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What is Money Laundering?

Money laundering is the conversion of the proceeds of criminal activity into apparently clean funds by disguising the sources of the money, changing its form, or moving the funds to a place where they are less likely to attract attention.

What is financing of terrorism?

Any financial or logistical support that is afforded to an armed formation which commits atrocities against civilians to further political aspirations, potentially amounts to terrorist financing. Terrorist financing refers to the provision of resources to support terrorism and all activities linked to it. The cycle through which funds are provided for terrorism roughly involves five stages, namely: 1: Acquisition of the funds or commodities. The providers may do so intentionally or because they are reckless about the intended use of funds they raise or resources they provide. Fund raising could be from lawful or illicit business activities. 2: Aggregation – relatively small amounts of the collected funds or goods are pooled together into larger resources; 3: Transfer to terrorist organizations – the pooled funds are transmitted or moved to a central location or repository managed by the terrorist organization; 4: Handover to operational cells – the funds or commodities are distributed to the cells (individuals or groups) responsible for terrorist activities 5: Conversion or utilization – the received funds or commodities are exchanged for end-use goods. End-use goods and services include weapons, travel, training, communications equipment, food, accommodation, falsified documents, recruitment, propaganda, bribes and compensation.

What are illicit financial flows?

Illicit financial flows (IFFs) are activities and outcomes that transfer value across borders, which are considered to be illicit because of certain attributes. The report of the AU High Level Panel on IFFs in Africa referred to value as money or capital, and defined IFFs as movements of ‘money (from one country to another) that is illegally earned, transferred or used.’ The movements may be illicit because of the source from which the value is derived – as is the case with proceeds of fraud, corruption or tax evasion. They may also be illicit if the purpose is to fund terrorist activities or to corrupt decision makers. The transfer of value could also be illicit by reason of the means used to achieve it – for instance money laundering or the use of illegal channels – such as customs fraud. In so defining IFFs, the High Level Panel thereby drew attention to, and relied on illegality of creation, movement or intended utilization as determining attributes.

How do money laundering and the financing of terrorism affect the economy?

Money laundering is a derivative form of crime, it happens as a result of, and depends on. some other crime having been committed. In addition, because it assists in the concealment of proceeds of crime,  money laundering facilitates the commission of further crime. Apart from that general impact, money laundering damages the integrity and reputation of the institutions that are used in committing it, such as financial sector institutions that are critical for economic growth. This adversely impacts on the economy, on which the livelihood of many people depends.

Financing terrorism sustains organisations that commit atrocities which imperil lives. Terrorist activity intimidates the general public in the affected localities and deters potential investors.

What is the current legal framework?

Money laundering has been a criminal offence in Ethiopia since 2004, in terms of Article 684 of the 2004 Criminal Code. With time, the government realised that criminalisation without establishing a supportive framework was not sufficient, and enacted a consolidated proclamation against money laundering in 2009. The law was subsequently updated, and now exists as  the Prevention and Suppression of Money Laundering and Financing of Terrorism Proclamation No 780/2013.

The Proclamation is complemented by several regulations and directives, issued by the Council of Ministers and the Financial Intelligence Centre (FIC).  The Proclamation establishes a partnership between public agencies, led by the FIC and the federal Attorney General and private institutions, in terms of which the latter exercise gatekeeping functions to deter money laundering, and to report any attempts to launder the proceeds of crime through them to the public agencies for prosecution.

Who are the Anti-Money Laundering regulatory bodies in Ethiopia?

There are several regulatory bodies. The Financial Intelligence Centre (FIC) is the central agency established by the government to strengthen Ethiopia’s supervisory regime and ensure the effective implementation of anti-money laundering measures. Suspected money laundering cases are investigated by the Federal Bureau of Investigations, and the Federal Attorney General is responsible for prosecuting any person or organisation implicated in money laundering.

