Somalia Struggles to Curb Money Laundering and Terrorist Financing

Challenges in Combating Financial Crimes

NAIROBI, KENYA - Somalia’s efforts to combat money laundering and terrorist financing have been hindered by a lack of physical cash transactions, making it vulnerable to abuse by criminal networks. Despite the country’s progress in establishing key institutions and laws, there is still much work to be done.

National Identity Document: A Key Requirement

According to the Financial Reporting Center (FRC), Somalia’s financial institutions are now operating under government oversight, but there is still a need for a national identity document to bring operations in line with international standards. The FRC has established a working group to lead the formulation of the legislative and regulatory framework for the production of a digital ID system.

Building a Coalition Against Corruption

The FRC also highlighted the importance of building a coalition against corruption, which provides an opportunity for money launderers and terrorist financiers to raise and move funds. President Mohamed Abdullahi Mohamed’s signing of the Anti-Corruption Law is a step in the right direction, but implementation requires a whole-of-government approach and pooling of resources.

Key Institutions and Laws

Somalia’s AML/CFT Act 2016 established key institutions, including:

• The National Anti-Money Laundering and Financing Terrorism Committee (NAMLC)
• The Financial Reporting Center (FRC) as Somalia’s Financial Intelligence Unit

The law criminalizes money laundering and terrorist financing and requires financial institutions to report on suspicious transactions.

Responsibilities of Key Institutions

The NAMLC has a policy-making and oversight responsibility for the AML/CFT regime, while the FRC plays a key role in:

• Receiving, requesting, analyzing, and disseminating information concerning money laundering and terrorist financing
• Analyzing suspicious financial activities and investigating financial crimes

Challenges and Priorities

Despite these efforts, Somalia still faces challenges in combating money laundering and terrorist financing. The lack of physical cash transactions makes it difficult to track and trace funds, leaving the country vulnerable to abuse by criminal networks.

The FRC has called for a “trusted and exemplary” agency that can support a robust financial system hostile to financial crimes and help rebuild Somalia’s financial system. Key priorities include:

• Implementing the Financial Action Task Force (FATF) 40 recommendations
• Building an environment that identifies and eradicates money laundering and terrorist financing
• Working closely with reporting entities, including financial institutions and designated non-financial businesses