Yemen is currently on the FATF List of Countries that have been identified as having strategic AML deficiencies
Latest FATF Statement - 18 October 2019
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.
In February 2014, pursuant to resolution 2140 (2014), the UN imposed an arms embargo, travel ban and targeted asset freeze restrictions against Yemen
On 18 December 2014, in view of the situation in Yemen, the EU imposed Council Regulation (EU) No 1352/2014 concerning restrictive measures against natural or legal persons, entities and bodies identified by the Sanctions Committee as engaging in or providing support for acts that threaten the peace, security or stability of Yemen
The US has imposed sanctions against Yemen however it should be noted that the Executive Order does not impose broad-based sanctions against the country of Yemen or its government or people.
The Arab League (comprising 22 Arab member states), of which this country is a member, has approved imposing sanctions on Syria. These include: -
Cutting off transactions with the Syrian central bank
Halting funding by Arab governments for projects in Syria
A ban on senior Syrian officials travelling to other Arab countries
A freeze on assets related to President Bashar al-Assad's government
The declaration also calls on Arab central banks to monitor transfers to Syria, with the exception of remittances from Syrians abroad.
The Arab League has also boycotted Israel in a systematic effort to isolate Israel economically in support of the Palestinians, however, the implementation of the boycott has varied over time among member states. There are three tiers to the boycott. The primary boycott prohibits the importation of Israeli-origin goods and services into boycotting countries. The secondary boycott prohibits individuals, as well as private and public sector firms and organizations, in member countries from engaging in business with any entity that does business in Israel. The Arab League maintains a blacklist of such firms. The tertiary boycott prohibits any entity in a member country from doing business with a company or individual that has business dealings with U.S. or other firms on the Arab League blacklist.
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 14
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
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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