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Peace and Stabilisation Programme for the Horn of Africa
Thematic Programme C: Addressing regional threats
Peace and Stabilisation Engagement Document
Strengthening Ethiopia’s capacity to counter Money Laundering and Illicit Financial Flows
1. Background
This peace and stabilisation engagement document (PSED) provides the Danish perspective and project
plan for funding delivered under the Peace and Stabilisation Programme for the Horn of Africa, 2015-2017
(PSP-HOA). It details the context, rationale, objectives and management arrangements for PSP-HOA
support, complementing any implementer’s programme documentation or contribution agreement.
2. Context and Rationale
Ethiopia’s economy and financial sector has been developing stronger connections with international
financial systems. As this occurs, there are growing opportunities to exploits its banks, money dealers and
trade flows to transfer, conceal and launder illicit financial flows (IFFs).
The purpose of funding under this PSED is to support the development of Ethiopia’s institutional capacity in
Anti Money Laundering (AML) and countering IFFs. Danish support is provided as part of PSP-HOA’s
Thematic Programme C. Key documentation upon which this PSED is based includes:
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Baseline Study on Anti-Money Laundering and Countering the Financing of Terrorism in the IGAD
Subregion, May 2012
The Anti-Money Laundering and Countering Terrorist Financing Regime in Ethiopia, Second
Assessment Report, February 2013
World Bank, Pirate Trails: Tracking the Illicit Financial Flows from Pirate Activities, November 2013
Strengthening Anti-Money Laundering and Countering the Financing of Terrorism Capacities in
Ethiopia: Milestones and Achievements, April 2014
FATF Public Statement, 24 October 2014
Illicit Financial Flows, Report of the High Level Panel on Illicit Financial Flows from Africa, January
2015
IFFs and AML is a challenge not just in the Horn of Africa region but across Africa. A recently published
report by the Economic Commission for Africa on IFFs in Africa estimates that the continent has lost over
USD 1 trillion in the last 50 years from IFFs - a sum roughly equivalent to the Official Development
Assistance (ODA) received by African countries in the same timeframe. IFFs not only impede economic
development but are also connected to criminal activities such as money laundering and funding of
terrorist activities.1 The World Bank connects IFFs to pirate activities in the Horn of Africa region in a report
from 2013 and outlines how proceeds from piracy are moved within the region e.g. via money laundering.
The report recommends improving regional cooperation and collaboration on AML
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See IFF from Africa, p.13, 31, 40.
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and countering IFFs stating that the countries in the region “should adopt policies and procedures that
encourage cooperation, collaboration, and information sharing among all competent authorities within
countries and across the region.”2
Ethiopia has recognised the threat from IFFs and in recent years taken steps to strengthen it’s regulatory
and human capacity within its AML-regime and has achieved significant results over the last couple of
years. In 2009 Ethiopia created its legal AML-framework and established a Financial Intelligence Centre
(FIC) that began limited operations in 2011 designated as the central authority for handling moneylaundering and terrorist financing. Since 2010 Ethiopia has been part of the Financial Action Task Force’s
(FATF) monitoring process under the FATF’s on-going global AML-compliance process. Based on FATF
recommendations Ethiopia developed an action plan to strengthen its AML-regime and in October 2014
Ethiopia was removed from the list of countries under the FATF monitoring process due to significant
progress in the improvement of its AML-regime. In September 2013 Ethiopia became a member of the
Eastern and Southern African Anti-Money Laundering Group (ESAAMLG) strengthening Ethiopia’s regional
cooperation on AML-issues and establishing Ethiopia as a regional AML-capacity.
These results were achieved under the first phase of the PSP-HOA (2011-2014) as part of a capacitybuilding programme with the FIC and the Ethiopian Ministry of Justice (MOJ). The programme was
implemented by a number of technical experts including UNODC, the Danish State Prosecutor for Serious
Economic and International Crime and the Global Center on Cooperative Security (GCCS).3 GCCS was
chosen to manage the programme following a competitive tender in the first half of 2013. The programme
focused on developing the legislative and regulatory framework in Ethiopia, on exposing the FIC to
international practices and on providing basic training to Ethiopian officials primarily in the FIC and MOJ.
