Taxes collected from citizens in North America and Europe are routed through Dubai and distributed by Nairobi embassy and two multi-national banks
In early July, as Kenya’s President Mwai Kibaki headed to Addis Ababa to chair a meeting of the Intergovernmental Authority on Development (Igad), a six-country partnership formed to address issues of drought, security and development in the Horn of Africa, he sounded a stern warning to Eritrea.
For Kibaki, a president who is not known for his love of dramatic public gesture, to adopt a hostile posture against another country, there must have been more to the issue than the government was revealing to the public.
In March, Ethiopia’s Prime Minister Meles Zenawi — whose country has a strong security partnership with Kenya — had also warned that his government would use “all possible means” to depose Eritrea’s 67-year old strongman Isaias Afewerki, with whom he had fought a bloody secessionist war that killed 70,000 people between 1998 and 2000.
However, with the release of the UN Monitoring Group report on Somalia and Eritrea last week, it is now becoming clearer why Afewerki has gained the reputation of the bad boy of the Horn of Africa, a pariah state under international sanctions for sponsoring terrorism in the region.
While Eritrea has in the past been repeatedly accused of supporting Somalia’s Islamist militia Al Shabaab, a charge it strenuously denies, the current report catalogues Afewerki’s growing notoriety in the world of terrorism finance, and in particular the global web through which these funds are routed, with Kenya serving as a global transaction distribution hub.
The report details the country’s activities in funding the terror group, following the money trail from its citizens in the diaspora in Europe and North America, through Dubai and the Eritrean embassy in Nairobi, and into the hands of Al Shabaab, all the while concealed in convoluted and opaque informal financial networks.
The details of Eritrea’s destabilising role in the Horn of Africa are chilling, and would make good fodder for an action flick if only they were the stuff of fiction. The implications for the security of the greater East African region are deep and pertinent, so much so that the typically restrained President Kibaki came out strongly to chide Eritrea for supplying arms to Al Shabaab, calling upon Igad, which he chairs, to rein in the rogue state.
The report states that Eritrean support to armed opposition groups has routinely involved cash payments to members of rebel groups. The country only has a gross national income per capita of $360, among the lowest in the world. However, analysts say that in spite of its relative poverty, Eritrea’s ingrained siege mentality drives its foreign policy agenda relentlessly towards military activity, directing much of its revenue to armed opposition groups throughout the region, in the spirit of “my enemy’s enemy is my friend.”
The enemy is this case is Eritrea’s former colonial master Ethiopia. For both these countries, Somalia is merely the theatre of a raging proxy war, an extension of their longstanding border dispute, with each side supporting various rival factions and administrations since 1998. Al Shabaab is thus propped up by Eritrea’s determination to keep Ethiopia “off-kilter and overstretched,” according to British journalist Michela Wrong, writing in the Financial Times. Ms Wrong has written a bestselling book I Didn’t Do It for You, on the country’s struggle to free itself from various occupiers.
According to the report, Eritrea justifies its actions in Somalia by pointing to Ethiopia’s failure to implement the UN ruling of arbitration on the disputed border, and the continued presence of Ethiopian civilian officials and military forces on territory awarded to Eritrea.
The UN Monitoring Group indicates that cash transfers to Al Shabaab are facilitated by a vast and complex informal economy through which senior officials of the Eritrean government and ruling People’s Front for Democracy and Justice (PFDJ) collect and control hundreds of millions of dollars each year in unofficial revenues, largely from taxation of Eritreans in the diaspora, and private business arrangements involving PFDJ-run companies or business partnerships abroad.
The report highlights that essentially, Eritrea maintains two parallel economies: A formal economic system presumably managed by the state, and an elaborate, largely offshore financial system controlled by powerful officials of the government and ruling party. The formal economic system involves transactions almost exclusively in nakfa, the non-convertible Eritrean national currency, and suffers from a chronic hard-currency deficit that theoretically makes it extremely difficult for the country to provide financial support to foreign-armed groups.
However, the report indicates that the informal, PFDJ-controlled economy involves a much higher proportion of hard-currency transactions than the formal economy and is managed almost entirely offshore through a labyrinthine multinational network of companies, individuals and bank accounts, many of which do not declare any affiliation to PFDJ or the Eritrean state. Although it is impossible to obtain reliable figures about the size of this unofficial economy, it is apparently more than sufficient to fund external operations such as Al Shabaab.
The most significant source of revenue for PFDJ is the imposition of a 2 per cent income tax on Eritrean nationals living abroad, who number an estimated 1.2 million, or 25 per cent of the total population, and are concentrated in North America, Europe and the Middle East.
