Following the money: The Use of the Hawala Remittance System in the Yemen–Somalia Arms Trade

Somalilandsun: Somalia has been under a UN arms embargo since 1992, making all imports of military equipment into the country, outside of specified Security Council exemptions, violations of international law. Since that time, Somali importers have looked to Yemen as the primary source for illicit arms especially small arms and light weapons (SALW) and ammunition

This ubiquity of SALW in Yemen, as well as centuries-old cultural and commercial ties with Somalia has made Yemen the primary source for illicit arms among Somali importers. Consignments of small arms and ammunition from Yemen cross the Gulf of Aden in a matter of hours to the northern coast of Puntland, a semi-autonomous region in northern Somalia. The port city of Bosaso, Puntland’s largest city and commercial capital, is the financial epicentre of the illicit trade. Arms from Yemen fuel the ongoing civil conflict in Somalia, and many are believed to be transported on throughout the broader East Africa region.

A semi-informal system of international money transfer – commonly referred to as ‘hawala’– underpins the financing of the arms trade. This study focuses on the use of four Somali hawala money-transfer operators (MTOs) by six prominent arms dealers (or financial proxies) based in Yemen and Somalia. GI-TOC analyzed data from hundreds of remittance transactions involving these individuals, dating between 2014 and 2020.

These arms dealers all exploited the widespread gaps in anti-money laundering/countering the financing of terrorism (AML/CFT) controls, including the principle of ‘know your customer’ (KYC), to facilitate arms deals between Yemen and Somalia. The arms traffickers highlighted in this study routinely used dozens of aliases, names and spelling variations. The use of proxy agents to conduct transactions on their behalf was common. This climate of loose or non-existent oversight allowed arms dealers to make large transactions – often in excess of federally mandated AML/CFT limits –without fear of detection or investigation. Most notably, a prominent Yemeni arms supplier was able to receive hundreds of thousands of dollars in remittances while under US sanction.

Both Somalia and Yemen are embroiled in prolonged civil wars, and MTOs operating in such environments face considerable challenges in implementing AML/CFT measures.

With the exception of two instances in which MTOs facilitated the direct transfer of funds to a sanctioned individual, this study does not attribute wrongdoing to any particular operator. Rather, it aims to identify systematic obstacles to financial compliance faced by all MTOs operating in Somalia and Yemen.

This study focuses on the activities of six individuals widely regarded as prominent arms dealers (or proxies for arms dealers): three importers located in Somalia (Abdirahman Mohamed Omar ‘Dhofaye’, Mahad Isse Aden ‘Laboballe’ and Abshir Barre Samatar) and three suppliers/proxies in Yemen (Sayf Abdulrab Salem Al-Hayashi, Bashir Naaji Abdullahi Shujac and Mohamed Hussein Salad). Collectively, the three Puntland-based importers were responsible for 84% of the arms-related remittances identified by GI-TOC (approximately US$3.1 million out of the total US$3.7 million).

Highlights from the report:

• Puntland is the primary entry point for illicit small arms and ammunition into Somalia. Shipments are typically transported in speedboats from Yemen, or, less frequently, transshipped from dhows originating from Iran’s Makran coast.
• The report analyzes a total of 176 ‘hawala’ remittance records across four companies, detailing the transfer of $3.7 million from known arms importers in Somalia to their suppliers in Yemen.
• The largest single remittance transaction amounted to $71,000. Two-thirds of the 176 transactions were in excess of the $10,000 threshold that typically triggers AML/CFT oversight.
• The report highlights issues with KYC compliance in Somalia, which lacks a credible and widespread form of national identification or effective financial regulators. One Puntland-based arms dealer used 24 different names or name variations when transferring funds to Yemen.
• In at least two instances, ‘hawala’ remittance companies permitted the transfer of almost $20,000 to a Yemeni national under OFAC sanction for allegedly supplying arms and financial support to AQAP and IS in Yemen.
• While researching the paper, we initiated contact with a Yemeni arms supplier. Photos of weapons in his storehouse in Sana’a revealed preliminary evidence that arms (specifically, Type 56-1 rifles) reportedly provided by Iran to the Houthis may end up in Somalia.

Commissioned by Geneva-based Global Initiative Against Transnational Organized Crime (https://globalinitiative.net/) the study which examines the financial flows underpinning the Yemen-Somalia illicit arms trade is authored by Jay Bahadur an independent researcher and investigator based in Nairobi. From 2015 to 2019, Bahadur served as the armed group’s expert – and subsequently the Coordinator – of the UN Security Council Monitoring Group on Somalia and Eritrea and its successor, the Panel of Experts on Somalia. His areas of focus included the Islamist militant groups Al-Shabaab and the Islamic State, maritime arms smuggling networks, piracy, and the oil and gas sector. Bahadur is the author of the 2011 book The Pirates of Somalia.

The paper concludes with recommendations aimed at strengthening the ‘hawala’ remittance system and preventing further abuses by criminal elements, while remaining cognizant of the critical humanitarian and economic role of remittances in Somalia.

Read full report below

Following-the-money-The-use-of-the-hawala-remittance-system-in-the-Yemen–Somalia-arms-trade