Financial Crime World

Financial Crime and Compliance in Eritrea: Latest Trends and Regulatory Focus

Eritrea’s financial sector is witnessing a surge in regulatory focus on fraud and financial crime prevention. As the country’s economy continues to grow, the risk of illicit activities also increases, prompting regulators to tighten their grip on anti-money laundering (AML) and counter-terrorist financing (CFT) frameworks.

Regulatory Challenges Ahead

Key Areas of Concern

  • Terrorist Financing: The threat of terrorist organizations using Eritrea’s financial system to launder funds or finance their activities remains a top priority.
  • Beneficial Ownership: Regulators will continue to scrutinize companies to ensure they have adequate measures in place to identify and verify beneficial owners, preventing shell companies and other forms of illicit activity.
  • Sanctions and Tax Evasion: The ongoing geopolitical tensions between Eritrea and its neighbors will lead to increased focus on sanctions compliance and tax evasion prevention.

Emerging Risks

The rapid growth of digital assets, such as cryptocurrencies and non-fungible tokens (NFTs), has created new opportunities for money laundering and terrorist financing. Regulators are expanding AML regulations to include assessing customer due diligence (CDD) and suspicious activity reporting related to these emerging technologies.

Protecting Consumers

Prioritizing Consumer Protection

Regulators will remain focused on ensuring that financial institutions prioritize consumer protection, addressing areas such as:

  • Account Holds and Freezes: Companies must ensure they have adequate procedures in place for applying Reg E, EFTA, and UDAAP.
  • Model Development and Validation: Financial institutions must validate their models to prevent biases and disparities in their decision-making processes.

Expert Insights

According to Fiachre O’Neill, Chief Risk & Compliance Officer at PayPal, “With the ever-changing environment—regulatory, geopolitical, economic, financial crime, innovation—fintech and payments companies need to ensure they are protecting their customers by combating fraud, money laundering, and related financial crimes on their platforms.”

Recommendations for Financial Institutions

To mitigate these risks, financial institutions in Eritrea should:

  • Add Analytics and Automation to Client Onboarding: Enhance the efficiency and accuracy of client onboarding processes.
  • Eliminate Antiquated Technology: Replace outdated systems with modern, scalable solutions.
  • Establish a Mature Conduct Risk Program: Implement robust conduct risk management practices to prevent financial crimes.
  • Strengthen Controls in Regulatory Focal Areas (FinCEN Priorities): Focus on high-priority areas such as terrorist financing, beneficial ownership, and sanctions compliance.

As the regulatory landscape continues to evolve, financial institutions must stay ahead of the curve to prevent financial crime and maintain consumer trust.