Money Laundering Bulletin
The poorest country in the Middle East, with annual GDP per head of just over $1,000, Yemen is beset by chronic problems, corruption, smuggling, links to East African piracy, separatist movements and is host to militant groups. The country has a Financial Information Unit (FIU) but, reports Paul Cochrane from Beirut, enforcement is effectively non-existent.
Yemen was one of the last countries in the Middle East to implement anti-money laundering (AML) regulations, in 2003, the same year it established a Financial Intelligence Unit (FIU) at the Central Bank of Yemen (CBY). However, the law was far from comprehensive, neither mentioning nor criminalizing the funding of terrorism. In its last, 2008 mutual evaluation report the Middle East & North Africa Financial Action Task Force (MENA-FATF) found that the authorities “were not adequately aware of the obligations stipulated,” and “were not familiar either with money laundering and terrorist financing risks.”
The legal deficiencies were addressed when the Yemeni government passed a law, after a two year hiatus, in January, 2010 to replace the 2003 legislation. Drafted with technical assistance from the World Bank, the new law contains 53 articles which establishes both the illegality of and punishments for money laundering and terrorism finance, and expanded on the types of financial institutions that the CBY monitors to include alternative remittance systems, known locally as hawala, jewellery shops, lawyers' associations and real estate firms. The government also passed the United Nations “International Convention for the Suppression of the Financing of Terrorism.”
Training sessions were held to improve the FIU's capabilities and coordination with Yemeni banks improved, with banks submitting 40 suspicious transaction reports regarding ML and TF in 2011 to the FIU, and filing over 50 reports in 2010. In January 2011 protests erupted in the Yemeni capital Sana'a calling for the overthrow of President Ali Abdullah Saleh, who stepped down in February; the authorities lost control of keys parts of the country to rebels and enforcement of AML regulations has tailed off.
“The political system has been paralyzed for the past year, no one is sure who has the authority to make decisions, and people are reluctant to make decisions they could be criticized for. A lot of government departments are barely functioning,” said Lucy Jones, a Yemen analyst at risk consultancy Control Risks.
Further compounding problems is the dire state of the economy. Oil revenues accounted for up to 75 percent of the government budget, but instability and attacks on pipelines has resulted in oil production dropping by 40 percent over the past few years. And with the uprising spreading throughout the country, the government said the economy lost up to USD$8 billion in the first half of 2011 alone, while the Yemeni Rial has also depreciated.
“Yemen is basically in a state of economic collapse and has been in a state of slow degeneration for years now,” said Nyresa Cama, a Middle East Intelligence Analyst at risk consultants The Risk Advisory Group. “It is the poorest country in the Arab world, a significant percentage of the population is under the poverty line, and all this been exacerbated by the uprising against the government. It has also not helped that the government is losing territoryn the north, to the Houthis, and in the South to Al Qaeda in the Arabian Peninsula (AQAP).”
International aid to help the country has equally not worked, despite the United States calling for a holistic solution to Yemen's problems rather than primarily focusing on counter-terrorism and security. “One of the other problems Yemen faces is limited absorption capacity for aid. Pledges of assistance have failed to come through because it is difficult to come up with workable projects, especially due to corruption. Corruption is a huge problem in every sector,” said Jones.
The country's powerful northern neighbour, Saudi Arabia, has equally be reluctant to offer financial assistance to Yemen, according to a leaked US diplomatic cable from 2010, as “cash tended to end up in Swiss banks.” Indicative of how widespread corruption is, Yemen has dropped further down the ranks in Transparency International's Corruption Perceptions Index, from 154 out of 180 countries in 2009, to rank 164 in 2011.
The rise of Al Qaeda in the Arabian Peninsula
In 2010, violence flared up between government forces and separatist groups in the north and south that is still ongoing. Sana'a claims the Houthi rebels in the north are funded and supported by the Iranian government, a claim that Tehran denies. But it is the South that has warranted the greatest attention internationally due to the presence of AQAP since 2009. The US has frequently used drones to target AQAP leaders, and Sana'a has launched numerous offensives against the group.
“AQAP is proving to be a relatively formidable risk,” said Cama. “They control Zanjabar in Abiyan province and the government has been trying to wrest the town back for a year now. AQAP has made inroads into other towns and (the port city of) Aden, which is the most strategically important place in the South. At this moment in time the Yemeni Army are not able to counter AQAP. Does AQAP have the power to take over the South? Not necessarily but it is a formidable and resilient force.”
The number of AQAP fighters is not known, with some experts estimating membership to be in the low hundreds while due to the lack of reliable reporting on Yemen attacks have often been wrongly attributed to AQAP, instead carried out by local tribes.
The Al Qaeda affiliate is also linked to militant Islamic organization Ansar al Sharia. “Ansar al Sharia is linked to AQAP in ways we don't understand. The relationship between the two is murky but there is clearly a relationship,” said Jones.
Funding for Ansar al Sharia is believed to come from local sources, whereas AQAP has international links, notably with the Somalia militant group Al-Shabaab. However, AQAP is believed to be struggling with funds due to international efforts to curb financing for the group and reports surfacing that AQAP had called on supporters in the Gulf for funding.
Yemen's land and sea border are notoriously porous, especially with Saudi border and along the Western coastline, which makes smuggling of cash and weapons relatively easy. Furthermore, while the CBY estimates that more than 10,000 hawaladars exist in Yemen, just 448 money exchange businesses are registered, providing a ready means for the transfer of funds into the country.
Controlling hawaladars is further complicated by the system being a primary form of remittances for up to 700,000 displaced Somalis in Yemen. “Yemen has a huge Somali refugee population so it's easy to infiltrate the country. On the other hand there are a lot of well trained and radicalized people in Yemen and Somalia, so it doesn't make a huge difference to the situation in Yemen, just more weapons and militants,” said Jones.
Hawaladars have also been highlighted as conduits for ransom money from Somali piracy in the Gulf of Aden, with reports indicating that the money is transferred on to Dubai to be laundered.
While President Saleh was replaced after 33 years in power by former Vice President Abdu Rabu Mansour Hadi in February, the election was boycotted in much of the country and the new government faces innumerable challenges. As Cama remarked, “In such a deeply unstable situation it is hard to imagine it getting better and difficult to predict how much worse it is going to get.”