Somaliland: Regulatory Gaps in Money laundering And Illicit Financing

Somaliland is a small nation in the Horn of Africa with a population of around four million inhabitants. Its economy is dependant on Diaspora remittance and livestock export 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 countries in  North America and Europe, remmitance lifeline to Somaliland is always at risk of disruption unless local regulatory environment and anti money laundering fighting mechanisms are installed and applied rigorously.

This may lessen the suspicion on the part of originating countries regulatory authorities on remittance companies operating in Somaliland. To earn the trust of international regulators Somaliland needs to enact and enforce laws criminalizing and fighting all forms of money laundering.

According to the United States Treasury Department: “Money laundering is the process of making illegally-gained proceeds (Dirty money) appear 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.”

Money laundering unfavorably affects the confidence, integrity and stability of national, regional and global financial systems, undermines economic development and threatens national securtiy. 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 diligance,know your client procedures, prohibition of anonymous accounts and relationships, identification systems of money laundering and terrorist financing, identification of politically exposed persons, curreny 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 includes 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 criminalizing such activities.

Charitable foundations especially Middle East funded charities are one of the main vehicles which funds are pooled and then transferred to where they can be used. Back in 2003 Al haramayn charitable foundation were closed on the basis of terrorism financing.However,since then no concrete measures has not been taken by Somaliland authorities although the number of charitable foundations whom have links to Middle east individuals and organizations have increased in number and in size especially the last five years. Somaliland Ministry of planning which is responsible the not for profit sector does not sufficiently scrutinize the finances of such charities and their activities.

Mobile subscribers are increasing by the day and millions of Somaliland 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 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 specialized agency dealing with anti money laundering and terrorism financing. However such agency is one of the pillars of anti money laundering systems. According to the Financial task force (FATF), The Financial Transactions and Reports Analysis Center 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 financial action task force(FATF) which has forty recommendations requiring the criminalization 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 organized Crime (Palermo Convention),Basel committee on banking supervision, and international federation of accountants.

In addition to the global initiatives, some of the initiative at continental level according to the African Development Bank are; the Organization of African Unity’s convention on the prevention and combating of terrorism (2004). AU  convention on corruption in 2003  which  calls for the criminalization 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, as well as confiscations, seizure and repatriation of proceeds and 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 AML/CFT laws and promoting compliance with international AML/CFT standards.

At the regional level, according to the Global Center 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, as well as 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 to emerge as a key player in developing a regional strategy to combat at illicit financial flows.

Therefore, Somaliland may learn anti money laundering practices from Ethiopia. In addition Somaliland authorities need to take steps to enact anti money laundering legislation and establish a center dealing with financial reporting and financial intelligence. By ignoring this, Somaliland risks the remittance lifeline which the majority of Somaliland citizens depend on and also its national security in general.

Mohammed Dahir Ahmed

By:Mohammmed Dahir Ahmed,Hargeisa Somaliland

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