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S E C R E T ASMARA 000158 
 
SIPDIS 
 
NOFORN 
 
SIPDIS 
 
LONDON FOR AFRICA WATCHERS, PARIS FOR AFRICA WATCHERS 
 
E.O. 12958: DECL: 02/16/2017 
TAGS: PGOV PINR ECON EFIN ER
SUBJECT: REMITTANCES AND HARD CURRENCY: ERITREA'S LIFELINE 
 
Classified By: AMB. Scott H. DeLisi for reasons 1.4 (b) and (d). 
 
¶1. (S/NF) SUMMARY: As the Government of Eritrea (GSE) and its 
sole political party, the PFDJ, continue to hold the Eritrean 
economy in a strangle-hold, the economy continues to circle 
the drain, making hard currency and remittances the critical 
factors for Eritrea's on-going economic survival.  The IMF 
estimates Eritrea receives over USD 450 million each year in 
remittances, representing over 50% of Eritrea's GDP. 
Eritreans in the diaspora are required to pay 2% of their 
annual income in taxes to the (GSE) at Eritrean Embassies and 
Consulates overseas in order to receive any services.  Many 
complement this 2% by sending money, through legal and 
illegal means, to their family members in Eritrea.  In 
addition, the Eritreans' desperation for hard currency has 
led to severe restrictions on foreign exchange within 
Eritrea.  Meanwhile, the lack of transparency in banking and 
finances in Eritrea raises questions and concerns about how 
the GSE organizes the movement of funds throughout the world. 
 End Summary. 
 
 
THE INFAMOUS 2% AND OFFICIAL GOVERNMENT INCOME 
--------------------------------------------- - 
 
¶2. (S/NF) In order to receive any services from the GSE - 
including birth certificates, marriage certificates, and exit 
visas when you come for a visit ) all Eritrean citizens 
living abroad must pay a tax of 2% of their annual income 
earned overseas.  The income tax must be paid in hard 
currency, such as dollars, euros, Saudi riyals, or UAE 
dirhams, to the closest Eritrean Embassy/Consulate or in 
certain circumstances can be paid while visiting Eritrea. 
The GSE does make exceptions for students, youth, elderly and 
others with no income, however, they still must present 
themselves at least once per year to the Eritrean 
Embassy/Consulate to certify their circumstances. Acquiring 
citizenship in their country of residence does not result in 
the GSE relinquishing its claim on their income. 
 
¶3. (S/NF) In the past many Eritreans in the U.S. claimed they 
earned minimum wage and paid their 2% based on a 40 hour 
minimum wage work week.  Recently, the GSE has eliminated 
this loophole.  Now Eritreans in the U.S. must present their 
IRS W2 form as proof of income.  For Eritreans in the Middle 
East or Europe, the Embassies prefer dollars or euros, 
however, Post has received reports that in Jeddah, the 
Embassy will accept Saudi riyals, and dirhams are accepted in 
Dubai. 
 
¶4. (S/NF) The GSE takes this 2% seriously and appears to have 
a well coordinated system of tracking payments.  A recent 
U.S. immigrant visa (IV) recipient encountered this when he 
applied for his exit visa to depart Eritrea.  Upon appearing 
at the government office to apply, the government official 
insisted on knowing the name of his sponsor in the U.S.  The 
official then took the name and asked the IV recipient to 
return at a later date.  At the second meeting, the official 
informed the IV recipient that until his sponsor paid his 2%, 
the IV recipient would not be able to obtain his exit visa. 
In the end, the sponsor paid the 2% and the IV recipient was 
issued an exit visa. 
 
¶5. (S/NF) Recently, Poloff spoke with an Eritrean business 
person about the taxes paid by Eritreans.  The Eritrean, who 
frequently travels outside of Eritrea, explained that for 
items being imported from Saudi Arabia, the importers are 
being permitted to pay the customs fees and other taxes in 
Saudi Arabia in Saudi riyals at the Eritrean 
Embassy/Consulate in Jeddah.  Once the customs is paid in 
Saudi Arabia, upon arrival in Eritrea the importer does not 
pay customs again.  Thus, the GSE is taking the tax in an 
exchangeable currency, the riyal, and creating a work around 
so the GSE can avoid receiving its own currency. 
 
