FATF Status

Somalia is not on the FATF List of Countries that have been identified as having strategic AML deficiencies

Compliance with FATF Recommendations

Somalia has not yet undertaken a Mutual Evaluation relating to the implementation of anti-money laundering and counter-terrorist financing standards.

US Department of State Money Laundering assessment (INCSR)

Somalia was deemed a Jurisdiction of Primary Concern by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR) but has not been included since. Key Findings from the last report are as follows: -

In 2013, Somalia and the international community endorsed a New Deal Compact that outlines peace and state-building goals aimed at helping Somalia become more accountable to the people of Somalia in instituting political, financial, health, and security reforms. In 2015, the Federal Government of Somalia committed itself to a slate of reforms, including improving fiscal transparency and budgeting processes. To improve fiscal transparency and build a nascent banking sector, the Central Bank of Somalia implemented reforms, including granting interim licenses to six banks and nine money transfer organizations, installing a Treasury Single Account, and developing internal procedures for banking supervision, including on and off site inspections.

Somalia’s financial system is informal, operating mostly outside of government oversight, either via the black market or unsupervised money remittance firms (hawaladars). An estimated $1.3 billion in remittances is sent to Somalia every year, primarily by the Somali diaspora that fled the country during two decades of conflict. That amount is roughly one quarter of Somalia’s gross domestic product, eclipsing all international aid to the country (projected at about $1 billion in 2015). Most remittances are routed through financial centers in the Gulf. The World Bank estimates 40 percent of all Somalis depend on remittances for their basic needs.

With its long land borders and extensive coastline, the smuggling of currency and goods into and out of Somalia remains common, due mainly to customs and border security officials’ lack of capacity to control points of entry. The UN Security Council reports piracy has declined significantly, with no large commercial vessels hijacked or held for ransom by Somali pirates in the last two years, resulting in a decrease of ransom payments.

Corruption is endemic, providing opportunities for rampant money laundering. For example, media and advocacy groups have reported that some government officials in Somalia’s Jubbaland benefited from illegal charcoal exports and possibly helped to transfer profits to foreign destinations.

The African Union Mission in Somalia (AMISOM) and the Somali National Army (SNA) made progress clearing al-Shabaab from areas of south central Somalia. However, al-Shabaab continues to threaten Somalia and the region and raises funds through multiple sources, including public taxation and extortion of local businesses and private citizens in areas controlled by al-Shabaab; donations from Somali and non-Somali sympathizers, both inside Somalia and abroad; kidnapping for ransom; and sharing in the illicit charcoal and sugar trade in southern Somalia. Al-Shabaab also taxes charcoal production before the bags reach ports for export, and it has a stake in the market value of the cargo when it reaches its destinations in the Middle East. Al-Shabaab’s revenues from the charcoal trade are declining, according to a UN report, increasing the group’s focus on other revenue-generating activities. Despite the existing UN ban on the export of charcoal from Somalia, in its 2014 report, the UN Somalia and Eritrea Monitoring Group estimates al-Shabaab received an estimated $7.5 – 15 million in revenue from checkpoints on illegal charcoal exports. Al-Shabaab moves some funds via cash couriers, but a significant portion reportedly passes through hawala networks and other money or value transfer services.

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                           11

World Governance Indicator – Control of Corruption               0

Somalia ranks among the world's most corrupt countries. Insecurity is also a major issue; the ongoing instability greatly restricts business. Corrupt government officials tolerate illegal activities in return for bribes. Dysfunctional institutions facilitate an environment of lawlessness, and the absence of any form of regulatory framework hinders prospects of economic competitiveness. Business is based on patronage networks, and tight monopolies dominate the market. Somalia’s Provisional Constitution criminalizes several forms of corruption (including abuse of office, embezzlement and bribery); however, implementation is non-existent. The governing elite are continuously involved in allegations of embezzlement of public funds from the already meagre Somalian coffers. Finally, bribery is commonplace in all sectors, and procurement contracts frequently involve corruption.  For further information - GAN Integrity Business Anti-Corruption Portal

The Federal Government of Somalia (FGS) welcomes foreign direct investment and offers a variety of opportunities for investment, especially in natural resources and productive sectors such as agriculture, fisheries, and livestock; however, the business operating environment continues to face several challenges.  Somalia’s government collapse in 1991 led to a period of conflict and clan warfare.  While there has been some progress since the establishment of the FGS in 2012, potential investors still face challenges such as the lack of a comprehensive legal and regulatory framework, a civil judicial system incapable of solving disputes and enforcing contracts, and endemic corruption.  Investors also face threats from the al-Shabaab terrorist group, which controls large portions of the country and routinely extorts payments from businesses.  Businesses also face challenges moving money into and out of Somalia, enforcing protection of intellectual property, and maintaining access to inexpensive and reliable electricity.

The current government was elected in May 2022 and has maintained macroeconomic stability and economic reforms focused on the completion point of the Heavily Indebted Poor Countries (HIPC) process expected to be achieved by end of 2023. The HIPC completion point will reduce the country’s total external debt from $5.2 billion to $557 million, or nine percent of GDP. The government is committed to strengthening domestic revenue mobilization, including customs modernization across all ports, increasing revenue collection from big corporations especially in the telecom sector, and advancing reforms on public financial management (PFM). Post-HIPC completion point, there may be opportunities to access new sources of financing which could support new investments in human and physical capital, as well as institutions to support state-building and growth. The International Monetary Fund (IMF) and World Bank are optimistic that the country will achieve all the set benchmark triggers for the HIPC completion by the end of 2023.

Somalia continues to rebuild its economy despite its difficult circumstances, including vulnerability to climate-related shocks and the higher global prices and delays in supply chain caused in part by the war in Ukraine and the COVID-19 pandemic. Somalia continues to face the effects of a severe drought, in some areas nearing famine conditions, which prevents the economy from sustaining a modest rebound in growth. Real GDP growth is projected to slow to 2.2% in 2022, from 2.9% in 2021 according to World Bank reports. However, the country has several opportunities that if taken advantage of can spur economic growth including rapid urbanization, a vibrant private sector, the growing use of digital technologies, planned investments in sectors such as livestock, fisheries, agriculture, energy, ports, education and health.

Low human development indicators, expensive and unreliable electricity, poor roads, a lack of reliable internet access (especially outside urban areas), and pervasive government corruption constrain investment and development. Moving money into and out of Somalia remains difficult, and the financial sector is constrained by the lack of private sector correspondent banking relationships.  The main obstacles are weak “know your customer” (KYC) capabilities and concerns that al-Shabaab is using Somalia’s financial institutions to collect, store, and move money.  To address these concerns, relevant institutions such as the National Anti-Money Laundering Committee (NAMLC) and Financial Reporting Center (FRC) have put in place mechanisms to strengthen the country’s financial sector.

Country Links

​Central Bank of Somalia