The report relies on estimates by various national law enforcement officers, Eritrean eyewitnesses and former Eritrean government agents in the diaspora, which indicate that the government of Eritrea is estimated to raise “tens and possibly hundreds of millions of dollars” every year by imposing this tax. Those who resist paying these taxes may be barred from entering Eritrea; they also risk having property in Eritrea seized or family members in Eritrea harassed.
The tax may be applied to foreign nationals of Eritrean origin, whether or not they maintain dual nationality. It is routinely collected by diplomats at Eritrean missions abroad, a practice that arguably violates the Vienna Convention on Consular Relations. In locations where Eritrea does not have diplomatic or consular representation, the tax is often collected informally by party agents or community activists, which may be considered a form of extortion.
The UN Monitoring Group reports that, in addition, the ruling party routinely employs private individuals, often Eritreans with dual nationality, to co-ordinate cash collection and transfers on behalf of the PFDJ. These individuals include taxi drivers, grocery store owners and travel agents, some of whom may actually operate small front businesses on behalf of the party. The hard currency transfers they make through money transfer companies are kept under $10,000, apparently to avoid triggering suspicious transfer reports.
Alternatively, private individuals may be used as “cash mules” to physically carry hard currency across borders, at times being issued Eritrean diplomatic passports for that sole purpose. Investigations by the Monitoring Group reveal that whereas consular finances in the United States are co-ordinated by a senior official at the Eritrean embassy in Washington, DC, US-based non-consular agents regularly carry PFDJ cash to Dubai and other foreign destinations. Several other Eritrean individuals allegedly perform similar services in California, Nevada and the Washington, DC area on behalf of the Eritrean embassy.
Most of the cash is sent to Dubai, the financial hub of the Eritrean informal economy. The beneficiaries of the funds all apparently maintain accounts with the Standard Chartered Bank and Commercial Bank of Dubai, and the report underscores that “multiple Eritrean sources in Dubai and the United States have informed the Group that individuals and enterprises on the [recipient] list are affiliated with PFDJ and may play a role in laundering its funds.”
From Dubai, at least some of the hard currency stream is directed towards Nairobi, where the Eritrean embassy receives cash into accounts under its control. The report states that “sources with access to financial transactions at the embassy have informed the Group that the embassy has used dollar-denominated accounts at Standard Chartered Bank and Barclays Bank in Nairobi to receive dollar deposits from abroad.”
The Eritrean embassy in Nairobi is thus a central logistical hub from which intelligence activities related to Somalia are financially and logistically supported, and payments to individuals with links to Al Shabaab are co-ordinated. It is reported that Eritrean officials are routinely dispatched to retrieve money from their embassy bank accounts in Nairobi, at which point the proceeds are distributed to various Somalis for their travel and operations in Kenya and Somalia. The report states that “one source personally involved in such transactions told the Monitoring Group that he was regularly instructed to remove tens of thousands of dollars from a Barclays Bank account held by the Eritrean embassy in Nairobi, specifically for this purpose.”
The Monitoring Group conservatively estimates that apart from external support, Al Shabaab generates between $70 million and $100 million per year from duties and fees levied at airports and seaports, taxes on goods and services, taxes in kind on domestic produce, “jihad contributions,” checkpoints as well as various forms of extortion justified in terms of religious obligation, or zakat.
The documentation obtained by the Monitoring Group relates to the year 2008, but sources who are currently on the payroll of the embassy of Eritrea in Nairobi affirm that cash is still being paid to the same Al Shabaab-linked individuals by the embassy. The report states that “an Eritrean businessman, who works with the government of Eritrea and has provided other reliable information to the Monitoring Group, has confirmed that the amount disbursed in Nairobi is roughly $80,000 per month.”
The UN Monitoring Group reports documents relating to payments were received directly from the embassy of Eritrea in Nairobi, including payment vouchers marked “State of Eritrea,” cash receipts marked with Tigrinya and Arabic lettering and the emblem of the State of Eritrea, as well as tabulated records of payments.
The report states that sources familiar with Eritrean embassy operations have authenticated this documentation, explaining that it is common practice for such illicit payments to be carefully documented because several consular staff including ambassadors have been accused of embezzlement of funds, therefore strict bookkeeping is now enforced between the government and its embassies abroad.
Despite a military stalemate with the African Union Mission in Somalia (Amisom) soldiers and an ongoing drought that is ravaging the region, it looks as though the economic health of Al Shabaab is as robust as ever. The movement continues to consolidate its control over multiple sources of revenue, a considerable proportion of which comes through Eritrean channels.