Financial Crime World

Somalia’s Financial Crime Risk Assessment Tools Under Scrutiny

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Somalia is set to undergo an evaluation in the third quarter of 2024 that will assess its laws, regulations, frameworks, and institutional oversight for combating money laundering and terrorism financing across the financial and non-financial sectors.

Background

As a member of the Middle East and North Africa Financial Action Task Force (MENAFATF), Somalia is expected to have implemented a range of local and internationally agreed frameworks, recommendations, and UN Resolutions on anti-money laundering and countering the financing of terrorism.

Evaluation Process

The mutual evaluation will focus on four key areas:

  • Assessing Somalia’s vulnerabilities to money laundering and terrorist financing
  • Evaluating the effectiveness of the implementation of anti-money laundering and counter-terrorism financing measures
  • Examining the country’s national risk assessment and mitigation strategies
  • Reviewing its regulatory regime

Consequences of Non-Compliance

The evaluation comes at a critical time for Somalia, which has struggled with corruption and financial instability in recent years. The country’s inclusion on FATF’s “black list” or even “grey list” could have severe consequences for its economy, businesses, and financial services firms.

  • International firms may be reluctant to deal with Somali entities
  • Resulting in a significant disruption to the supply of critical financial flows

Recommendations for Improvement

Somali leaders must take ownership of the situation and demonstrate how money laundering and terror financing risks are mitigated effectively. This will require:

  • Significant changes to local rules and regulations
  • A comprehensive national risk assessment
  • Implementation of remedial actions
  • Beefing up systems for regulatory oversight
  • Training officials

The Importance of Effective Mitigation Strategies

The assumption that this could be managed through production of reform blueprints, holding the odd training seminars and discussions, or hoping for the bar to be lowered again is a dangerous complacency.

  • Millions of Somalis depend on the country’s financial system infrastructure
  • Supporting trade and remittance inflows
  • The country’s economic growth depends on the extent to which domestic firms can access the global financial plumbing

A Chance to Showcase Somalia’s Development

Somali financial services firms have invested heavily in systems and controls over the years, yet continue to face access challenges based on perception.

  • The mutual evaluation is an important opportunity to showcase Somalia’s development
  • Overturn perceptions
  • Promote the country’s potential by helping to bring it properly into the financial system

The Stakes are High, But So Is the Reward

For the upcoming government and indeed the private sector, there will be a lot at stake in getting it right before 2024.

  • A successful evaluation could pave the way for increased international cooperation
  • Greater access to financial markets
  • A more stable economic future for Somalia