The European Commission blacklisted Ethiopia for being very risky in money laundering and terrorism financing, urging banks situated in Europe to apply enhanced due diligence on financial flows from the country.
Aiming to ensure proper functioning of the European market, the Commission, in its latest regulation released on October 27, 2017, added the country to the list of high-risk third countries along with Iran, Syria, Yemen and seven other nations.
The new rule will be applicable in 28 European Union member countries upon being approved by the parliament of the Union within twenty days after its release.
“Countries on this list must be subjected to additional counter checks and the ‘know-your-customer’ (KYC) rules- which involves cross-checking the business and identity of clients,” the regulation reads.
The high-risk countries, according to the Commission, will pose significant threats to the financial system of the Union.
“Unlike countries under the high-risk non-cooperative list, this won’t bring any problem to the country,” said Berhanu W.Kiros, deputy head of Financial Intelligence Centre, established to combat terrorist financing, money laundering and related matters in the country.
The Commission added Ethiopia to the list of risky countries half a year after the adjustment of the proposal made by the Commission to swap Guyana from the list, for Ethiopia.
The European Parliament voted against the list by 392 ballots to 80, with 207 abstentions.
For Ethiopia, it is not a new thing to be listed in a jurisdiction having a deficiency in anti-money laundering and countering terrorist financing.
Seven years ago, the country was labelled as a threat to the international financial system by the Financial Action Task Force (FATF) – an intergovernmental organisation, with 37 member countries, founded in 1998 to combat terrorism financing and money laundering globally.
Presently, studies indicate that money laundering is posing a significant danger to the developmental and security efforts of the world. Being a principally informal and cash-based economy, Ethiopia is exposed to terrorism and money laundering activities, the assessment made by FATF reveals.
Realising the effects, Ethiopia’s government had enacted a legal framework eight years ago, although it criminalised money laundering back in 2005.
Three years later, it established the Financial Intelligence Centre to oversee the terrorist financing, money laundering and other related matters. Since then, the Centre has been undertaking various measures to fight such acts including directing financial institutions to implement customer due diligence.
Nevertheless, this was not considered adequate by the European Commission that identified the country as a threat to the financial system of the Union.
Although Ethiopia has provided a written high-level political commitment to address laundering, the analysis indicates it should be considered as a third-country jurisdiction considering the progress it has made, the Commission’s regulation reads.
For the three-decade experienced macro-economist and policy analyst, this is alarming.
“This shows there is a high amount of illegal capital flight in the country,” he said. “It is a result of lack of transparency and surge in corruption.”
“We are striving to get out of the list,” he said.
A study by the Global Financial Intelligence revealed that about 26 billion dollars left the country unlawfully between 2004 and 2013. The same reports discovered that Ethiopia loses two billion dollars annually due to illicit financial flows.
But for the macro-economist, working to get out of the list is not a priority.
“Abolishing backdoor contractual agreements and measures to ensure transparency should be taken to combat laundering,” he said.****