The Ethiopian partners have demonstrated a willingness to engage in what is likely to be a medium-term
effort in strengthening protection and punishment against illicit financial flows linked to Somali instability
and regional threats. In terms of the PSP-HOA’s balance between preventing and responding to peace and
stability challenges in the Horn of Africa, this engagement primarily consists of energising a response to
actors financing major threats.
The rationale for this engagement is:
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The regional significance of Ethiopia’s growing integration with the international financial system. Of
greatest interest are the links between Ethiopian financial systems and money associated with piracy
and violent extremist groups in Somalia and the Horn of Africa.
The potential for tighter restrictions on illicit financial flows to and from the Horn of Africa region and
especially Somalia to degrade the freedom of operation and profitability of violent extremist groups.
The potential for positive spill-overs from capacity building of Ethiopian AML-regime to drive building
of regional capacities to counter money laundering and IFFs.
The positive relationship and cooperation this work supports between Denmark and Ethiopia as well
as Ethiopia and other countries in the region.
Continued need and request for support from Ethiopia creating a high degree of local ownership and
partner driven engagement.
Demonstrated progress to date and good prospects to build on initial steps and create positive
regional spill-overs.
Pirate Trails, p. 4.
At that time called the Center on Global Counterterrorism Cooperation (CGCC).
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2.1. Implementation
The implementing partner will be identified following a new tender in the first half of 2015. The
engagement will be based on the rationale, outcome and outputs stated in this document and programme
document for PSP-HOA and will be finalised following an agreement with the Ethiopian Government
established upon identification of the implementing partner. Based on learnings from the previous AMLengagement this engagement will identify one implementing partner to keep management structures less
complicated and provide the implementing partner with a better position to coordinate activities.
3. Objectives and Results
Denmark’s objective under Thematic Programme C is to improve capacities in the region to respond to
transnational threats, focused on Danish comparative advantages. The objective of this engagement is to
improve Ethiopia’s capacity to deter, detect and punish facilitators of illicit financial flows. It would extend
and expand the existing engagement and entail both national and regional aspects of strengthening
Ethiopia’s AML-capacity.
The engagement will focus on maintaining Ethiopia’s compliance with FATF recommendations, increase the
number of cases initiated against suspected offenders and expand public awareness of AML-issues. The
engagement will broaden its scope from the first phase of the PSP-HOA to include stakeholders in both the
public and private financial sector in Ethiopia aiming at including if possible the Federal Police Commission
(FPC), the Ethiopian Revenues and Customs Authority (ERCA), the Federal Ethics and Anti-Corruption
Commission (FEACC) and National and Commercial banks in addition to the FIC and MOJ. The expansion of
the current programme is an explicit wish from the FIC that has stated that general capacity building of
Ethiopia’s financial sector is necessary to ensure the long-term success of current AML efforts.
The engagement will also focus on regional cooperation on AML-issues by strengthening Ethiopia’s
commitment to work with the ESAAMLG and other countries in the region that are not members of the
ESAAMLG, including Somalia and Djibouti. If Ethiopia identifies other international forums it wishes to
become a member of the engagement will seek to support the implementation of an action plan for
Ethiopia to apply for membership of this to facilitate sharing of financial intelligence information within a
network of other FIUs and guidance on AML-issues. Furthermore the engagement will explore options for
capacity building of Somalia’s AML-regime to establish future potential support mechanisms.
In terms of PSP-HOA’s strategy, an important indicator of success will be the development of an exit
process for small-scale Danish support, for example by transferring to a larger, governance or justiceoriented programme. As an example of a successful Danish pilot project picked up by larger programmes, a
Danish funded AML/CFT project in Kenya funded by the PSP HOA I has been taken over by the EU.
