Somaliland is a small nation in the Horn of Africa, with a population of around four million inhabitants. Its economy is dependent on Diaspora remittance and livestock exports to the Arab gulf countries. It has an infancy stage banking and financial services industry dominated by remittance business.
As a result of anti-money laundering regulations in the remittance originating in countries in North America and Europe, the remittance lifeline to Somaliland is always at risk of disruption. This is unless the local regulatory environment and anti-money laundering fighting mechanisms are installed and applied rigorously.
This may lessen the suspicion on the part of the originating countries’ regulatory authorities on remittance companies operating in Somaliland. To earn the trust of international regulators, Somaliland needs to enact and enforce laws criminalising and fighting all forms of money laundering.
“Money laundering is the process of making illegally-gained proceeds (dirty money) appears legal (clean).Typically, it involves three steps: placement, layering and integration. First, the illegitimate funds are furtively introduced into the legitimate financial system. Then, the money is moved around to create confusion, sometimes by wiring or transferring through numerous accounts. Finally, it is integrated into the financial system through additional transactions until the dirty money appears clean,” according to the United States Treasury Department.
Money laundering unfavourably affects the confidence, integrity and stability of national, regional and global financial systems, undermines economic development and threatens national security. It hinders the development of the financial services industry and turns away potential investors.
All standard applicable anti-money laundering measures are non-existent in Somaliland, such as customer due diligence, know your client procedures, prohibition of anonymous accounts and relationships, identification systems of money laundering and terrorist financing, identification of politically exposed persons, currency reporting at the borders, special monitoring transactions, record keeping requirements and correspondent bank due diligence obligations.
Different methods used to launder money here in Somaliland include, among others – international trade, especially trade with the Middle East; precious minerals; charitable foundations; front companies; informal banking and remittance systems, and new electronic technologies, such as mobile banking. In addition, cash can be moved in and out of all borders, including airports, since there are no laws criminalising such activities.
Charitable foundations, especially in the Middle East, which fund charities are one of the main vehicles through which funds are pooled and then transferred to where they can be used. Back in 2003, the Al Haramayn charitable foundation was closed on the basis of terrorism financing. However, since then, no concrete measures have been taken by Somaliland’s authorities – although the number of charitable foundations that have links to Middle Eastern individuals and organisations have increased in number and in size, especially in the last five years. Somaliland’s Ministry of Planning, which is responsible for the non-profit sector, does not sufficiently scrutinise the finances of such charities and their activities.
Mobile subscribers are increasing by the day and large portions of Somaliland’s citizens use it. There are no limits to the transferrable amounts. It depends on the individual subscriber whether to have a limit in his account or not. There are no pre-determined limits, either by the authorities or the service providers. Recently, some remittance companies will directly send to your mobile money remitted from overseas, which actually has increased customer convenience but increases the risk of misuse of mobile money technologies.
Moreover, there is no legal requirement to report currency at the borders, such as airports, ports or land border posts. Similarly, there are no rules relating with politically exposed persons and how to deal with them regarding their monetary transactions.
Similarly, in Somaliland there is no specialised agency dealing with anti-money laundering and terrorism financing. However, such an agency is one of the pillars of anti-money laundering systems. According to the Financial Task Force (FATF), the Financial Transactions and Reports Analysis Centre of Afghanistan (FinTRACA) was established as a Financial Intelligence Unit (FIU) under the Anti-Money Laundering and Proceeds of Crime Law, passed by decree late in 2004.
The main purpose of this law is to protect the integrity of the Afghan financial system and to gain compliance with international treaties and conventions. The Financial Intelligence Unit is a semi-independent body that is administratively housed within the Central Bank of Afghanistan (Da Afghanistan Bank). The main objective of FinTRACA is to deny the use of the Afghan financial system to those who obtained funds as the result of illegal activity, and to those who would use it to support terrorist activities.
There are international instruments, agencies and conventions in the fight against money laundering and illicit financing, such as – the FATF, which has forty recommendations requiring the criminalisation of money laundering; the United Nations Convention on Illicit Trafficking in Narcotic Drugs and Psychotropic Substances (Vienna convention); the UN Convention Against Corruption and the International Convention for the Suppression of the Financing of Terrorism; the UN Convention Against Transnational Organised Crime (Palermo Convention); the Basel Committee on Banking Supervision, and the International Federation of Accountants.
In addition to the global initiatives, some of the initiatives at the continental level, according to the African Development Bank are – the Organisation of African Unity’s Convention on the Prevention and Combating of Terrorism (2004); and the AU Convention on Corruption in 2003, which calls for the criminalisation of the use or concealment of proceeds from acts of corruption (article 4) and the laundering of the proceeds of corruption (article 6).
It also establishes a regional cooperation framework for improved mutual law enforcement assistance, including extradition, investigations and confiscations, seizure and repatriation of proceeds. The African Peer Review Mechanism (APRM), an initiative of NEPAD, includes a focus on assessing corruption control mechanisms. Fostering the implementation of banking and financial standards is a key focus area of NEPAD. In 2002, its Steering Committee proposed an action plan focused on the adoption and strengthening of anti-money laundering or combating the financing of terrorism (AML/CFT) laws and promoting compliance with international AML/CFT standards.
At the regional level, according to the Global Centre on Cooperative Security, since the passage of its first AML-relevant law in 2009, Ethiopia has made significant progress in strengthening legislative frameworks and the technical expertise, and raising awareness among AML/CFT stakeholders and increasing engagement with regional and international AML/CFT bodies. As a result of these achievements, Ethiopia was removed from the Financial Action Task Force’s (FATF) ongoing AML/CFT monitoring process in October 2014. Such progress has positioned Ethiopia as a key player in developing a regional strategy to combat illicit financial flows.
Therefore, Somaliland may learn anti-money laundering practices from Ethiopia. In addition, Somaliland’s authorities need to take steps to enact anti-money laundering legislation and establish a centre dealing with financial reporting and financial intelligence. By ignoring this, Somaliland risks losing the remittance lifeline that the majority of Somaliland citizens depend upon – and also its national security in general.
This article originally appeared in Addisfortune Newspapper(Written by Mohammed Dahir Ahmed)
By:Mohammed Dahir Ahmed
This post is also available in: Somali