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Eritrea’s Vulnerability to Money Laundering: A Look into the Country’s Economic and Political Landscape

The Financial Action Task Force (FATF) has yet to identify Eritrea as a country with strategic deficiencies in its anti-money laundering (AML) and counter-terrorist financing (CTF) efforts. However, a closer examination of the US Department of State’s International Narcotics Control Strategy Report (INCSR) paints a complex picture of Eritrea’s economic structure, regional relationships, and vulnerabilities.

Eritrea’s Status with FATF

Eritrea has not undergone a Mutual Evaluation Report assessing its implementation of AML and CTF standards, leaving its regulatory systems and measures an enigma for international organizations and financial institutions.

INCSR Insights

• Eritrea is not a major financial hub, historically relying on command economic policies and minimal export earnings, primarily from mining.
• The country’s position as a source of forced labor and, to a lesser extent, sex trafficking, coupled with a prevalence of cash transactions, an unregulated structure, and rampant corruption, makes it an attractive target for money laundering.

Forced Labor and Human Trafficking

Forced labor and human trafficking are prominent issues in Eritrea, with the government and military officials reportedly involved in profiting from contraband and human smuggling, extortion, and other related activities. The lack of transparency and regulation regarding the mining sector’s finances also raises red flags.

Cross-Border Narcotics Trafficking

Cross-border narcotics trafficking in Eritrea remains largely unknown, but its proximity to regions where terrorist and criminal organizations operate heightens its exposure to money laundering risks. Furthermore, the non-convertibility of its national currency, the nakfa, drives the use of unofficial money transfer services, such as hawala, which can facilitate the concealment of illicit funds.

Government Control and Corruption

Government control over all banks in Eritrea adds to the country’s vulnerabilities. Its informal economy, lack of proper regulatory frameworks, and increasing corruption further complicate efforts to combat money laundering and related activities.

International Concerns

Eritrea has historically provided training, supplies, and financing to regional destabilizing forces. Allegations of its involvement in terrorism and violent conflicts surrounding neighboring states have led to international sanctions, including UN Security Council arms embargoes since 2009.

Despite these international condemnations, concerns about Eritrea’s mining revenues being used to fuel destabilizing activities persist. In 2015, the UN Somalia-Eritrea Monitoring Group reported no evidence of Eritrea’s continued support to al-Shabaab at the time. However, the potential risks remain, as Eritrea’s economic instability and geopolitical tensions could create opportunities for money laundering, terrorism financing, and other criminal activities.