Financial Crime World

Eritrea’s Financial Vulnerabilities: A Hidden Hotspot for Money Laundering and Terrorist Financing?

Overview

Eritrea, a country in the Horn of Africa, remains an area of interest in the context of financial crime due to its unique economic landscape and potential vulnerabilities. Although the Financial Action Task Force (FATF) has not yet identified Eritrea as having strategic Anti-Money Laundering (AML) deficiencies, its financial landscape is far from seamless, necessitating careful attention.

FATF Status and Compliance

  • Current FATF Status: Eritrea is not on the FATF’s List of Countries with Strategic AML Deficiencies.
  • Absence of a Mutual Evaluation Report: Eritrea has not yet fully addressed international AML and Counter-Terrorist Financing (CTF) standards as evidenced by the absence of a Mutual Evaluation Report.

US Department of State Assessment

In its 2016 International Narcotics Control Strategy Report (INCSR), the US Department of State designated Eritrea as a ‘Monitored’ Jurisdiction. The report noted Eritrea is not a significant financial hub due to its historically command economic policies and limited export revenues. However, the growth of the mining sector and increasing foreign investment pose financial risks.

  • Mining Sector: Eritrea’s mining sector, particularly gold and copper exports, has led to an influx of hard currency.
  • Reliance on Commodity Prices: The mining sector’s reliance on low commodity prices poses risks to earning revenues.

Vulnerabilities

Eritrea faces several financial risks, making it a hidden hotspot for money laundering and terrorist financing.

  • Informal, Cash-Based Economy and Limited Regulatory Structure: The informal economy and lack of regulatory oversight create ideal conditions for undercover transactions.
  • Underground Remittance Systems: Hawala and the non-convertibility of the nakfa currency in international markets fuel the use of unregulated financial channels.
  • Human Rights Abuses: Forced labor and sex trafficking heighten Eritrea’s vulnerabilities, as it is a source for both.
  • Proximity to Regions with Terrorist and Criminal Organizations: Eritrea’s geographical proximity to such regions and ongoing corruption exacerbate the risks.

Previous Instability in the Region

Eritrea’s past involvement in neighboring states has raised international concerns.

  • Armed Groups: Elements of the Eritrean security apparatus have reportedly provided training, supplies, and financing to armed groups in the region.
  • UN Embargo: The UN Security Council imposed an arms embargo against Eritrea in 2009 due to accusations of such involvement.

Mining Revenues and Sanctions

The potential use of Eritrean mining revenues to support destabilizing activities has also raised concerns. In December 2011, the UN Security Council strengthened existing sanctions against Eritrea, targeting revenues from its mining sector.

  • UN Somalia-Eritrea Monitoring Group: Despite these challenges, the UN Somalia-Eritrea Monitoring Group (SEMG) reported in 2015 that there was no evidence of Eritrean support to al-Shabaab during their present mandate.

As the global community continues to combat financial crime, Eritrea’s unique financial landscape necessitates careful attention and appropriate measures to address the inherent vulnerabilities.