Compliance by reporting entities with anti-money laundering obligations is monitored and supervised by various regulatory bodies, which include the Federal Attorney General (lawyers), the Ministry of Trade (real estate agencies), the Ethiopia Accountants and Auditors’ Board (accountants and auditors), the Ministry of Mining (dealers in precious minerals),the Charities and Societies Agency (non profit and civil society organisations), the National Bank of Ethiopia (financial sector institutions). The FIC is the overall supervisor of compliance.

How soon should a suspicious transaction be reported to the FIC?

Financial institutions and designated non-financial businesses and professions are required to submit suspicious transaction reports (STRs) promptly to the FIC when they suspect or have reasonable grounds to suspect that funds or property are the proceeds of crime, or are related or linked to, or are to be used for financing terrorism.  These obligations also apply to suspected attempts to commit money laundering or to fund terrorist activities.

The FIC has issued guidelines on the methods by which suspicious transactions should be reported, without alerting the person(s) being reported.

Can anti-money laundering measures effectively reduce crime?

There are two aspects to the inquiry, the one relating to policy and the other to the actual measures that emerge from the policy. Studies have shown that for anti-money laundering measures to reduce crime depends on the following factors  a) the probability of arrest for money laundering; b) the probability of being convicted for money laundering; c) the severity of the sentence for money laundering; and d) the relationship between the transaction costs of money laundering and the potential benefit to be gained from it. Governments can influence some, but not all of these factors, without relying on the actions of other governments or actors. If they succeed in positively influencing them, anti-money laundering policy and measures will deter potential criminals from illegal behaviour and therefore lower the crime rate.

Is Ethiopia affected by illicit financial flows?

There are no official estimates on the level of illicit financial outflows from Ethiopia. According to the most recent estimations by a well known research organisation, the Global Financial Integrity (GFI), between 2005 and 2014, Ethiopia suffered an estimated average of US$1,259 million to US$3,153 million dollars in illicit financial outflows every year. The average loss in GDP growth suffered by the country in that period was 2.2% per year. Hence the contention that illicit financial flows definitely affect the economic development of the country and negatively affect the efforts of government to provide public goods and services, such as schools, roads or other necessary infrastructure  in the country. 

What are the main activities through which illicit financial outflows happen?

Data from the Global Financial Integrity shows that between 55 and 80% of the illicit financial outflows leaving Ethiopia originate from trade mis-invoicing. This takes various forms, such as the use of documents on which the value or volume of traded goods or services are falsely declared. Sometimes the commodities declared to have been imported or exported do not exist, yet their value is used in claiming a reduction in tax.  Proceeds of grand corruption account for about 10% of outflows. Those who benefit from receiving bribes do not declare such bribes, and therefore pay no tax on their benefit. The smuggling of cash, particularly in foreign currency, also contributes to illicit financial outflows

What are the most prominent drivers of money laundering in Ethiopia?

According to the 2016 National Assessment of Money Laundering and Terrorist Financing Risk, tax evasion, human trafficking and the outward smuggling of migrants, corruption, the smuggling of goods, illegal outflowing value or monetary transfers (referred to as Hawala exchanges), and fraud are the most recurrent drivers of money laundering

Is Ethiopia a member of international bodies combatting money laundering and terrorist financing?

Ethiopia is a member of the Egmont Group of financial intelligence units – through its FIC. Ethiopia has been a member of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) for several years, as well as a member of the Asset Recovery Inter-Agency Network -for Eastern Africa (ARIAN-EA), and of the Inter Governmental Authority on Development (IGAD).

Ethiopia has ratified international conventions, which include the 1988 United Nations (UN) Drug Convention (the Vienna Convention), the UN Convention against Transnational Organized Crime and its protocols, the UN Convention against Corruption, the International Convention for the Suppression of the Financing of Terrorism and the African Union Convention against Corruption.

Have there been any recent developments in the measures to curb money laundering, terrorist financing and illicit financial flows in Ethiopia?

An Asset Recovery Directorate has been established in the office of the Federal Attorney General, to conduct investigations and prosecutions for the recovery of proceeds of crime from within Ethiopia and from abroad.