The table below shows a provisional set of results and activities expected from this engagement. A full
results framework and engagement work-plan will be finalised together with partners in an agreement
document prior to commencing implementation following the tender.
Engagement
A.1.
Strengthening Ethiopia’s capacity to counter Money Laundering and Illicit Financial Flows
Objective
Improve Ethiopia’s capacity to deter, detect and punish facilitators of illicit financial flows and strengthen
Ethiopia’s role in regional cooperation on AML-issues
Outcome
A.1.1. Maintaining compliance with FATF recommendations
Outcome
indicator
Output
# of Compliant and Largely Compliant assessments
A.1.1.1. Advice on regulations and legislation
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Output
indicator
Activities
A.1.1.1.a
Written and verbal advice confirmed by Ethiopian FIC, MOJ and other relevant stakeholders
Workshops on regulatory and legislative compliance
A.1.1.1.b
Advice as requested on methods and options for regulations and legislation
A.1.1.1.c
Outcome
Support in maintaining current standard to respond to FATF assessments
Outcome
indicator
Output
Output
indicator
Output
indicator
Output
indicator
Activities
A.1.2.1.a
A.1.2. Increased enforcement against illicit financial flows and expanding public awareness
# of cases initiated for suspected AML/CFT violations
A.1.2.1. Training delivered to FIC, MOJ and other relevant stakeholders
# of person-days of training
Trainee average rating of training quality (0-5)
Enhanced inter-governmental cooperation and public-private sector engagement
Analytical and operational training
A.1.2.1.b
Provide support in developing SOPs
A.1.2.1.c
Outcome
Communication strategy including website development and outreach campaigns
Outcome
indicator
Outcome
indicator
Output
On-going regional dialogue on AML-issues
Output
indicator
Output
indicator
Activities
A.1.3.1.a
ESAAMLG participation
A.1.3.1.b
Advice and assistance to increased engagement with Djibouti and Somalia on AML
A.1.3.1.c
Support to implementation of action plan to apply for membership of other relevant AML-groups
A.1.3.1.d
Outcome
A.1.4. More support to AML from Ethiopian Government and foreign partners
Outcome
indicator
Outcome
indicator
Output
Output
indicator
Output
Output
indicator
Output
Output
indicator
Activities
A.1.4.3.a
A.1.4.3.b
A.1.3. Ethiopia will increase its engagement in regional AML-cooperation
Broader regional cooperation and information sharing on AML
C.2.3.1 Focus on the importance of regional cooperation will increase and be incorporated as in
Ethiopia’s AML-regime
Membership of other relevant AML-groups
Advice as requested on ESAAMLG engagement
$ funding from foreign partners to develop Ethiopian financial systems
PSF no longer required on AML
A.1.4.1. Increased FIC Budget
$ FIC Budget
A.1.4.2. Liaison with other donors
# reports of donor interest
A.1.4.3. Ethiopian Government requests support from other donors
# of reports of Ethiopian requests
Advice to FIC in Budgeting for capacity development
Advice and assistance to Ethiopian Government in approaching other donors
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A.1.4.3.c
Advice as requested on methods and options for regulations and legislation
A.1.4.3.d
Support in responding to FATF assessments
4. Inputs
PSP-HOA allocates DKK 10 million to this engagement. It represents a relatively small amount in the overall
programme, generated by considering costs of achievements so far on this theme and budgeting for a
continuation. The table below shows Danish funding to the implementing partner under this PSED. The
budget is based on experience in prior programming and expected costs of continuation. No other inputs
are foreseen, beyond Danish input into the management arrangements described below.
Budget
2015
2016
2017
Total
2
4
4
10
DKK million
5. Management Arrangements
RDE Addis Ababa will sign a contribution agreement with the implementing partner reflecting the results,
budget and management arrangements described in this PSED. RDE Addis Ababa will consult with FIC, MOJ
and other relevant stakeholders to establish a new agreement with the Government of Ethiopia that will be
signed by the Ethiopian Ministry of Finance and Economic Development (MOFED). Roles and
responsibilities for managing this engagement are as follows:
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The implementing partner is responsible for achieving the engagement’s results within budget and
on time.