GETTING THE MONEY INTO THE GSE'S OR PFDJ'S COFFERS 
--------------------------------------------- ----- 
 
¶6. (S/NF) With the GSE collecting all the money overseas, the 
questions remain: where does it go and how does it get back 
to Eritrea?  In the past, Post received reports that the 
Eritrean Embassies and Consulates took a percentage of the 
money paid in order to cover operating expenses.  They could 
also use official banking mechanisms to transfer the money 
back.  However it appears as though the GSE uses more 
unorthodox methods as well to move its cash. 
 
¶7. (S/NF) In a recent meeting with a well-traveled Eritrean, 
the Eritrean confessed to the Poloff that the GSE had 
previously asked him to hand carry a briefcase of cash to 
Eritrea.  He further asserted that the GSE sends money back 
to Eritrea in the diplomatic pouch, and that the Eritrean 
diplomat,s primary function is to serve as couriers for the 
cash collected.  He went on to state that Eritrean officials 
such as Hagos Ghebrehiwot, the former Eritrean Ambassador to 
the U.S.; Yemane Ghebreab and other Eritrean officials 
frequently hand-carry cash between Europe, the Middle East 
and Eritrea. (NOTE: For travel within the Middle East and 
Northern Africa, they often travel on chartered plans and are 
most likely exempted from traditional customs and immigration 
requirements by their regional neighbors.  End note.) 
 
¶8. (S/NF) The Eritrean, sharing an experience he had when 
working with an international company, also told us that when 
the GSE submitted to the company the information on the 
transfer of funds to Eritrea, the account provided to the 
company was not a GSE account but rather an account held in 
the name of a prominent GSE official. (Note: The Eritrean 
implied the account was in the name of the President, 
however, when pressed, he declined to provide the name. End 
note.)  He also pointed Poloff to a January 4, 2000 article 
in the Financial Times that noted that Eritrea was in the top 
10 for countries with the largest percentage growth in 
anonymous deposits in Swiss banks.  Included in this list 
were Vietnam, Albania, Sierra Leone, Zambia and Benin. 
 
LEGAL TRANSFERS TO ERITREA: HIMBOL AND THE TWO BANKS 
--------------------------------------------- -------- 
¶9. (S/NF) Money can be transferred legally into Eritrea 
through two mechanisms: Himbol Financial Exchange ) 
Eritrea's Western Union - and between banks.  Owned by the 
PFDJ, individuals and businesses overseas may wire money back 
to Eritrea through Himbol.  The individual pays in dollars or 
another foreign currency at Western Union, any money exchange 
or any bank overseas, and the recipient is paid in Eritrea by 
Himbol in nakfa.  The transfer is exchanged at the GSE 
official rate of 15 nakfa to 1 USD.  For these types of 
transfers, there is no prohibition against sending foreign 
currency to Eritrea as long as it is paid out in nakfa. 
Himbol charges a 10% service fee that is charged to the 
foreign currency.  For example, if an individual sends USD 
100, the recipient receives USD 90 the equivalent in nakfa 
(1350). 
 
¶10. (S/NF) In addition to Himbol money can be transferred 
from Western Union (or its equivalent) or a bank directly to 
an Eritrean Bank.  There are two banking institutions in 
Eritrea, the Eritrean Commercial Bank owned by the GSE and 
the Housing and Commerce Bank owned by the PFDJ.  Money can 
be wired directly to these banks.  Unless the recipient has a 
foreign currency account in the bank, the money is paid out 
in nakfa.   For transfers to an Eritrean bank where the 
recipient does not maintain an account (either in nakfa or 
dollars) the fee varies from 10-20% depending on the amount 
of money transferred, the smaller the amount transferred the 
higher the service charge.  For bank to bank transfers (a USD 
account in a U.S. bank to a nakfa account in an Eritrean 
bank) the service charge varies from 5-10% and again the 
smaller the amount the higher the fee. 
 
¶11. (S/NF) In order to conduct the transfers, Himbol and the 
two Eritrean banks use a correspondence/routing bank.  The 
head of the Eritrean Housing and Commerce Bank told Poloff 
there are five correspondence banks used by the two Eritrean 
banks.  Three of them are Chase Manhattan, Citibank and 
Deutche Bank. 
 
