we want is to see the evidence."

UNDP says that following the closure of Al Barakaat, Dahabshiil, has unsuccessfully tried to fill the gap. "It has tried to expand, but it has not reached everywhere Al Barakaat had reached. Al Barakaat had penetrated into the rural areas of Somalia. That the gap has not been filled leaves a crisis because currently, there is no formal banking in Somalia. We want to formalise the remittances because once that is done, there will be less risk of such banks being closed suddenly. It will help us keep the flow of the needed income."

US officials have defended their action against Al Barakaat. They say they acted on the basis of classified information from law-enforcement and intelligence sources about the movement of funds from Al Barakaat to Al Qaeda, and have seen indications that the sanctions may have hurt Mr bin Laden's operations.