The State of AML in Africa

13 February 2017

 The State of Anti-Money Laundering in Africa

African countries are generally viewed as being behind in their ability to prevent money laundering when compared to other nations. In this article I unpack some of the challenges faced on the continent and the reasons why we’re offering solutions to combat this scourge on our global financial system.

What Is Money Laundering?

Money laundering is the processing of criminal proceeds to disguise their illegal source. The process is termed money laundering as it cleans evidence that the money was generated from illicit activities thereby protecting the illegal source of the funds and allowing the money to be used in everyday activities, as if legitimately earned.

Money laundering results from a number of the most insidious crimes including: trafficking of women and children, prostitution rings, drug smuggling, bribery, illegal arms dealing and the funding of terrorist organisations to name a few.

Being able to identify the illicit sources of funds and to ultimately stop money laundering in its tracks has understandably become a priority for the management of our global financial system.

The global market for money laundering is seismic, to say the least. Approx 5% of global GDP was legalised in 2016. It is further estimated that “Illicit financial flows from Africa range from at least $30bn to $60bn a year,” according to a report by the African Union (AU,) with approximately $2B - $8B being laundered in South Africa alone. This is despite enormous global progress in terms of legislative reform and regulatory process improvements. It has become increasingly clear that we’re we’re still fighting a losing battle in Africa.

 

How Is Money Laundering Being Combatted?

Global Institutions

Global Institutions such as the Financial Action task Force (FATF) provide the international standards and guidelines for combating money laundering and terrorist financing. FATF-style bodies, such as the  The Intergovernmental Action Group against Money Laundering in West Africa (GIABA) and the Eastern and South African Anti Money Laundering Group (ESAAMLG) ‘collaborate’ with the FATF to implement global AML standards in Africa.

Local Institutions

Furthermore, each country is expected to set up a financial system watchdog (for example South Africa’s Financial Intelligence Center (FIC) and the U.K’s Financial Conduct Authority (FCA)) These institutions define the roles, responsibilities, rules and regulations to prevent money laundering within their respective nations.

Technology

The use of Customer Identification (CID) and Customer Due Diligence (CDD) technologies such as ThisIsMe’s proprietary compliance platform as well as other Regtech solutions for record-keeping, compliance and reporting, ensure more accurate, efficient and timely compliance.

Legal Action

Enforcement of the prescribed legal-framework through fines for organisations failing to meet regulatory requirements and jail-time for individuals caught in the act of money laundering.

 

Why Is Africa Behind?

In Africa we face a unique set of challenges that hinder our progress in combating money laundering and the funding of terrorist activities. To better understand these challenges, I have listed them below - these challenges include:

Cash Based Informal Economies

Most African nations still have large informal economies representing sizeable portions of their GDP. These informal economies can easily conceal the sources of funds, owing to the cash based nature of trading within the informal sector. Enforcing globally accepted policies is almost impossible within this sector and illicit activities thrive in environments where there is no identification of the individuals behind transactions and tracking details of transfer of funds.

One Size Fits All Policies

The typology prescribed by the FATF is ill-suited to Africa’s less formal, generally less mature financial systems. The 40+9 Recommendations fall short in effectiveness when applied in Africa, thus causing a view that Africa is not keeping up with the rest of the world in it’s duties to eliminate money-laundering and terrorist financing. These policies need to be adapted to the African context in order for them to achieve sustainable success.

Slow To Reform

African nations have made progress, yet they have moved slowly in comparison to the rest of the world. This lackluster adoption of anti-money laundering policies has painted African nations in a negative light and has increased negative sentiment to the continent in this regard.

Lack Of Collaboration

African nations have not collaborated with each other enough to combat cross-boarder money laundering schemes. More effort needs to be made between African nations to support the eradication of this free-flow of illicit funds.

Legacy Of Corruption

Africa has a strong legacy of corruption. With criminal behaviour coming from within the institutions meant to curb illegal money laundering, it has made the fight that much more difficult. Adoption of important laws are stifled and policymakers alienated, so that the powers that be can continue to get away with their self-enriching activities, unhindered.

Enforcement Of Laws

A lack of law enforcement in the anti-money laundering space can be found in most African nations. This renders policies combating money laundering ineffective. 

 

How Can We Change The Status Quo?

  1. Make It Difficult & Dangerous - Impose stringent compliance and due-diligence requirements and enforce maximum penalties on those who play outside of the laws.
  2. Clear Visual Representation Of Penalties - Ensure that penalties are clearly visible across media and government communication channels.
  1. Collaborative Accountability - Continue to build relations with neighbouring African nations to support cross border anti-money laundering activities.
  1. Perception Change & Solutions - Change the negative perceptions surrounding  African nations regarding their informal economies and support solutions aiming to solve challenges within this space. Solutions such as Jumo’s micro-lending platform and MPesa’s mobile financial services solutions should be supported and lauded.

It is clearly an area that needs to be addressed as a top priority. Governments need to collaborate with each other and the bodies charged with ensuring best practices are upheld. Any movements made to stall progress should be regarded with collective scrutiny. The solutions are more readily available than ever before and the time to put a stop to money laundering being an easy game in Africa is now.

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