Enab Baladi – Khaled al-Jeratli

The Autonomous Administration in North and East Syria (AANES) has approved a law that regulates the transfer of funds to and from its areas of control east of the Euphrates River, whether through the four control areas or its borders with Iraqi Kurdistan.

The Central Monetary and Payment Office, affiliated with AANES’ Directorate of Anti-Money Laundering, announced what it called the “Executive Instructions for Cross-Border Money Transfers,” which included cash in the form of banknotes and coins, in the local currency or any other currency.

According to what AANES published through its official channels on December 11, the instructions include commercial bonds and various means of payment of transferable financial instruments for trading unless the source and purpose are known.

What is the purpose?

AANES attributed its intention to achieve effective levels in order to maintain the financial system and monetary stability of the local currency by preventing the export, import, and smuggling of local and foreign currencies, precious metals, and gemstones.

It added that the process also aims to protect the financial system and prevent violations that affect economic stability.

Manaf Kuman, a researcher at the Omran Center for Strategic Studies, told Enab Baladi that the law indicates an increase in financial or monetary leakage abroad through smuggling operations, an increase in illegal activities, money laundering, and tax evasion.

Based on these indicators, AANES seeks to impose restrictions on the movement of funds to limit the aforementioned activities. It has taken steps of this kind before, as it has realized the risks of cash outflows beyond its borders and their impact on its financial system.

The researcher added that the decision will lead to increased regulation of the financial system within AANES areas, which will contribute to “combating cash leakage, tax evasion, crime, money laundering, and increasing transparency.”

Economy and security

An article written by the non-resident researcher at the Middle East Institute, Mohammed Hassan, in 2021 concluded that the areas under AANES control are experiencing, like the rest of Syria, difficult economic conditions due to the depreciation of the Syrian pound against the dollar, the rise in food prices, and the lack of employment opportunities commensurate with the size of the workforce in those areas.

He considered that AANES’ administrative policy played a role in this economic deterioration, especially since the largest share of the region’s wealth is allocated to the military side, related to fighting both the Islamic State (IS) organization, Turkey, and the Syrian factions supported by it, in addition to allocating a large amount of money to support the Kurdistan Workers’ Party (PKK) and its cadres in Qandil mountains.

Abdulazim al-Mgarbel, Assistant Researcher at Jusoor Center for Studies, told Enab Baladi that the decision to control the movement of funds came as part of AANES’ work to establish a financial system and control the amount of monetary mass, thus attempting to impose a balance on its balance of payments.

He added that AANES had previously issued a decision to license money exchange and transfer offices to preserve foreign currencies and retain them within the economic cycle in the region for use in financing its military and security operations, thus trying to prevent a significant outflow of money abroad.

AANES had set, on August 28, the minimum capital for companies and exchange offices operating in its control areas, according to its law on “Regulating the Activities of Money Exchange and Remittances.”

According to the decision, the minimum capital for money exchange companies operating in the region is set at $500,000 and $50,000 as capital for exchange offices.

According to the decision, the value of the financial guarantee for these institutions is $75,000 for exchange companies and $7,500 for offices.

Al-Mgarbel pointed out that AANES is trying to regulate any funds that may be directed to Arab clans opposing it and to track down major capital holders in the region, in addition to enhancing the use of the local currency and attempting to benefit from the proceeds of fines imposed on violators of these decisions.

He added that imposing restrictions on the transfer of funds strengthens the financial dominance of AANES and enhances its economic influence. Therefore, it will constitute a solid focal point that supports the work of its Central Monetary and Payment Office.

Regulation of business operations

On August 24, AANES issued a law aimed at regulating the trade and manufacturing of precious metals, including licensing procedures and practicing professions related to this trade in the areas it controls.

According to the published law, trade or industry of precious metals and gemstones is not allowed except after obtaining a license from the Precious Metals Directorate in the Central Monetary and Payment Office. The office will later issue further instructions specifying the terms and requirements for licensing.

The law stated that the license will be renewed annually before the end of each year, according to the instructions to be issued by the Central Monetary and Payment Office.

The law includes penalties with financial fines starting from $1,000 and imprisonment for a period of not less than three months for a range of violations, such as practicing the profession without a license or manufacturing precious metals without a license.

Hard-to-track economy

Tracking the collection and expenditure of revenues of the budget of AANES is difficult, but its main resources come from oil sales, income taxes, fees on imports, according to a study conducted by the economic researcher Sinan Hatahet, published in the Middle East Directions Programme in January 2020.

The study explained that the Finance Authority is the central institution in AANES responsible for managing the region’s finances. Local councils also have the right to collect and impose taxes and revenues imposed on most professions and crafts, including small establishments such as street vendors, shops, and public transport.

AANES justifies these measures as aiming to finance public services, but there is a general belief that the quality of service provision does not correspond to the amount of taxes collected.

The taxes imposed by AANES and the local councils are divided into two main categories: fees for registering companies or practicing a profession, construction permits, or services provided by administrations on the local level and the canton level (the administrative division of the region), and the second is income tax on salaries.

The study indicated that reports coming from within AANES contradict each other regarding the amount of fees imposed by its institutions, raising doubts about its “arbitrary nature” or the inability to apply the same standards to all products or geographical sectors.

Despite the clarity of taxes, monitoring mechanisms are almost non-existent in the absence of a unified banking or financial system that allows financial authorities to track citizens’ transactions.