Eritrea’s Financial Vulnerabilities: From Forced Labor to Money Laundering
As the world grapples with financial crimes, Eritrea, a Horn of Africa country, is under scrutiny due to its increasing economic activity and vulnerabilities.
FATF Report
According to the Financial Action Task Force (FATF), Eritrea is not currently listed as a country with strategic anti-money laundering (AML) and counter-terrorist financing (CFT) deficiencies. However, the country has not undergone a Mutual Evaluation Report to assess its adherence to these standards.
US Department of State Assessment (INCSR)
The 2016 International Narcotics Control Strategy Report (INCSR) by the US Department of State classified Eritrea as a ‘Monitored’ jurisdiction. Some key findings from the report are:
- Eritrea is not a significant financial center, but its economy has seen growth from mining industries in collaboration with international companies.
- The influx of capital from mineral exports, particularly gold and copper, has increased the country’s susceptibility to money laundering and related activities, despite the informal, cash-based economy and limited regulatory structure.
- Eritrea is involved in human rights abuses, specifically forced labor in the National Service and, to a lesser extent, sex trafficking.
- There are reports suggesting that some Eritrean government and military officials profit from contraband and human smuggling, extortion, and possibly funding destabilizing forces in regional conflicts.
Economic Susceptibility
Despite relying on revenue from taxes paid by Eritreans abroad and formal remittances, a significant portion of the population is dependent on informal, often underground, remittance systems and hawala due to the non-convertibility of the nakfa currency in international markets.
- Furthermore, Eritrea’s proximity to regions known for terrorist and criminal organizations and high levels of corruption contribute to increased susceptibility to money laundering and related activities.
Regional Instability
The Eritrean security apparatus has been linked to providing training, supplies, and financing to destabilizing forces in the region, resulting in a UN Security Council arms embargo against Eritrea since 2009. Although there is no solid evidence to suggest Eritrea is a significant market or transit route for narcotics, its association with such actors raises concerns over financial crimes.
Conclusion
As Eritrea continues to navigate regional instability and economic growth, addressing these vulnerabilities and adhering to global AML and CFT standards will be crucial for mitigating potential risks and promoting financial stability.