UN Monitoring Report from Somalia – Public financial management and misappropriation
Public financial management
65. An unequal distribution of resources, corruption and the Federal Government’s inability to raise revenue in order to provide basic security underpin continuing instability in Somalia. The initiatives taken by the Central Bank of Somalia to formalize and regulate the economy have produced modest results but have not prevented the economy from drifting even further from the global financial market. With the national debt exceeding the gross domestic product and the Federal Government struggling with the inefficiency of its fiscal institutions, Somalia remains one of the poorest countries, and the most corrupt, in the world. 34 The six commercial banks licensed by the Central Bank operate only in urban areas, even though the granting of such licences is predicated on the banks’ willingness to operate in rural areas.35 The Governor of the Central Bank sees the banks’ inability to provide business loans as the most significant obstacle hindering economic growth in Somalia.36
66. The Somali economy remains largely cash-based, and all major transactions are performed in United States dollars. The last Somali shilling notes were print ed in 1990 and the vast majority currently in circulation are counterfeit. Nevertheless, the exchange rate has remained surprisingly stable, at around So.Sh 23,400 to 23,600 per $1. Early in May 2016, however, violent demonstrations against soaring commodity prices were held in Garowe and Bosaso. Local inflation was prompted by the printing of money using a printing machine located in the State Bank of Puntland in Bosaso to cover the salary arrears of civil servants and the security forces. The exchange rate subsequently rose to So.Sh 30,000 per $1 in May. The protests subsided after local authorities introduced fixed exchange rates 37 (see annex 4.1).
67. Counterfeit United States dollars in circulation continue to undermine financial stability in Somalia. Although the quality of the counterfeit money remains poor, it has been successfully exploited in various criminal activities. In August 2016, the branch manager and a teller of the Central Bank succeeded in embezzling $530,000 from the vault by replacing the genuine $100 bills stored there with counterfeit ones (see annex 4.2).
68. In May 2016 in Kampala, representatives of the Central Bank of Somalia and the International Monetary Fund began negotiations on currency reform of the Somali shilling. Although the Monitoring Group acknowledges the efforts made by the Central Bank and the potential benefits of the currency reform in promoting and formalizing the Somali economy, the published schedule indicating the printing of new currency beginning early in 2017 appears overly ambitious.38 The Fund has declared that it will not support the process financially, which would leave it up to the Federal Government to cover the cost of the reform, which is estimated to reach $45 million.
69. The Somali diaspora sent at least $1.2 billion to Somalia through hawala remittance companies in 2015.40 The Monitoring Group conducted numerous interviews of hawaladars during the current mandate to assess the compliance and monitoring tool used.41 Remittances remain a crucial lifeline for many Somalis, especially for people living in rural areas. Nevertheless, the lack of impetus of hawala companies and agents to implement monitoring systems and basic due diligence measures, in contrast with the additional measures taken by international regulators, has led many international banks to close hawala accounts. Following sustained campaigns to keep remittances flowing, certain banks have agreed to continue to engage with various hawala companies.
70. The interviews and investigations conducted by the Monitoring Group have revealed gaps in the ability of the Somali authorities to implement the asset freeze against sanctioned individuals and entities. The hawala agents either do not possess adequate monitoring tools or simply choose not to use them. Another severe flaw is that the hawaladars paying out the remittances in Somalia do not know their customers. They might ask for identification, but pay out the remittance nonetheless, regardless of the name, to the holder of the mobile phone number mentioned by the sender. Owing to spelling variations in individuals’ names and the lack of verifiable identification documents, most transactions are based on beneficiaries’ telephone numbers alone. The Group assesses this to have a major negative impact on the implementation of the asset freeze imposed by the Security Council.