 
MY GRANDMA NEEDS SOME CASH(SENDING MONEY TO MY FAMILY 
--------------------------------------------- -------- 
¶12. (S/NF) Many family members use Himbol, the PFDJ owned 
"Western Union" of Eritera, and the banks, however, many use 
other informal systems to send money to family members in 
Eritera.  In interviews with immigrant visa applicants, many 
concede that their family members in the U.S. send them U.S. 
dollars via the U.S./Eritrean postal services while others 
ask people to hand-carry the money for them from the U.S. or 
Europe to Eritrea.  When individuals bring in the money with 
them, the person carrying the cash must make the choice to 
either legally declare it at the airport or to try to sneak 
it in without declaring it.  U.S. Embassy foreign nationals 
are often asked by Eritreans in the U.S. to serve as a money 
courier when they go for training. If the money is declared 
at the airport upon arrival, only Himbol or one of the two 
banks may officially (and happily) exchange dollars for 
nakfa. Upon exchanging the currency, the individual receives 
a receipt as proof of what happened to the U.S. dollars and 
must present that receipt when asked. 
 
THE HAWALA WAY OF 17TH & U 
--------------------------- 
 
¶13. (S/NF) Even with money being sent through the mail and 
hand-carried to Eritrea, the most popular informal way of 
sending money to Eritrea, is through "hawala."  In the 
informal system, the broker in the U.S. (or overseas) 
collects dollars from someone wishing to send money to 
Eritrea.  The broker then calls someone, usually a business 
partner or relative, who distributes the money in nakfa to 
the identified recipient in Eritrea.  A popular system, this 
process pays a higher rate, generally between 19 ) 22 nakfa 
per U.S. dollar. 
 
¶14. (S/NF) In late October and early November of 2006, the 
GSE cracked down on the hawala system and the illegal money 
changers.  There were reports that over 30 Eritreans were 
arrested in Asmara alone, including several well-known 
businessmen.  The GSE announced the crackdown in the state 
owned media and noted "a pertinent body has starting taking 
the necessary legal measures on people inside the country and 
abroad who are engaged in illegal currency exchange and 
transfer" and the "pertinent body" cautioned individuals to 
use the legal means of money transfer.   They reiterated the 
local law, citing proclamation 101/2005 that has restrictions 
on foreign currency exchange.  Due to these arrests and the 
increased scrutiny on hawala and the illegal money changers, 
the black market exchange rate has dropped to 18.5 nakfa to 
one USD. (Note & Comment: Simultaneously the GSE reportedly 
arrested some businessmen with large foreign currency 
accounts.  Post believes the GSE intends to come up with some 
charge that they were engaged in illegal activities in order 
to seize the funds.  End Note & Comment.) 
 
GETTING MONEY OUT OF ERITREA 
---------------------------- 
 
¶15. (S/NF) Transferring hard currency out of Eritrea is 
extremely difficult.  The only way to get USD, or other hard 
currencies such as the Euro or yen, out of Eritrea legally is 
through a USD account at one of the two banks.  Foreigners 
who have USD accounts have nearly unfettered access to their 
money and to sending it out of the country but may still be 
subject to limitations.  Eritreans face long and complicated 
rules.  Individuals traveling outside of Eritrea are allowed 
to take up to 150 USD out for each day they will be out of 
the country.  Businessmen who wish to use the money for their 
enterprises must be able to show both the source of the USD 
initially and the licenses indicating they have permission to 
import what ever item they are trying to purchase outside of 
Eritrea or permission to conduct the business - such as 
paying for services.  The law follows on the January 2005 
proclamation 191/2005 removing the parallel currencies and 
limiting import/export.  Poloff has heard reports that the 
two banks, owned by the GSE and PFDJ can and do refuse 
depositors access to USD and other foreign currencies. Just 
as the GSE uses the correspondence banks to transfer money 
in, they also use them to transfer the money out. 
 
COMMENT 
------- 
 
¶16. (S/NF)  With nearly no exports, an inability to produce 
enough domestically to meet the basic needs of the 
population, and its continued large-scale procurement of 
military supplies and equipment, the GSE will continue to be 
dependent on hard currency to survive.  Disrupting the hard 
currency supply chain would significantly and detrimentally 
impact the operations of the GSE and its sole political 
party, the PFDJ. End Comment. 
DELISI