Countries/Jurisdictions of Primary Concern - Djibouti
Djibouti is one of the most stable countries in the Horn of Africa. It is a minor financial hub in the region, thanks to its U.S. dollar-pegged currency and lack of foreign exchange controls. Djibouti’s GDP continues to grow by over four percent a year due to a surge in foreign investment inflows – primarily from the countries of the Gulf Cooperation Council and China – in the port, construction, and tourism sectors. Smuggled goods consist primarily of highly-taxed cigarettes and alcohol. In addition, recent decreases to the qat import quota have resulted in increases in qat smuggling. Due to Djibouti’s strategic location in the Horn of Africa and its cultural and historical trading ties, Djibouti-based traders and brokers are active in the region. Djibouti’s proximity to neighboring Somalia is a risk factor, as many Djibouti-based financial institutions have operations in Somalia, a jurisdiction which has no AML/CFT legislation or other controls. There also are allegations of Djibouti-based financial facilitation on behalf of Somali terrorist group al-Shabaab, and laundering of piracy ransom payments in Djibouti’s financial system.
Djibouti hosts no offshore banks, although its banking laws explicitly permit offshore institutions. The number of locally operating banks has increased from two to 11 in the past eight years. Hawala and other money/value transfer services are prevalent in the region, and informal markets for goods are sometimes used for counter valuation.
There are currently two free zones administered by the Djibouti Ports and Free Zone Authority (DPFZA), a public independent organization. The chief executive officer of DPFZA reports directly to the Office of the President. One free zone is located at the “old” port. The other, Djibouti Free Zone (DFZ), is located on 40 hectares and offers office space, warehouses, light industrial units, and hangars. Jebel Ali Free Zone, based in Dubai, manages the commercial and operational aspects of the DFZ. The purpose of both free zones is to promote foreign investment in Djibouti with the goal of making Djibouti the gateway to regional and East African markets. They are essentially a “one-stop shop” for companies looking to do business in the Djiboutian market. There are plans to build two additional free zones in the coming years.
For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found at: http://www.state.gov/j/ct/rls/crt/
DO FINANCIAL INSTITUTIONS ENGAGE IN CURRENCY TRANSACTIONS RELATED TO INTERNATIONAL NARCOTICS TRAFFICKING THAT INCLUDE SIGNIFICANT AMOUNTS OF US CURRENCY; CURRENCY DERIVED FROM ILLEGAL SALES IN THE U.S.; OR ILLEGAL DRUG SALES THAT OTHERWISE SIGNIFICANTLY AFFECT THE U.S.: NO
CRIMINALIZATION OF MONEY LAUNDERING:
“All serious crimes” approach or “list” approach to predicate crimes: List approach
Are legal persons covered: criminally: YES civilly: NO
KNOW-YOUR-CUSTOMER (KYC) RULES:
Enhanced due diligence procedures for PEPs: Foreign: NO Domestic: NO
KYC covered entities: Credit establishments, financial and investment intermediaries and advisors, banks, money transfer agents, money changers, casinos, notaries, and attorneys
Number of STRs received and time frame: Not available
Number of CTRs received and time frame: Not available
STR covered entities: Credit establishments, financial and investment advisors and intermediaries, banks, money transfer agents, money changers, casinos, notaries, and attorneys
MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:
Prosecutions: 0 in 2013
Convictions: 0 in 2013
RECORDS EXCHANGE MECHANISM:
With U.S.: MLAT: NO Other mechanism: NO
With other governments/jurisdictions: YES
Djibouti is not a member of a FATF-style regional body (FSRB).
ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:
The Government of Djibouti recognizes its growing banking sector is a vulnerable area that requires monitoring by the Central Bank’s Fraud Investigation Unit (FIU), Djibouti’s financial intelligence unit. Although the government enacted its AML law in 2002, enforcement of the law continues to be a challenge. The FIU is not operationally independent from the Central Bank and does not appear to be carrying out the core FIU functions of receiving, analyzing, and disseminating suspicious transaction reports (STRs). Djibouti makes an effort to control all formal transaction points. Informal remittance and value transfer systems are not monitored. Greater resources and independence would improve the oversight capabilities of the Central Bank and the FIU. Because of its free zones, an increasing number of banks, and the introduction of bank-free cash transfers via mobile phones, additional training and resources for the FIU continue to be critical needs. Severe resource limitations constrain the FIU’s ability to carry out its investigative and supervisory functions, as well as its ability to collect and analyze basic financial intelligence. Djibouti’s FIU has yet to forward a case for prosecution. At the regional level, the FIU works in collaboration with FIUs from member states of the Intergovernmental Authority on Development.
Law no. 112/AN/11/6ème describes the process for reporting large transactions. When a transaction involves an amount exceeding 1,000,000DJF (approximately $5,500) or is carried out under unusual/suspicious conditions, the financial institution must submit a written report detailing the origin and destination of the funds as well as the purpose of the transaction and the individuals or entities involved. The FIU tracks large currency transactions only if there is an accompanying STR.
The lack of coordination among divergent law enforcement authorities, especially security agencies, impedes investigations and adds to an environment in which it is difficult to staff in-depth investigations. Law enforcement expertise in financial investigations and targeting financial crimes is minimal. Djiboutian magistrates and judges also lack both experience and expertise in prosecuting and hearing cases involving financial crimes. The Ministry of Justice examines each predicate offense and seldom considers links to money laundering or terrorism financing unless currency is directly involved.
Djibouti will need to work to apply its AML/CFT regime in all current and planned free zones, and to all professionals involved in financial matters. Law enforcement should not wait for a money laundering or terrorism financing referral from the FIU, but rather should investigate financial crimes at the street level and in the ports. The Government of Djibouti should continue to focus on improving customs controls on cross-border currency movements, especially at land borders.
Enacted in 2011, law no. 11/AN/11/6ème describes the need to monitor and control the cross-border transportation of currency in order to ensure the currency is not utilized for terrorism financing. The law requires any movement of 1,000,000DJF (approximately $5,500) or more to be declared and justified at the border checkpoint. The border authorities must determine the origin and final destination of the funds prior to allowing the transport of the funds across the border. If the border authorities suspect terrorism financing or false declarations, they must notify the FIU and prohibit the movement of the funds.
The Government of Djibouti should enhance its record-keeping requirements, make known the number of financial intelligence reports received, and create regulatory and law enforcement benchmarks so as to measure progress in its AML/CFT regime. It should continue to pursue observer status and, ultimately, full membership in an appropriate FSRB.