The growing cooperation between the United States and Somalia highlights the critical importance of targeting financial networks that enable extremist groups. Terrorist financing is not only a security threat but also a systemic challenge that undermines fragile financial systems. Somalia’s institutions, long burdened by instability and corruption, face renewed urgency in strengthening oversight as Al-Shabaab and ISIS continue to exploit loopholes in the financial ecosystem. The recent bilateral meeting in Mogadishu demonstrates how both countries intend to disrupt illicit flows, reinforce anti-money laundering frameworks, and build resilience against financial crime.

Terrorism financing networks in Somalia

Terrorism financing in Somalia has deep historical roots, tied to decades of instability following the collapse of central government in 1991. With state institutions weakened, armed groups filled the power vacuum and began building parallel economic systems. These groups relied on extortion, illegal taxation, and smuggling to finance operations, practices that persist today under Al-Shabaab.

Throughout the 2000s, Al-Shabaab gained notoriety as one of the wealthiest militant groups in Africa, generating millions annually through illicit activities. They perfected the system of demanding “zakat” or compulsory payments from businesses, farmers, and transport operators. Ports under their influence became lucrative hubs for taxing imports and exports, with charcoal smuggling to the Middle East providing a significant revenue stream until international embargoes sought to shut it down. Despite such measures, front companies and forged paperwork allowed the trade to continue underground.

ISIS entered Somalia later, carving out pockets of influence in Puntland. Though smaller in scale, their financial methods mirrored Al-Shabaab’s, with heavy reliance on extortion and transnational fundraising. Diaspora networks have also been exploited, with sympathizers abroad channeling funds under the guise of remittances. Hawala, the traditional money transfer system vital for ordinary Somalis, has been misused as a discreet conduit for extremist financing.

Efforts to clamp down on these practices have faced serious challenges. Limited regulatory capacity, corruption, and a cash-heavy economy mean financial trails are often hard to trace. FATF has long urged Somalia to improve monitoring of suspicious transactions, customer due diligence, and cross-border currency reporting. While Somalia has made progress, the sheer adaptability of extremist groups has kept terrorism financing alive.

Joint US-Somalia actions against financial crimes

The United States has consistently been a central partner in efforts to dismantle Somalia’s terrorism financing channels. As far back as 2001, US authorities began targeting hawala companies suspected of funneling funds to extremist networks. Notably, Al-Barakat, once Somalia’s largest hawala operator, was sanctioned under suspicion of links to al-Qaeda financing. Though many of these measures were controversial and sometimes disrupted legitimate remittances, they reflected Washington’s determination to address the financial underpinnings of terrorism.

Over the years, US sanctions have become more precise, focusing on individuals and entities tied to Al-Shabaab and ISIS. Networks extending into the Gulf and Europe have been disrupted through coordinated intelligence sharing. These sanctions freeze assets and cut off access to international banking, severely restricting extremist groups’ ability to move funds across borders.

Somalia has responded by gradually building its own legal framework. The 2016 Anti-Money Laundering and Countering the Financing of Terrorism Act was one of the first comprehensive laws, establishing the Financial Reporting Center to monitor suspicious activity. In 2023, the Anti-Terrorism Law introduced broader definitions of financing and increased penalties. These measures represent Somalia’s attempt to align with global standards and show commitment to cutting off illicit financial flows.

The most recent cooperation between the Somali Attorney General and the US Ambassador emphasizes practical steps, from training compliance officers to deploying monitoring tools. Together, they aim to strengthen oversight bodies, create technical systems capable of identifying red flags, and ensure law enforcement can follow financial trails. These actions complement broader counterterrorism operations that target the physical structures of Al-Shabaab and ISIS.

Historical evolution of counter-financing measures in Somalia

The history of combating terrorism financing in Somalia is inseparable from the history of the country’s prolonged conflict. Following the fall of Siad Barre’s regime in 1991, warlords, militias, and later Islamist groups built parallel administrations funded by illicit revenues. During the 1990s and early 2000s, piracy off Somalia’s coast generated hundreds of millions of dollars, some of which made its way to armed groups. As piracy declined due to international naval interventions, extremist groups pivoted to new income streams.

