Financial Crime World

Ethiopia’s Battle Against Money Laundering: A Work in Progress

Money laundering, the process of disguising the illegal origins of criminal proceeds, has long been a challenge in Ethiopia. Despite a history of corruption and past convictions, proving accusations of money laundering has been difficult due to the lack of criminalization of this offense until recently.

The Prevalence of Money Laundering in Ethiopia

In the bustling streets of Addis Ababa, it’s not uncommon to see individuals living lavishly or leading luxurious lives despite a background of corruption or criminal records. The source of their wealth, some allege, is the proceeds of money laundering (Chersian, 2021). Mulugeta Temesgen, Team Leader at the Financial Intelligence Centre (FIC), explained how money laundering had gone unchecked in Ethiopia for years. Officials convicted of corruption or businesspeople released from prison could launder their ill-gotten gains, taking advantage of legal loopholes and cooperating with associates in banks and government offices.

Understanding Money Laundering

Money laundering is a global issue that involves disguising the illegal origins of criminal proceeds (BSA, 2021). Associated with various criminal activities like drug and arms trafficking, extortion, and terrorism financing, money laundering often involves the collaboration of commercial banks, insurance firms, and legal experts in cleaning illegal funds, both locally and internationally. Ethiopia, once considered susceptible to money laundering and terrorism financing by the European Union, has taken steps to address this concern.

Ethiopia’s Progress in Combating Money Laundering

The Ethiopian government has taken several actions to curb money laundering, including:

  • Demonetizing Birr
  • Reducing the amount of cash circulating outside the banking system
  • Imposing a cash withdrawal limit
  • Implementing electronic transactions and a proclamation on the prevention and suppression of financing and proliferation of Weapons of Mass Destruction

As a result, Ethiopia is no longer on the revised list of high-risk countries with deficiencies in their anti-money laundering and counter-terrorist financing frameworks. However, challenges remain.

Challenges Facing Ethiopia in Combating Money Laundering

Absence of a Strong System for Confiscation

Critics argue that a strong system for confiscating and recovering laundered assets is a crucial element of an effective anti-money laundering regime (Tegegne, 2021). Although a separate directorate for asset recovery and confiscation has been established under the Office of the Attorney General, the process is lengthy and requires high expertise.

Three Stages of Money Laundering and Asset Recovery

The three stages of money laundering - placement, layering, and integration - each present unique challenges when it comes to confiscating and recovering laundered assets (Tegegne, 2021). If a launderer is in the earlier stages, the process is simpler. However, if it is in the final stages, it requires time and criminologists, as well as intelligence systems, to recover and confiscate the laundered assets.

The lack of a legal framework for managing confiscated assets makes it difficult to put ill-gotten wealth to good use and further complicates efforts to tackle money laundering in Ethiopia. Biniam Shiferaw, a legal expert working with the Tana Copenhagen Program on Money Laundering, noted that “Despite the establishment of a directorate working on confiscation of assets, there is no government body backed by the law that can administer such properties” (Shiferaw, 2021).

The legal loopholes present in Ethiopia’s anti-money laundering framework are another issue hindering progress. While the FIC has the mandate to collect, store, analyze, and disseminate financial intelligence and information on money laundering, it cannot investigate offenses related to money laundering and terrorism financing. This requires stronger integration among the agencies involved.

Absence of Clear Procedures for Identifying Customers

Although the anti-money laundering proclamation requires banks to identify the source of wealth of public officials, it fails to specify whether the same procedure should be applied to their family members and close associates (Shiferaw, 2021). This lack of clear procedures leaves opportunities for money laundering to continue.

Conclusion

Despite these challenges, optimism remains among officials at the Ethiopian Financial Intelligence Centre, who acknowledge that progress against money laundering requires resources and a transformation to a technology-based financial intelligence system. Ethiopia has made considerable progress in the last two years, but addressing these challenges is essential to further strengthening their anti-money laundering framework and ensuring the integrity of the Ethiopian financial system.

References

BSA (2021). Money laundering - what is it? British Standard Institution. Retrieved from https://www.bsa.org.uk/news/money-laundering--what-is-it--/2018/03/

Chersian, F. (2021). Lavish Living in Ethiopia: How the Wealthy Evade Corruption Investigations (Part II). Addis Fortune. Retrieved from https://addisfortune.net/news-143462

Shiferaw, B. (2021). Ethiopia’s Anti-Money Laundering Progress: Current Status and Challenges. Tana Ethiopia. Accessed on March 13, 2023.

Tegegne, S. (2021). Ethiopia’s Battle Against Money Laundering: Progress and Challenges. Open Society Foundations. Retrieved from https://www.opensocietyfoundations.org/voices/ethiopias-battle-against-money-laundering-progress-and-challenges.