Countries/Jurisdictions of Primary Concern - Somalia

Bureau of International Narcotics and Law Enforcement Affairs
Report

In 2013, Somalia and the international community endorsed a New Deal Compact that outlines peace and state-building goals aimed at helping Somalia become more accountable to the people of Somalia in instituting political, financial, health, and security reforms. In 2015, the Federal Government of Somalia committed itself to a slate of reforms, including improving fiscal transparency and budgeting processes. To improve fiscal transparency and build a nascent banking sector, the Central Bank of Somalia implemented reforms, including granting interim licenses to six banks and nine money transfer organizations, installing a Treasury Single Account, and developing internal procedures for banking supervision, including on and off site inspections.

Somalia’s financial system is informal, operating mostly outside of government oversight, either via the black market or unsupervised money remittance firms (hawaladars). An estimated $1.3 billion in remittances is sent to Somalia every year, primarily by the Somali diaspora that fled the country during two decades of conflict. That amount is roughly one quarter of Somalia’s gross domestic product, eclipsing all international aid to the country (projected at about $1 billion in 2015). Most remittances are routed through financial centers in the Gulf. The World Bank estimates 40 percent of all Somalis depend on remittances for their basic needs.

With its long land borders and extensive coastline, the smuggling of currency and goods into and out of Somalia remains common, due mainly to customs and border security officials’ lack of capacity to control points of entry. The UN Security Council reports piracy has declined significantly, with no large commercial vessels hijacked or held for ransom by Somali pirates in the last two years, resulting in a decrease of ransom payments.

Corruption is endemic, providing opportunities for rampant money laundering. For example, media and advocacy groups have reported that some government officials in Somalia’s Jubbaland benefited from illegal charcoal exports and possibly helped to transfer profits to foreign destinations.

The African Union Mission in Somalia (AMISOM) and the Somali National Army (SNA) made progress clearing al-Shabaab from areas of south central Somalia. However, al-Shabaab continues to threaten Somalia and the region and raises funds through multiple sources, including public taxation and extortion of local businesses and private citizens in areas controlled by al-Shabaab; donations from Somali and non-Somali sympathizers, both inside Somalia and abroad; kidnapping for ransom; and sharing in the illicit charcoal and sugar trade in southern Somalia. Al-Shabaab also taxes charcoal production before the bags reach ports for export, and it has a stake in the market value of the cargo when it reaches its destinations in the Middle East. Al-Shabaab’s revenues from the charcoal trade are declining, according to a UN report, increasing the group’s focus on other revenue-generating activities. Despite the existing UN ban on the export of charcoal from Somalia, in its 2014 report, the UN Somalia and Eritrea Monitoring Group estimates al-Shabaab received an estimated $7.5 – 15 million in revenue from checkpoints on illegal charcoal exports. Al-Shabaab moves some funds via cash couriers, but a significant portion reportedly passes through hawala networks and other money or value transfer services.

For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found at: //2009-2017.state.gov/j/ct/rls/crt/

Do FINANCIAL INSTITUTIONs engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or illegal drug sales that otherwise significantly affect the U.S.: NO

criminalizATION OF money laundering:

“All serious crimes” approach or “list” approach to predicate crimes: Not applicable

Are legal persons covered: criminally: Not applicable civilly: Not applicable

Know-your-customer (KYC) rules:

Enhanced due diligence procedures for PEPs: Foreign: NO Domestic: NO

KYC covered entities: None

REPORTING REQUIREMENTS:

Number of STRs received and time frame: Not applicable

Number of CTRs received and time frame: Not applicable

STR covered entities: Not applicable

money laundering criminal Prosecutions/convictions:

Prosecutions: 0

Convictions: 0

Records exchange mechanism:

With U.S.: MLAT: NO Other mechanism: NO

With other governments/jurisdictions: NO

Somalia is a not a member of a FATF-style regional body (FSRB).