RDE Addis Ababa is the engagement owner and has responsibility for supporting, monitoring and
reporting on progress by the implementing partner.
The primary beneficiary institutions are the FIC and the Ministry of Justice in addition to other
stakeholders found relevant to include following the tender process.
5.1. Financial Management
The engagement contribution agreement will reflect the implementing partner’s responsibility for following
financial management best practices. These include strict adherence to any auditor’s recommendations in
respect of previous years’ accounts, and strict adherence to existing financial management tools, including
updated financial/accounting manuals, financial management software system, procurement manual,
monitoring and evaluation manual and chart of accounts. Financial management best practices also include
the allocation of sufficient human resources to manage the financial affairs of the organisation, and the
application of adequate checks and balances, such as joint signatories, payments and receipts control,
preparation of monthly accounts and bank reconciliations, debtor and creditor reconciliations, regular
reporting, and unannounced cash checks. It is also expected that the organisation will produce any financial
reports, including the latest audit reports and auditors’ management letters, upon request from RDE Addis
Ababa and without delay.
Failing satisfactory implementation of the above, Danish support may be withdrawn and a claim for refund
of monies previously transferred may be made, and, in case of gross negligence, mismanagement or
outright abuse, legal redress may be sought. The Danish funding will be part of the annual external
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independent audit of the institution. The implementing partner will provide semi-annual financial reports
reflecting the full contributions to the organisation from all funding sources as well as annual audit reports.
5.2. Monitoring and Evaluation
The implementing partner will provide quarterly updates on progress, challenges and plans. Progress will
be monitored against the results framework included in this PSED. As the engagement manager, RDE Addis
Ababa has responsibility for assessing the quarterly updates and semi-annual reporting and feeding these
into the PSP-HOA’s monitoring and evaluation system at the programme level.
The PSP-HOA includes a budget for third-party monitoring and the implementing partner’s activities may be
included occasionally in the tasking for the third-party monitor. The implementing partner will also make its
organisation available for review of the PSP-HOA and may be included in a sample for any Danish
programme-level evaluation.
6. Risk Management
The PSP-HOA programme document provides an overview of contextual, programmatic and institutional
risks involved in Denmark’s programme overall. In the table below, engagement-level risks are presented as
risk triggers, showing potential mitigating measures and responses from RDE Addis Ababa and the
implementing partner.
Likelihood: Rarely – Unlikely – Likely – Almost certain -- Impact: Insignificant – Minor – Major – Significant
Risk factor
Likelihood
Combined
residual
risk
Impact
Risk response
Major
The funds supporting this engagement will
only be disbursed to the implementing
partner significantly reducing the risk of
corruption or diversion of funds.
Minor
Minor
RDE Addis Ababa will continue as planned to
reach an agreement with the Ethiopian
MoFED. The process can however be
prolonged due to the election causing
commencement of activities to be delayed.
Minor
Major
RDE Addis Ababa and implementing partner
will adjust activities to match the human
resources. Staff turnover in the MOJ has been
a challenge during the first phase of the
engagement and caused for an additional
DKK 200.000 to be provided to the
implementing partner to meet objectives.
Major
Major
RDE Addis Ababa will ensure political buy-inn
from relevant government agencies when
establishing a new partner agreement
between Denmark and Ethiopia before
activities commence.
Minor
Programmatic Risks
Corruption and diversion of
funds
Upcoming elections in
Ethiopia in May 2015 causing
delay in a signed agreement
due to government officials
being delegated to election
related tasks
Unlikely
Likely
Institutional Risks
High turn-over of staff in
Ethiopian government
agencies
Lack of political buy-inn
from Ethiopian Government
Likely
Unlikely
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