US-Somalia Cooperation Intensifies in Crackdown on Terrorist Financing Networks

The growing partnership between the United States and Somalia underscores the urgency of dismantling the financial networks that sustain extremist groups.

Terrorist financing has become not only a direct security concern but also a systemic threat that destabilizes fragile financial systems. Somalia’s institutions, already strained by decades of instability and corruption, are under pressure to reinforce oversight as Al-Shabaab and ISIS continue to exploit gaps within the financial ecosystem. The latest bilateral meeting in Mogadishu reflects a renewed joint commitment to disrupt illicit financial flows, strengthen anti-money laundering frameworks, and build long-term resilience against financial crime.

The roots of terrorism financing in Somalia stretch back to the collapse of central government in 1991, when weakened state institutions gave way to armed groups that filled the vacuum with parallel economies. Al-Shabaab in particular emerged as one of Africa’s wealthiest militant groups, generating millions annually through extortion, illegal taxation, and smuggling. The practice of demanding “zakat” from farmers, businesses, and transport operators became institutionalized, while ports under militant control turned into revenue hubs where imports and exports were taxed. Charcoal smuggling to the Middle East, once one of their most profitable ventures, persisted even after embargoes, with front companies and forged documents sustaining the trade.

ISIS later carved out territory in Puntland, relying on methods similar to Al-Shabaab’s. Though smaller in scale, ISIS used extortion and transnational fundraising to sustain its presence. Diaspora communities abroad were also exploited, with funds sent under the guise of remittances. Hawala, a vital money transfer system for ordinary Somalis, has often been misused as a discreet channel for extremist financing.

Efforts to contain these networks have long been hindered by corruption, limited regulatory capacity, and a cash-driven economy where financial trails are easily obscured. FATF has repeatedly called on Somalia to improve transaction monitoring, customer due diligence, and cross-border reporting. While progress has been made, extremist groups have proven remarkably adaptable.

Washington has been a central partner in tackling these flows for decades. As early as 2001, US authorities targeted hawala operators suspected of moving funds to extremists, most notably sanctioning Al-Barakat, then Somalia’s largest hawala company, over alleged links to al-Qaeda. While controversial, and at times disruptive to legitimate remittances, these actions signaled Washington’s determination to cut terrorism financing at its source. Since then, US sanctions have become more targeted, aimed at individuals and entities tied directly to Al-Shabaab and ISIS, with networks in Europe and the Gulf disrupted through intelligence coordination. By freezing assets and cutting banking access, these measures have curtailed extremists’ ability to operate transnationally.

Somalia has responded by advancing its own legal framework. The 2016 Anti-Money Laundering and Countering the Financing of Terrorism Act established the Financial Reporting Center to monitor suspicious activity. In 2023, the Anti-Terrorism Law expanded definitions of terrorist financing and increased penalties. These steps reflected Somalia’s attempt to align with global standards and demonstrate commitment to tackling illicit flows.

The most recent cooperation between the Somali Attorney General and the US Ambassador places emphasis on practical measures, including training compliance officers, deploying monitoring tools, and strengthening law enforcement’s capacity to trace financial networks. These efforts run parallel to counterterrorism operations aimed at dismantling the physical infrastructure of Al-Shabaab and ISIS.

The fight against extremist financing in Somalia has evolved alongside the country’s long conflict. After Siad Barre’s fall in 1991, militias and Islamist groups funded parallel administrations with revenues from illicit trades. Piracy in the 1990s and early 2000s generated hundreds of millions of dollars, with portions flowing to armed factions. As piracy waned under international naval patrols, groups shifted to new sources of income. Al-Shabaab perfected a taxation system that mimicked formal revenue collection, issuing receipts and enforcing levies on farmers, truckers, and traders. By embedding themselves within local commerce, militants ensured consistent revenue.

International embargoes, such as the UN’s 2012 ban on Somali charcoal exports, sought to cut key revenue streams, but enforcement proved difficult. Shipments continued, often disguised and routed through neighboring states. This persistence highlighted the structural challenges of shutting down illicit financing in a region with porous borders and weak enforcement.

Somalia’s legal reforms, including the establishment of the Financial Reporting Center, marked significant milestones, but resource shortages limited their impact. International assistance, particularly from the United States, the European Union, and the United Nations, has been essential in building Somalia’s compliance capacity, training regulators, and equipping law enforcement with tools to follow illicit money.

US sanctions have also been critical in disrupting businesspeople and money service providers who facilitated extremist financing. Even in 2021 and 2022, new designations targeted money exchange firms and individuals laundering funds for Al-Shabaab, reflecting a long-term strategy of incrementally dismantling financial support structures.

Looking forward, Somalia’s ability to contain extremist financing will depend on creating sustainable institutions resilient to corruption and infiltration. Strengthening the financial intelligence unit, empowering the central bank to enforce compliance, and integrating private-sector actors such as banks and hawala operators into a culture of vigilance remain top priorities. Regulatory reform alone will not suffice without cooperation from the financial industry.

Technology will be central to future efforts. Automated monitoring systems, biometric customer verification, and blockchain-based transaction tracing represent potential solutions, but implementing them requires both funding and training. Here, continued US support and broader regional cooperation are expected to play a crucial role.

Somalia’s progress has wider economic implications. Under the Heavily Indebted Poor Countries initiative, debt relief hinges on improvements in governance and financial transparency. Success in cutting extremist financing could strengthen investor confidence, channel remittances into formal banking, and foster legitimate business activity. Failure, however, risks perpetuating insecurity and economic stagnation.

Ultimately, combating terrorism financing is an ongoing struggle with no clear endpoint. Extremist groups will continue to adapt and seek new loopholes as old ones are closed. For Somalia, the task ahead is to sustain momentum, build durable institutions, and prove that financial governance is central to national security. With sustained international partnership, particularly from the United States, the long-term vision is a Somali financial system resilient to exploitation and hostile to extremist financing.

By fLEXI tEAM