71. The financial intelligence unit of Somalia, Financial Reports Centre, was founded early in 2016. The new unit, consisting of two employees, is an independent organ working on the premises of the Central Bank. Its tasks are defined in the Anti-Money-Laundering and Countering the Financing of Terrorism Act signed by the President in May 2016. The new legislation has been designed to meet most of the requirements of the Financial Action Task Force.43 In addition, it contains articles on currency reporting at national borders, asset freezing and the establishment of a financial intelligence unit and a national anti-money-laundering and countering the financing of terrorism committee. Although the new legislation and the establishment of the Centre are positive developments, the Monitoring Group is concerned that the implementation of the new legislation is likely to face multiple challenges. These include a lack of resources and institutional capacity, the absence of international cooperation networks and a potential lack of compliance by the prospective reporting entities, such as hawala and other informal money or value transfer services. The Group is further concerned by the adjustment made in the final version of the legislation, nominating the Minister of Finance as the Chairperson of the Anti-Money-Laundering and Countering the Financing of Terrorism Committee in place of the Governor of the Central Bank, given the clear conflict of interest with the Ministry of Finance being one of the reporting entities.
Public contracts and concessions
72. The new public procurement, concessions and disposal bill was signed by the President in August 2016, creating new public institutions with the objective of improving transparency. According to pre-existing regulations, any contract in excess of $5 million should be publicly disclosed, approved by the Interim National Procurement Board and submitted for review to the Financial Governan ce Committee. The Monitoring Group found new public contracts where these principles did not apply.
73. The Monitoring Group is aware that the Minister of Finance, Mohamed Aden Ibrahim, signed an agreement on 15 September 2015 with Smart Company for Public Services (SMART) for the concession of road tax collection in Somalia. In April 2016, he opened an account at the Salaam Bank to collect the taxes generated SMART, although, under Somali legislation, all such revenue should be routed to the Central Bank. When the Auditor General, Nur Farah Jimale, became involved, Ibrahim authorized SMART to collect taxes directly through its agents (see annex 4.3, figs. 1, 2, 4 and 6).
74. On 22 July 2016, Ibrahim issued a letter allowing Modern Technologies Inc. to directly collect taxes. The contract was signed on behalf of the company by Mohamed Hersi Farah, or “Suldan” (see ibid., figs. 7-8).
75. The Monitoring Group is also concerned at the opacity of public contracts between the Federal Government and two Turkish companies responsible for running the port of Mogadishu and Aden Adde International Airport. The contract for running the port that was renegotiated in March 2016 by the Minister of Finance and Albayrak Turizm Insaat Ticaret A.S. raises questions regarding effective revenue generation for the Federal Government (see ibid., fig. 14). 44 The contract for the management of the airport between the Federal Government and Favori LLC appears to be another example of an insufficiently technical contract being explo ited by a private firm.45 76. See annex 4.4 for information on an aborted contract between the Federal Government and Chinook Urban Mining International.
Telecommunications sector
77. The competitive telecommunications market is dominated by Hormuud Telecom, which operates in southern and central Somalia. 46 Hormuud has a 45 per cent market share in Somalia, with more than 6,000 employees and in excess of 5,000 shareholders. It also participates in a consortium operating in Somaliland and Puntland.
78. The improper regulation of telecommunications companies, including money transfer service providers, may constitute a threat to peace and security in Somalia. Al-Shabaab operatives have been paid mainly through Hormuud’s EVC-PLUS money transfer service.47 According to sources in the Federal Government, Hormuud does not cooperate with regard to sharing data on money transfer records (see annex 4.5).
Public land appropriation
79. The Monitoring Group has documented multiple instances of appropriation of public land for private sale in Mogadishu between 2014 and 2016. Public land historically held by various ministries has been distributed for private ownership by the Banadir Regional Administration, at least since Hassan Mohamed Hussein “Mungaab” assumed office as Governor of the region in February 2014. He is widely reported to have profited directly from the reallocation of public land to private status during his tenure at the Administration.48
80. On 28 July 2016, the Prime Minister, Omar Abdirashid Ali Sharmarke, issued a decree to establish the Protection of Public Properties Committee, mandated to collect data on property currently owned by Cabinet ministries and subordinate agencies and on public land that had been unlawfully appropriated. In the decree, sent to all Cabinet ministers, the Attorney General, the Speaker and the Office of the President, all Cabinet ministries and subordinate agencies were ordered to cease authorizing the sale or lease of public land unless the terms had been reviewed by the Office of the Prime Minister and approved by the Cabinet. 49
81. See annex 4.6 for further information and evidence collected on public land appropriation in Mogadishu.
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