Al-Shabaab, which emerged in the mid-2000s, became adept at integrating into local economies. Their taxation systems resembled formal revenue collection, complete with receipts and enforcement mechanisms. Farmers in southern Somalia were forced to pay levies on crops, while truck drivers and traders faced checkpoints where “fees” were collected. By embedding themselves in everyday commerce, Al-Shabaab ensured a steady flow of cash.

International embargoes sought to cut off certain industries. The UN ban on Somali charcoal exports, first imposed in 2012, aimed to halt one of Al-Shabaab’s key revenue sources. However, enforcement proved difficult, with shipments often disguised and routed through neighboring countries. The persistence of this trade illustrated the challenges of tackling terrorism financing in a region where borders are porous and enforcement capacities weak.

Over time, Somalia introduced legal reforms under pressure from the international community. The establishment of the Financial Reporting Center was a turning point, as it provided a national body tasked with receiving and analyzing suspicious transaction reports. Yet the system has struggled with limited resources, making international support indispensable. Programs funded by the European Union, the United Nations, and the United States have sought to build Somalia’s compliance culture, train regulators, and equip law enforcement with the skills to trace illicit flows.

Sanctions also played a historical role. US Treasury measures targeted not only Al-Shabaab operatives but also businesspeople who acted as intermediaries. These designations disrupted networks that otherwise operated in plain sight. As late as 2021 and 2022, new sanctions were issued against money exchange firms and individuals accused of laundering funds for extremists. This evolving pressure demonstrates the long-term strategy of cutting off terrorism financing step by step.

Path forward in strengthening Somalia’s financial system

The future of Somalia’s fight against terrorism financing depends on building sustainable institutions capable of resisting infiltration by criminal actors. The focus must remain on strengthening the financial intelligence unit, equipping the central bank to enforce compliance, and integrating private sector actors such as banks and hawala providers into a culture of vigilance. Without cooperation from the financial industry, regulatory reforms alone will not suffice.

Technology will also be crucial. Automated monitoring systems, biometric verification for customers, and blockchain-based transaction tracing offer tools to reduce vulnerabilities. For Somalia, adopting such tools requires investment and training, areas where international partners play an essential role. US support, alongside regional programs, provides a foundation for building the resilience necessary to outpace extremist adaptation.

There are broader economic stakes as well. Somalia’s journey toward debt relief under the Heavily Indebted Poor Countries initiative requires demonstrable improvements in governance and financial transparency. Successfully cutting off terrorism financing will boost investor confidence, attract remittances into formal channels, and create opportunities for legitimate businesses. Conversely, failure to contain illicit flows risks perpetuating a cycle of insecurity and economic stagnation.

Disrupting terrorism financing is not a campaign with an end date. Extremist groups evolve, adapt, and seek new loopholes as old ones close. For Somalia, the challenge is to maintain momentum, build durable institutions, and demonstrate that financial governance is a core element of national security. With continued international support, particularly from the United States, the vision is to build a financial system where illicit actors cannot thrive and where extremist financing is reduced to a fraction of its former power.

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Related Links

• United Nations Office on Drugs and Crime
• Financial Action Task Force
• US Department of the Treasury
• Central Bank of Somalia

Other FinCrime Central Articles About Fighting Terrorism Financing

• South Africa’s Terror Financing Crisis: The Unchecked Flow of Extremist Funds
• Joint Action by TFTC Disrupts Al-Shabaab’s Terrorist Financing Operations
• Hezbollah’s Secret Car Trade Networks in Canada Fuel Billions in Dirty Money

Source: The Eastleigh Voice, by Abdirahman Khalif

Some of FinCrime Central’s articles may have been enriched or edited with the help of AI tools. It may contain unintentional errors.

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