Financial Crime World

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Eritrea’s Vulnerability to Financial Crimes: A Look at the Country’s Exposure and Potential Risks

The Financial Action Task Force (FATF) has not yet identified Eritrea as a country with strategic anti-money laundering (AML) and counter-terrorist financing (CTF) deficiencies. However, the East African nation remains susceptible to financial crimes, as highlighted in various reports.

Eritrea’s FATF Status and Compliance

According to the FATF, Eritrea is not under investigation for strategic AML and CTF weaknesses. Nevertheless, the country has not yet conducted a Mutual Evaluation Report, which assesses the implementation of international AML and CTF standards.

U.S. Department of State Money Laundering Assessment (INCSR)

Eritrea was classified as a ‘Monitored’ Jurisdiction in the US Department of State’s 2016 International Narcotics Control Strategy Report (INCSR). Key findings from the report include:

  • Limited Financial Activities: Eritrea is not a prominent financial hub, and the government has historically relied on command economic policies. While the mining sector is expanding, generating revenue through mineral exports, most industries lack the capacity to generate significant hard currency.
  • Forced Labor and Trafficking: Eritrea is a source country for forced labor and, to a lesser extent, sex trafficking. The extent of narcotics cross-border trafficking is unknown, but Eritrean authorities and military officials have reportedly engaged in contraband smuggling, human smuggling, and extortion.
  • Vulnerability to Money Laundering: Eritrea’s informal, cash-based economy, limited regulatory framework, underground remittances, and use of informal value transfer systems like hawala make it vulnerable to money laundering and related activities. The non-convertibility of the nakfa currency in international markets further encourages the use of underground systems.
  • Corruption and Regional Instability: Eritrea’s proximity to regions where terrorist and criminal organizations operate and increasing corruption continue to pose significant risks. Furthermore, there have been allegations that Eritrean authorities have provided training, supplies, and financing to destabilizing forces in neighboring countries.

These factors contribute to the potential for financial crimes in Eritrea, a country where transparency and regulation remain limited. The international community continues to monitor the situation closely and encourages Eritrea to take steps to strengthen its anti-money laundering and counter-terrorist financing framework.