FATF Status

Yemen is currently on the FATF List of Countries that have been identified as having strategic AML deficiencies

Latest FATF Statement  -  23 February 2024

Since February 2010, when Yemen made a high-level political commitment to work with the FATF and MENAFATF to address its strategic AML/CFT deficiencies, Yemen has made progress to improve its AML/CFT regime. In June 2014, the FATF determined that Yemen had substantially addressed its action plan at a technical level, including by: (1) adequately criminalising money laundering and terrorist financing; (2) establishing procedures to identify and freeze terrorist assets; (3) improving its customer due diligence and suspicious transaction reporting requirements; (4) issuing guidance; (5) developing the monitoring and supervisory capacity of the financial sector supervisory authorities and the financial intelligence unit; and (6) establishing a fully operational and effectively functioning financial intelligence unit. While the FATF determined that Yemen has completed its agreed action plan, due to the security situation, the FATF has been unable to conduct an on-site visit to confirm whether the process of implementing the required reforms and actions has begun and is being sustained. The FATF will continue to monitor the situation, and conduct an on-site visit at the earliest possible date.

Compliance with FATF Recommendations

The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Yemen was undertaken by the Financial Action Task Force (FATF) in 2008. According to that Evaluation, Yemen was deemed Compliant for 0 and Largely Compliant for 4 of the FATF 40 + 9 Recommendations. It was Partially Compliant or Non-Compliant for 5 of the 6 Core Recommendations.

US Department of State Money Laundering assessment (INCSR)

Yemen was deemed a Jurisdiction of Concern by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR). Key Findings from the report are as follows: -

Yemen is not considered a regional financial center. The financial system in Yemen is underdeveloped, and the extent of money laundering is not well known. The government’s collapse and Houthi ascendancy to control much of the country in early 2015 render Yemen vulnerable to money laundering and other financial abuses, including terrorism financing.

The profitability of the smuggling of goods and contraband has led to a large informal economy in Yemen. Criminal proceeds in Yemen tend to emanate from foreign criminal activity, including smuggling by criminal networks and terrorist groups operating locally. There have been a number of U.S. investigations of qat (a mild narcotic) smuggling from Yemen and East Africa into the United States, with profits laundered and repatriated via hawala networks. The ongoing conflict in Yemen has greatly reduced U.S. government investigative efforts and cooperation with Yemeni authorities.

Yemen has a free trade zone (FTZ) in the port city of Aden, although the conflict significantly disrupted trade and trade controls in 2015. Identification requirements are enforced within the FTZ. Truckers must file the necessary paperwork in relevant trucking company offices and must wear identification badges. FTZ employees must undergo background checks by police, the Customs Authority, and employers. There is no evidence the FTZ is being used for trade-based money laundering or terrorism financing schemes.

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                          16

World Governance Indicator – Control of Corruption              1

Corruption is rampant in Yemen. The political upheaval the country has been witnessing since 2011 has further exacerbated challenges for companies. Patronage networks and practices of nepotism severely impede the investment climate as businesses often find it difficult to navigate the inner workings of competing centers of authority without taking on a local partner. The government has put anti-corruption laws in place; however, provisions do not cover all forms of corruption. Practices such as passive bribery and extortion are excluded. Bribery and gifts are widespread practices in Yemen. For further information - GAN Integrity Business Anti-Corruption Portal

Yemen is a low-income country that faces difficult long-term challenges to stabilizing and growing its economy, and the current conflict has only exacerbated those issues. The ongoing war has halted Yemen’s exports, pressured the currency’s exchange rate, accelerated inflation, severely limited food and fuel imports, and caused widespread damage to infrastructure. At least 82% of the population is in need of humanitarian assistance.

Prior to the start of the conflict in 2014, Yemen was highly dependent on declining oil resources for revenue. Oil and gas earnings accounted for roughly 25% of GDP and 65% of government revenue. The Yemeni Government regularly faced annual budget shortfalls and has tried to diversify the Yemeni economy through a reform program designed to bolster non-oil sectors of the economy and foreign investment. As part of these reform efforts, Yemen exported its first liquefied natural gas in October 2009. The international community supported Yemen’s efforts toward economic and political reform in part by establishing the Friends of Yemen group. In 2012, the Friends of Yemen pledged nearly $7 billion in assistance to Yemen. In July 2014, the government continued reform efforts by eliminating some fuel subsidies and in August 2014, the IMF approved a three-year, $570 million Extended Credit Facility for Yemen.

However, the conflict that began in 2014 stalled these reform efforts. Rebel Huthi groups have interfered with Ministry of Finance and Central Bank operations and diverted funds for their own use. Yemen’s Central Bank reserves, which stood at $5.2 billion prior to the conflict, currently stand at $1.5 billion. The Central Bank is exposed to approximately $7 billion in overdraft, more than three times the legal limit, directly linked to the Huthis withdrawing $116 million on a monthly basis. The private sector is haemorrhaging, with almost all businesses making substantial layoffs. The Port of Hudaydah, which handles 60% of Yemen’s commercial traffic, was damaged in August 2015 as a result of the conflict and is only operating at 50% capacity. Access to food and other critical commodities such as medical equipment is limited across the country due to security issues on the ground. The Social Welfare Fund, a cash transfer program for Yemen’s neediest, is no longer operational and has not made any disbursements since late 2014.

Yemen will require significant international assistance during and after the protracted conflict to stabilize its economy. Long-term challenges include a high population growth rate, high unemployment, declining water resources, and severe food scarcity.

Agriculture - products:
grain, fruits, vegetables, pulses, qat, coffee, cotton; dairy products, livestock (sheep, goats, cattle, camels), poultry; fish

Industries:
crude oil production and petroleum refining; small-scale production of cotton textiles, leather goods; food processing; handicrafts; aluminium products; cement; commercial ship repair; natural gas production

Exports - commodities:
crude oil, coffee, dried and salted fish, liquefied natural gas

Exports - partners:
China 24.5%, UAE 16.5%, South Korea 10%, Saudi Arabia 10%, Kuwait 9.1%, India 8.5% (2015)

Imports - commodities:
food and live animals, machinery and equipment, chemicals

Imports - partners:
UAE 20.9%, China 14.3%, Saudi Arabia 9.9%, Kuwait 7.4%, India 4.6% (2015)

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Country Links

Central Bank of Yemen