Regulators in Eritrea Clamp Down on Financial Crime as Non-Compliance Risks Increase

As the regulatory landscape in Eritrea continues to evolve, financial institutions and organizations are being warned that failure to comply with anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations will result in severe consequences.

Focus on Terrorist Financing and Sanctions

Regulators in Eritrea are placing a strong emphasis on preventing terrorist financing, with a focus on identifying and mitigating risks related to:

Shell companies: Regulators are cracking down on the misuse of shell companies as a means to launder money or finance terrorism.
All-cash real estate purchases: The government is scrutinizing all-cash transactions for high-risk activities such as real estate purchases.
Sanctions evasion attempts: Regulators are working to prevent sanctions evasion using digital assets.

Increased Scrutiny of NFTs and DeFi

With the rapid growth of non-fungible tokens (NFTs) and decentralized finance (DeFi) platforms in Eritrea, regulators are warning that these emerging technologies pose a significant risk of money laundering and terrorist financing. As such, AML regulations will be expanded to include:

Assessing customer due diligence: Financial institutions must assess the risks associated with NFTs and DeFi transactions.
Suspicious activity reporting: Regulators are urging financial institutions to report any suspicious activities related to NFTs and DeFi platforms.

Sanctions and Price Cap Compliance

Eritrea’s geopolitical tensions will continue to drive a focus on sanctions and price cap compliance, including:

Virtual currency mining: Regulators are warning against the use of virtual currencies for illicit activities.
Dark net markets: Financial institutions must strengthen controls to prevent transactions on dark net markets.
Bans on services to sanctioned entities/countries: Regulators are urging financial institutions to comply with sanctions and bans on services to sanctioned entities or countries.

Consumer Protection Remains a Priority

Regulators in Eritrea are emphasizing the importance of protecting consumers from potential losses and identifying suspicious activity. This includes:

Assessing companies’ use of account holds and freezes: Regulators are examining how financial institutions handle account holds and freezes.
Model development and validation: Financial institutions must ensure their models are effective in detecting suspicious activities.
Payment sender/receiver authentication procedures: Regulators are reviewing payment authentication procedures to prevent synthetic identity fraud.

National Security Risks on the Rise

The government is concerned about national security risks related to:

Domestic and international terrorist financing: Financial institutions must be vigilant in detecting and preventing terrorist financing.
Transnational criminal organizations: Regulators are working to combat transnational crime and money laundering.
Drug and human trafficking: Financial institutions must strengthen controls to prevent transactions related to drug and human trafficking.

Industry Experts Weigh In

“Fintech and payments companies need to ensure they are protecting their customers by combating fraud, money laundering, and related financial crimes on their platforms,” said Fiachre O’Neill, Chief Risk & Compliance Officer at PayPal. “This requires a deep focus on customer experience, being proactive and identifying trends, and instilling a strong culture of doing the right thing.”

Actionable Steps for Financial Institutions

To mitigate these risks, financial institutions in Eritrea are advised to:

Add analytics and automation to client onboarding: Regulators recommend using advanced technologies to enhance customer due diligence.
Eliminate antiquated technology: Financial institutions must upgrade their systems to prevent non-compliance risks.
Establish a mature conduct risk program: Regulators emphasize the importance of effective governance and oversight in preventing financial crimes.
Strengthen controls in regulatory focal areas (FinCEN priorities): Financial institutions must enhance their controls to prevent money laundering, terrorist financing, and other high-risk activities.