A file image shows al-Shabaab militants in Somalia (left), alongside a woman counting Somaliland shilling notes at a currency exchange stall in Hargeisa on Nov. 8, 2024 (right). Somalia’s limited banking system means many families depend on informal money-transfer networks such as hawala — channels experts say can be vulnerable to taxation or exploitation in areas controlled by al-Shabaab. (Abdurashid Abdulle/AFP via Getty Images; Luis Tato/AFP via Getty Images.)
But U.S. officials are sounding the alarm on the system, with Treasury Secretary Scott Bessent announcing last month that the Treasury Department has opened a formal investigation into whether Minnesota taxpayer dollars doled out in the various schemes were diverted into financial channels that may benefit al-Shabaab which imposes taxes, extorts businesses or controls trade routes.
The House Oversight Committee has also launched its own inquiry into the fraud and the potential terror-finance risks, while Minnesota State Sen. Jordan Rasmusson said the concern is serious.
"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," Rasmusson told Fox News Digital.
A remittance storefront in Minneapolis’ Cedar–Riverside neighborhood. Businesses like this are licensed money-service providers and are not alleged to be involved in any illegal activity. (Michael Dorgan/Fox News Digital)
In Minneapolis' Cedar-Riverside neighborhood, known as "Little Mogadishu" due to its dense Somali population, Fox News Digital observed at least three wire-transfer storefronts in the area on Wednesday, while the only brick-and-mortar bank was an Associated Bank branch. Inside the wire-transfer storefronts, workers declined to speak on the record.
Those money wire stores operate legally in the United States and are licensed money-service providers. They have never been accused of wrongdoing and are not hawala shops and their role is to initiate the U.S. side of the transfer. They function similarly to Western Union counters, collecting cash from customers and sending the transaction data overseas.
The hawala system typically begins only after the money reaches Somalia, where limited banking options mean local agents pay out remittances from their own cash reserves and settle accounts privately. Experts say this Somalia-side leg of the process is where transfers often shift into hawala networks, becoming vulnerable to corruption or extremist taxation in regions controlled by al-Shabaab.
Anna Mahjar-Barducci, a Middle East analyst with the Middle East Media Research Institute (MEMRI), explained why hawala dominates Somalia’s economy.
"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," she told Fox News Digital.
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In practical terms, she said, money never crosses borders. A hawaladar in the sending country collects the funds and a counterpart in Somalia immediately pays out the equivalent amount from their own cash reserves, she said.
The Taaj Money Transfer storefront in Minneapolis’ "Little Mogadishu" neighborhood. The business is a licensed U.S. money-service provider and is not accused of any wrongdoing; it handles legal remittances before funds are transferred overseas 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 diaspora sender typically is unaware of the exact tax," she added, noting that even legitimate remittances can lose value through hidden fees, coercion or extremist-controlled toll points.
When it comes to Minnesota’s fraud, she said the risk 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."
Michael Dorgan is a writer for Fox News Digital and Fox Business.
You can send tips to michael.dorgan@fox.com and follow him on Twitter @M_Dorgan.
https://www.foxnews.com/politics/minnesota-investigation-shadowy-money-system-somalis-rely-terrorists-can-exploit