State and institutional capacity in combating money laundering and terrorism financing in armed conflict. The Central Bank of Syria
| Pages | 155-172 |
| DOI | https://doi.org/10.1108/JMLC-04-2019-0033 |
| Date | 15 January 2020 |
| Published date | 15 January 2020 |
| Author | Ebrahim M.R. Lababidi |
| Subject Matter | Financial compliance/regulation,Accounting & Finance |
State and institutional capacity in
combating money laundering and
terrorism financing in
armed conflict
The Central Bank of Syria
Ebrahim M.R. Lababidi
Munk School of Global Affairs and Public Policy, University of Toronto,
Toronto, Canada
Abstract
Purpose –The purpose of this paper is to explore the relationship and implications of institutional
autonomy and capacity throughthe Central Bank of Syria in its ability to implement an effective anti-money
laundering (AML) and counter-terrorism financing (CTF) framework during a period of intense armed
conflict.
Design/methodology/approach –Due to the lack of reliable data currently available on Syria, this
paper focuses on Syria’s AML/CTF legislation through passed laws and regulations; annual reports on
the Central Bank of Syria and the AML and terrorism financing authority; the academic literature on
money laundering, terrorist financing and institutional capacity. This paper will address the theoretical
framework of Coleman and Skogstad’s characteristics that define the degree of autonomy and capacity
of an institution. Though their characteristics are applied toward the Canadian state, for the purpose of
this paper, they have been adopted in the absence of their use verbatim in the case of the Central Bank of
Syria.
Findings –The Central Bank of Syria has experienced diminishing independence due to conflict-
induced stress in Syria’sfinancial sector. This loss of autonomy is attributed to the prioritization of
government-led emergency policies to secure and stabilize Syria’s economy. Despite this loss, the
Central Bank of Syria has maintained considerable and effective improvements in Syria’sAML/CTF
framework, aligning it closer to that of international standards promoted by the Financial Action Task
Force (FATF). Institutional gaps, however, still exist. These gaps imply that the Central Bank of Syria
still lags in a number of areas that affect its capability in implementing a more effective AML/CTF
framework.
Research limitations/implications –The conflict in Syria is still a very new topic that lacks a
considerable amount of reliable data. As such, many research limitations were encountered despite the
volume of informationreviewed for this paper in both Arabic and English. Nevertheless,this paper provides a
clearer understanding of how state capacity is reflected in its institutions through certain policies and
approaches takenby a central monetary authoritywith implications and results in a country rattled by years
of intenseconflict.
Practical implications –Despite the research limitationsand implications, this paper provides a clearer
understanding of how state capacity is reflected in its institutionsthrough certain policies and approaches
taken by a central monetary authoritywith implications and results in a country rattled by years of intense
conflict. This can be useful for institutional policymakers, as well as academics exploring the relationship
between the stateand its institutions in times of hardship.
Originality/value –Though there is AML/CTF literature on Middle Eastern countries such as Egypt,
Jordan and Saudi Arabia, very little is written on Syria. There is also very little written on the broader
subject of state and institutional capacity through the lens of an effective AML and CTF framework
during a period of intense armed conflict. By looking at an ongoing conflict, this paper explores a
The Central
Bank of Syria
155
Journalof Money Laundering
Control
Vol.23 No. 1, 2020
pp. 155-172
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-04-2019-0033
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1368-5201.htm
subject with as much detail as needed to provide an illustration of the relationship and implications of
institutional autonomy and capacity in relation to the state through an effective AML/CTF framework
inacountrywithastrugglingfinancialsystem.
Keywords Syria, Central Bank of Syria, Central bank, Money laundering, Anti-money laundering,
Counter-terrorist financing, AML/CTF, Autonomy, Capacity, State, Autonomy
Paper type Case study
Introduction
Money laundering is a transnational issue that requires international cooperation
(Keesoony, 2016, p. 136). In response to this characteristic, committees, frameworks and
institutions such as the Basel Committee on Banking Supervision (BCBS), the International
Convention for the Suppression of the Financing of Terrorism and the Financial Action
Task Force (FATF) were createdto better coordinate cross-border regulatory efforts. Within
these efforts, central banks play a crucial role as the core authority of a country’sfinancial
institutions. This responsibility is derived from the integration of commercial banks in an
economy that “make them highly vulnerable to money laundering”(Simwayi and Guohua,
2011, p. 328). In many countries,the central bank acts as a liaison between the state and the
financial sector. This relationship changes the way we think about state capacity through
the direct and indirect roles centralbanks play in addressing money laundering.
To date, the literature on money laundering in the Middle East has focused largely on
countries such as Jordan, Turkey, Egypt and Saudi Arabia through comparisons and case
studies (Abu Olaim and Rahman, 2016;Khan, 2013;Türksen et al., 2011,Truby, 2016;
Mouawad, 2009;Ridley and Alexander,2011). There has been scant attention on Syria. This
is unfortunate, as Syria has always played a central role in the Middle East through its
strategic position (Kazemi and Jegarlouii, 2017, p. 64). Even during the conflict, the
embattled country remains a key player in regional affairs. There are two reasons to focus
on Syria: First, the potential failure of Syria’sfinancial institutions in addressing money
laundering have regional and international implications (Abu Olaim and Rahman, 2016,
p. 74). These implications are a result of terror groups and other individuals taking
advantage of the conflict throughSyria’s institutions to launder money (Solomon and Mhidi,
2017). The anti-money laundering and counter-terrorist financing (AML/CTF) efforts of
neighboring countries are not enough to contain the illicit financial activity caused by
regional instability. Second, the literature has not directly focused on the relationship
between money laundering and conflict. AML policies are effective with a stable financial
system, but what happens when that system breaks down as a result of armed conflict?
Although attempts were made to step up AML efforts, limited resources, capacity and
regulatory authority contribute to an inadequate response. This points to the transnational
nature of money laundering noted earlier,which demonstrates that proper AML/CTF policy
relies on individual statesto perform a certain role, and if they fail to do that, this role cannot
be filled by another and can affect internationalefforts.
The Syrian government is well aware of the threat of money laundering and terrorist
financing; this is mirrored in its legislative efforts on combating illicit financial activities
within the country, especially duringthe conflict. The real indicator, however, is reflected in
the autonomy and capacity of the Central Bank of Syria as the country’s primary financial
regulatory authority (Ghandour,2017, p. 19). Using Coleman and Skogstad’s characteristics
(Coleman and Skogstad, 1990, p. 15, 16) thatdefine the degree of autonomy and capacity of
an institution, this paper will analyze two critical aspects of the Central Bank of Syria that
influence its ability to combat money laundering and terrorist financing. First, it is
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