Monday, July 24, 2017
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Al-Shabaab Financial Assessment

By Yaya J. Fanusie and Alex Entz, Center on Sanctions and Illicit Finance (CSIF)

Financial Overview

Al-Shabaab – the Somalia-based branch of al-Qaeda (AQ) – currently controls less territory and fewer ports than in years prior, but will likely be able to sustain itself by exploiting the country’s economic activity. Al-Shabaab probably will see its funding grow in years to come as the African Union Mission to Somalia (AMISOM) campaign draws down. The group most likely makes high tens of millions of dollars a year,2 but earned up to $100 million a year as late as 2011, before AMISOM recaptured much of southern Somalia.3 The group’s funding comes primarily from an extensive taxation system. Taxes on sugar and livestock were increasingly important to al-Shabaab in 2016, as taxes on charcoal declined.

Al-Shabaab’s current lack of port access makes smuggling and taxing shipments more difficult, though corruption within the Kenyan army controlling southern Somalia allows such activities to continue.
The group’s diverse income stream includes money from foreign donations, kidnapping, and extorting humanitarian organizations. The group’s focus on low-cost terrorist and insurgent operations, rather than formal state-building, allows it to stretch resources.

Background

Al-Shabaab formed in the early 2000s as a component of the Islamic Courts Union (ICU). The ICU grew from a merger of sharia courts in Somalia that arose to keep order in the anarchic aftermath of the overthrow of dictator Siad Barre in 1991.After this merger, the remnants of an anti-Barre militant group re-formed as the youth wing of the ICU, naming themselves al-Shabaab (“The Youth”).

In 2006, the ICU gained control of Mogadishu and surrounded the remnants of the UN-recognized Transitional Federal Government.10 Fearing that the ICU’s influence would spill over the border, Ethiopian forces invaded Somalia and took control of Mogadishu in late 2006.This led to the dissolution of the ICU but energized al-Shabaab, which regrouped in southern Somalia.

By 2009, al-Shabaab had grown stronger, capturing parts of Mogadishu and much of southern Somalia, including the vital port city of Kismayo.  In 2012, AQ formally recognized al-Shabaab as an official branch. Al-Shabaab then gained worldwide notoriety for its massacre of civilians at Nairobi’s Westgate mall in 2013, and again at Kenya’s Garissa University in 2015.

Although al-Shabaab’s conventional military strength has declined in recent years due to a 2012 split with an affiliated group, Hizbul Islam, and AMISOM offensives, the group has broadly increased its sophistication and the number of its terrorist attacks. In early 2017, despite the loss of its main ports and some defections to the Islamic State (IS), al-Shabaab began to re-expand following the withdrawal of Ethiopian troops supporting the AMISOM mission.

The group is active in Kenya, around Mogadishu, and in rural areas in southern Somalia. Al-Shabaab has recently shifted some operations to northern Somalia, likely in hopes of deepening its ties to al-Qaeda in the Arabian Peninsula (AQAP).

Access to Banking System 

Al-Shabaab has little access to conventional banking outlets, and thus extensively uses the hawala system, money transfer services, and cash couriers. The banking system in Somalia is so weak that foreign countries often transact with the Somali government in cash. As a result, a large proportion of citizens rely on mobile money services to transfer money and pay bills. Some al-Shabaab funds may interact with the banking system through these services. Indeed, al-Shabaab sympathizers in Kenya have been known to fund the group through mobile payment systems, which are ubiquitous in Kenya and often interact with the banking sector by depositing customers’ funds in commercial banks. In 2010, fearing the potential for foreign interdiction and a loss in tax revenue, al-Shabaab banned mobile banking in areas it controlled. However, al-Shabaab eventually dropped its opposition to mobile money.

In 2012, the UN sanctioned an al-Shabaab-linked individual for the 2010 creation of an anonymous mobile money network, ZAAD, that the group likely used to transfer and pay funds. By late 2014, the group frequently received extortion payments through mobile banking services, and by 2016, the group “abandoned its previous reticence to using mobile money” and paid most of its salaries with mobile banking.Th ough Somali money service businesses typically have some degree of regulation, the weakness of counter-terror finance protections led most U.S. banks to end banking relationships with Somali entities in 2015. Following the attack at Garissa University in 2015, Kenyan authorities closed 13 Somali-run money transfer businesses in Kenya46 and froze “dozens” of bank accounts believed to be linked to the group. A recently-formed Somali financial intelligence center will struggle to combat terror finance given its small staff and weak compliance systems.

Al-Shabaab has benefited from Somali businessmen who maintain banking relationships in the Gulf. These businessmen voluntarily fund al-Shabaab through a process known as trade-based money laundering, where, for example, they overestimate the value of imported charcoal from Somalia and underestimate the value of exported sugar to Somalia. This money laundering goes through bank accounts in the Gulf states. Further, al-Shabaab-linked businessmen in Somalia may sustain their trades by moving money from Somalia to bank accounts in Dubai through hawala brokers, and then by using those accounts to buy and import the goods they sell to Somalia.
Read more: Al Shabaab Financial Assessment


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