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Sleeping With the Enemy
Exclusive: Somalia Central Bank a 'slush fund' for private payments - U.N.
(Reuters) - Money at the Central Bank of Somalia is not used to run government
institutions in the war-torn Horn of Africa country, with an average 80 percent
of withdrawals made for private purposes, according to a U.N. report seen by
Reuters on Monday.
The confidential report by the U.N. Group of Experts to the Security
Council's Somalia and Eritrea sanctions committee blamed a patronage system -
dubbed the "khaki envelope" practice after the color of the stationery carried
to the Ministry of Finance - for preventing the creation of state
institutions.
"In this context, the fiduciary agency managed by PricewaterhouseCoopers was
reduced to a transfer agent that could not ensure accountability of funds once
they reached the Somali government," the report said.
"Indeed of $16.9 million transferred by PWC to the Central Bank, $12 million
could not be traced," it said. "Key to these irregularities has been the current
governor of the Central Bank, Abdusalam Omer."
PricewaterhouseCoopers, Omer and the Somalia U.N. mission did not immediately
respond to requests for comment.
Omer, 59, is a dual Somali-U.S. national who left Somalia at age 16 and
returned in January to become governor of the Central Bank in a country with a
shattered economy and broken financial system.
The overthrow of a dictator in 1991 plunged Somalia into two decades of
violent turmoil, first at the hands of clan warlords and then Islamist
militants, who have steadily lost ground since 2011 under pressure from an
African Union military offensive.
Somalia was virtually lawless and unable to assert authority until a
Western-leaning government was elected last year.
The U.N. report said all bank decisions were made by Omer because there were
no board members in place and the bank does not operate as a government body
subject to policy decisions or oversight from integrity institutions and
parliament.
"On average, some 80 percent of withdrawals from the Central Bank are made
for private purposes and not for the running of government, representing a
patronage system and a set of social relations that defy institutionalization of
the state," it said.
The experts said Somali Finance Minister Mohamud Hassan Suleiman had tried to
reduce the scale of the patronage system, but "it is so pervasive as to be
beyond his control without a fundamental restructuring of the system."
CENTRAL BANK A "SLUSH FUND"
Under the patronage system, a person can ask Somali leaders for a private
payment "that cannot be resisted for personal or other reasons," the U.N. report
said. A senior politician signs a note authorizing the payment, which is honored
either directly at the Ministry of Finance or the Central Bank, the report
said.
"This custom is also called the 'khaki envelope' procedure on account of the
color of the envelopes seen carried to the Ministry of Finance," it said. "Since
banks in Somalia, including the Central Bank, cannot make electronic transfers
internally or externally, all transactions are made in cash."
The report found that between September, when the new government of President
Hassan Sheikh Mohamud came to power, and April, almost three-quarters of
withdrawals from the Central Bank were made for private individuals.
"Such statistics indicate that the CBS has effectively functioned as a 'slush
fund' for the (patronage) system rather than as a financing mechanism for
government expenditures," the U.N. experts said.
The report noted that Mohamud's government "cannot necessarily be faulted for
the continuing patterns of corruption per se, but it can be held responsible for
the appointment of individuals involved in past or present corruption."
According to Central Bank accounts, a cashier at the Ministry of Finance,
Ahir Axmed Jumcaale, was responsible for withdrawing the greatest amount of
funds.
The report said that between 2010 and 2013 Jumcaale withdrew $20.5 million in
his name, which was then used for individual payments under the patronage system
by successive finance ministers or finance officials.
An individual named Colonel Abdiqaadir Moalin Nuur took out $4.7 million
between 2010 and 2013, the second largest amount of money, according to the
report, which said there was no explanation for his withdrawals.
The International Monetary Fund officially recognized the Somali government
in April, ending a 22-year hiatus, and last week offered technical support and
advice, a first step in efforts to secure debt relief for the country.
Also last month, the Central Bank of Somalia published its first annual
report since civil war erupted in 1991, putting the total debt at $3.2 billion.
To win debt relief offered to poor nations, it has to draw up a financial
management plan.
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