Removing AS from the Financial System
As Somalia’s war with Al-Shabab enters its 14th year, it is worth discussing the efforts that have gone into combatting the inflow of financial resources into the group and the effect it has had on its operations and reach. An insurgency cannot be defeated without halting its inflow of human and financial resources. Otherwise, it would be similar to trying to fill a bucket that has a hole at the bottom – we first have to fix that gaping hole before anything. This is why, despite massive investments by the allies, territorial progress against the group is fleeting; it controls parts of the suburbs of Mogadishu; has operational freedom within the capital; and reoccupies most towns it loses in 12-24 months. This bucket will never be filled, if we were to continue doing what we are doing now.
Whether the goal is to militarily defeat the group or weaken it to such an extent that it is forced to come to the negotiating table, weakening the group financially is the main tool to achieve these goals. As the group is sitting on a significant financial reserve, it will take a year or two of a serious financial squeeze before the group will feel serious financial distress. The first to lose their benefits will be the non-essentials: the disabled and the retirees; and the orphans and the widows. In the third or fourth years of constant financial pressure, the group will start running out of money. This will impact its ability to pay its fighters, care for its wounded, and buy ammunition for its operations. That will be the start of the end of its conventional military wing, the Jabahaat. It will divert its dwindling resources to its Amniyaat wing. Combatting the Amniyaat will be easier without it having a safe haven to withdraw to or rest at after stints in the government strongholds. Defeating the Amniyaat will require policing and intelligence skills that the allies currently lack – it is a topic for another day.
The current anti-AS financial measures
KYC is held as the ultimate weapon to defend the financial system against AS usage. KYC measures are implemented at all financial institutions in Somalia; one cannot open an account without a valid government-issued ID – passports, driving licenses, and even birth certificates are allowed by some banks. In some areas where mobile money accounts are unlimited, users have their pictures taken, and they also require a guarantor to vouch for them.
Banks are also required by law to report large and suspicious financial transactions. While it is easy to define a large transaction, suspicious transactions are mostly subjective. Based on my conversations with bankers, they consider repetitive transactions – or avoiding the reporting ceiling by depositing something close to it – as suspicious. However, as we shall see, this is not enough.
How AS is evading KYC and financial reporting
A lot has been said and written about the need to have a national ID system in order to improve KYC in Somalia. Unfortunately, this would only work to stop AS financing if the names of the people opening the account for AS are already under financial sanctions. AS uses individuals and entities that are not listed as having links to terrorists. Moreover, without a verifiable, unified ID system, an individual can simply change their names or register a new company. And in a future scenario where such an ID system is put in place, AS has thousands of members in whose names it can open accounts and register companies. The fact of the matter is that the government does not know the names of most AS members until they are caught, killed, or defect. This weakness in KYC is not limited to Somalia.
AS accounts see large and small deposits by tens to hundreds of customers – people paying taxes and other extortion payments to the group. This alone would be enough to raise suspicion, but the account users always claim to be legitimate non-AS businessmen if action is taken against them — action is rarely taken for simply having many deposits from different people. According to a security source, when accounts are closed, AS extorts the institutions to refund them their loss. In theory, the government could close all AS accounts today because of how easy they are to identify (AS taxpayers are happy to share that data); however, AS would not lose a dime because it would be refunded by the institutions holding its money. What is needed is a way to prevent AS from opening an account in the first place and restrict it from using the financial services altogether, if it does manage to open an account.
On mobile money, AS avoids going to the bank altogether and utilizes a system in which the mobile money ceiling is avoided in this manner: if the mobile money account is approaching the ceiling ($300 in Hormuud), all incoming funds are automatically sent to the bank account connected to the mobile money account. In this way, tax collection at the roadblocks is largely safe from defection or capture.
Mobile money is how AS uses money in a day-to-day basis. It is how soldiers are paid; how wives receive their stipends; how food is bought for the troops in the bush; how fighters pay for their food at restaurants; and how benefits are sent to the wounded and dependents of dead fighters.
How to stop AS from using the financial system
If war created the state, counterterrorism created the modern Somali state. The current Somali state is a product of the global war on terror: interest in reconstituting the Somali state peaked after 9/11, and local warlords were happy to link statelessness to terrorism. This not only guaranteed them funding but created an urgency to create a state that could prevent Somalia from becoming a terrorist haven. Needless to say, it is not going well. A lack of a long-term strategy and an expectation that the war would be shorter has seen all actors lose focus and act like all is well. That needs to change, and there has to be concrete roadmaps for building the institutions necessary for a state that can protect its people.
To prevent AS from claiming that its accounts are for legitimate business transactions, a number of steps could be taken:
1. Business accounts or individual accounts that see multiple deposits from different people should be required to provide supporting documents to show the nature of their business. This includes invoices, receipts, proof of sell documents, contracts, and so on. AS accounts will fail this test; as for other accounts, this data would be useful for tax collection purposes. It is a win-win situation for the government.
2. Only government vetted merchant accounts should be allowed to use multiple deposits from mobile money to bank accounts. This partly closes the AS roadblock tax collection mechanism.
3. All IDs and business registration documents should be verifiable by the banks.
Now for the most important action that needs to be taken. This action is necessary and if it is not taken, AS will find a way to have people bring it bags of cash (which it does now, to a small extent) and convert it into mobile money. For AS to be completely cut off from the financial system, areas that are not held by the government should not have access to mobile money. Even if AS forces some people to bring it bags of cash, it cannot force everyone. Demanding cash payments would also create security risks for its finance office. It is a disgrace to the security forces that AS has managed, to date, to get away with some tax collections in the form of bags of cash that are delivered to its strongholds. In this scenario, we will assume such an obvious risk would not be going unexploited. Otherwise, nothing changes.
Nevertheless, AS would be stuck with bags of cash that it would have to physically move around and distribute. Paying fighters, dependents, and suppliers would be significantly slowed and become more easily traceable. This will not impact the common person in AS-held areas, as hawala could exist in the following manner: all Hawala to AS-held areas would be delayed by a few days, and only non-suspicious transactions allowed to be forwarded. The technicalities of this are beyond the scope of this post, but it involves KYC, the receiver’s phone number, and the size and number of transactions to the receiver.
And staying on the issue of civilians in AS-held areas: is the discourse really on how to make them more comfortable living under AS rule and not on how to liberate them from AS rule? The latter cannot happen without weakening AS financially, a situation that cannot happen while it continues having access to the financial system.
Doing half of this will weaken AS financially in the short term; however, it will quickly adapt. Everything here and more should be done to shore up the financial system from AS; only then can long-term results be achieved. Half-hearted efforts will achieve nothing, and the group will never be defeated or come to the negotiating table.