Enforcement and implementation issues and comments:

While Somalia continues to stabilize politically, government institutions are weak and state capacity is severely constrained.

In December 2015, Somalia’s parliament passed key AML/CFT legislation, an important step in establishing a functioning, regulated, and supervised financial system in Somalia. As of yearend 2015, this legislation is not yet signed into law. Somalia maintains very limited investigative and enforcement capacity related to predicate crimes. Somalia’s penal code, based on the 1930 Italian penal code, does not include any provisions or penalties addressing money laundering or terrorist financing. This deficiency should be rectified once the new legislation becomes law. The key obstacles to implementing Somalia’s new AML/CFT law include the federal government’s limited control over parts of southern and central Somalia beyond Mogadishu; a lack of legal and financial expertise among Somalia’s central bankers and Finance Ministry technocrats; pressing security threats to the government, including from al-Shabaab; a lack of capacity at all levels of government; and insufficient enforcement, policing, and investigative capacity. The Central Bank of Somalia is receiving technical assistance on the risk-based approach to supervision.

Somalia lacks a formal financial sector, with the exception of interim commercial banks. Somalia has no fully functioning government regulatory/supervisory agencies to oversee its financial sector, thereby allowing money transmitters and hawaladars to operate without any customer due diligence or suspicious transaction reporting requirements. Somalia imposes no financial record-keeping requirements. To the extent that international standards are applied in Somalia, they are self-imposed by money transmitters, hawaladars, and other businesses that must abide by those standards to do business elsewhere in the world. Most money remittance companies, for example, use commercial software which flags possible name matches between customers and the individuals and entities on the UNSCR 1267 Sanctions Committee’s consolidated list. Merchant’s Bank in California, one of the largest banks to service Somali money transmitters in the United States, discontinued service in 2015.

Since the collapse of the state in 1991, Somalis have relied primarily on customary and sharia legal systems to adjudicate disputes. A legal system with both civilian and military courts nominally operates under the federal government, but existing laws are difficult to enforce, given the weak capacity of judicial and law enforcement institutions and general instability.

In theory, the police reportedly are responsible for investigating financial crimes. The police lack the capacity, including financial, technical, and human resources, to investigate suspected money laundering and/or terrorism financing. No government entity is charged with, or capable of, tracking, seizing, or freezing either the proceeds of crime or terrorist assets. Somalia has no laws requiring forfeiture of the proceeds of crime or terrorist assets. The federal government has called on interim regional governments to help stem the flow of terrorism financing, including requesting local governments to trace, freeze, and seize funds believed to be related to al-Shabaab financing.

During 2015, the government made public commitments and took limited steps to improve transparency in its public financial management to reduce endemic corruption. The government increased cooperation with the Financial Governance Committee, a body mandated to review concession and public procurement contracts at or above a value of $5 million. The Ministry of Finance has increased its cooperation with the international donor community to implement public financial management reforms.

Somalia has observer status to the Middle East and North Africa Financial Action Task Force, a FSRB. Although Somalia is not a party to either the UN Convention against Transnational Organized Crime or the UN Convention against Corruption, Somalia has cooperated with foreign law enforcement on investigations concerning suspected terrorists, kidnapping, and piracy and terrorist attacks committed both inside and outside Somalia. Somalia has no mechanisms in place under which to share information related to financial crimes, money laundering, and terrorism financing with other countries but has indicated an interest in collaboration. Somalia does not have a bilateral treaty with the United States concerning extradition.

Somalia should combat corruption, enhance its ability to cooperate with international partners, and take all necessary steps to become a member of an appropriate FSRB. As an urgent matter, Somalia should criminalize both money laundering and terrorism financing and sign into law the AML/CFT law passed by the Parliament. The government should work toward equipping its law enforcement and judicial authorities with the resources and capacity – staffing, budget, and training – to investigate and prosecute financial crimes. Although the government has significantly increased the amount of revenue it collects, it lacks resources necessary to effectively improve government capacity and will continue to rely heavily on donors.