COMBATING THE GROWING CASES OF MONEY LAUNDERING IN AFRICA

COMBATING THE GROWING CASES OF MONEY LAUNDERING IN AFRICA

By

Noah Ajare Esq.

ABSTRACT

The invention of money brought with it techniques for hiding it which has constantly evolved from burying it under crevices to storing them in banks to prevent its theft, paying taxes and other reasons.

Money Laundering is an age-old phenomenon that promotes the integration of illicit assets and funds into the economy through transporting cash, easily convertible and transportable valuables, underground banks and cryptocurrencies amongst other techniques yet to be identified with a view of masking its origin as proceeds of crime.

 In Africa, it has been touted to be one of the most salient killers of the African continent. Resources that could have been utilized to make the continent as prosperous as it should be has been usurped and reintegrated back into the economy to fund the fraudulent lifestyle of the perpetrators while committing more crimes.

Its overreaching impact on the global scale has expanded the view of criminality into new spheres of cybercrime, and its evolving nature has made it conceptually elusive to discuss and extremely difficult to handle by any one nation alone.

Money laundering involves converting proceeds of crime to easily re-convertible forms to enable fluid untraceable movement of assets and money often done outside the jurisdiction of the state

The cost of laundering globally is estimated at over 2 – 5% of the global GDP which is estimated at about $800 billion – $2 trillion dollars[1]

The attention to African nations being used for laundering has reached a fever pitch. In February, the Punch Newspaper[2] raised an alarm of the EU blacklisting Nigeria and other African countries for money laundering and terror financing in a move that aims to make it difficult for money launderers to deal with the EU.

Though concerted efforts have been put in place by a lot of African countries, trying to adapt international standards and other safe guards; this is sadly not enough as the perpetrators always find ingenious ways of circumventing the system to their advantage.

There are several organizations around the world and in Africa that have united across borders to combat money laundering. The global organization; the Financial Action Task Force (FATF)[3] has been the lead agency in combatting issues of money laundering.

The Regional Organizations which combat money laundering in Africa include the Eastern and Southern Africa Anti-Money Laundering Group, the Middle East and North Africa Financial Action Task Force, and the Inter Governmental Action Group against Money Laundering in West Africa.

All of which work to adopt and enforce the guidelines set out by the Financial Action Task Force. The core mandate of the FATF includes setting standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.’

 The Financial Action Task Force is a ‘policy-making body’, which means they are in charge of making recommendations on how best to fight criminal financial transactions.

INTRODUCTION

International concern has turned towards the growing incidence of money laundering, organized crime and terrorism and rightly so because of its debilitating effects on peace, security and overall development of the globe.

The UNODC[4] concludes that money is the prime reason for engaging in almost any type of criminal activity, ergo, it sees money laundering as the method by which criminals disguise the illegal origins of their wealth and protect their bases so as to avoid the suspicion of law enforcement agencies.

The IMF[5] also opines that money laundering and terrorist financing can threaten a country’s economic stability. It is also the processing of assets generated by criminal activity to obscure the link between the funds and their illegal origins. Terrorist financing raises money to support terrorist activities. While these two phenomena differ in many ways, they often exploit the same vulnerabilities in financial systems that allow for an inappropriate level of anonymity and opacity in carrying out transactions.

The Financial Action Task Force[6] defines money laundering as “the goal of a large number of criminal acts is to generate a profit for the individual or group that carries out the act. Money laundering is the processing of these criminal proceeds to disguise their illegal origin. This process is of critical importance as it enables the criminal to enjoy these profits without jeopardizing their source”

The most glaring fears involved in money laundering are its propensity for fueling terrorist activities. Since the 9/11 incidence in the USA, money laundering has been pursued with a lot of zest as it enables terrorist to fund and funnel their funds for evil.

Humphrey Moshi[7] contends that proceeds of crime fuels corruption which in turn facilitates the commission of a crime undermines development by eroding Africa’s social and human capital, affecting social and political stability, driving up the cost of business and investment amongst others.

He further opines that there is no country on the continent where the amount of illicit money that flows through its borders will not create significant problems.

MONEY LAUNDERING AND TERRORIST FINANCING

With the growing spate of terrorism around the African continent, it becomes imperative to examine closely the source of funding for terrorism.

Though the concepts of money laundering and terrorist financing are often viewed as conceptual opposites, the two have become inextricably linked over the past years with one providing for the other necessary funds to perpetrate their evils.

Article 2.1[8] of the 1999 Terrorist Financing Convention of the UN defines the crime of terrorist financing as the offense committed by any person who by any means, directly or indirectly, unlawfully and willfully provides or collects funds with the intention that they should be used or in the knowledge that they are to be used, in full or in part, in order to carry out an act intended to cause death or serious bodily injury to a civilian or to any other person not taking an active part in the hostilities in a situation of armed conflict, when the purpose of such act by the nature or context, is to intimidate a population or, or to compel a government or an international organization to do or to abstain from doing any act.

Money laundering and terrorist financing have become Siamese twins in the unholy alliance between money and criminality.

The most basic difference between terrorist financing and money laundering is, however, the source of the money. Oftentimes, financiers of terrorism would want the source of their funding to appear genuine to avoid it raising suspicion to their cause; while the source of laundered money is often illicit, and it is laundered to make it look genuine and legal.

PRINCIPLES AND TECHNIQUES OF MONEY LAUNDERING

The most basic principle of money laundering involves multiple steps. The first step, usually called ‘placement’, is when the criminals deposit their illegal funds into the financial system. This can be in the form of cash, deposits, assets like art work or purchasing of monetary items, such as cheques or money orders or other forms of easily convertible payments.

Once the money is in the system, the criminals will then try to hide the true origins of the funds, through the process called ‘layering’. This is done through money transfers sometimes disguised as legitimate payments for services or other such ‘typical’ transactions.

After the money is ‘cleaned’ the criminals can then withdraw the money as if it was legally obtained from the beginning, this final step is called ‘integration’. The money is then a part of the legitimate financial system.

However, with the coming of technology and fintech, perpetrators have become more sophisticated using the dark web to trade anonymously, using untraceable crypto currencies for their affairs amongst others.

Laundering does not always require international transactions, as it can also be achieved domestically. Nevertheless, a lot of laundered assets are done internationally

Viewing the steps involved in money laundering, it is easy to see that regulations must be put in place to make sure money transfers are legal and of legitimate means.

The FATF and other anti-money laundering organizations have approached the situation from a dual perspective; prevention and enforcement of regulations.

INSTITUTIONS SUSCEPTIBLE TO MONEY LAUNDERING

Some institutions because of their propensity in handling large volume of money in the financial system find themselves an easy prey to launderers who try to use them to launder their ill-gotten wealth.

Michael Levi and Peter Reuter[9] identified several institutions that can be manipulated by launderers for their purposes

Some of such institutions are called Core Financial Institutions. They include banks, securities firms, insurance companies and institutions with similar structures.

Noncore Financial Institutions are a broad range of institutions that handle cash to a certain limit such as money orders, traveler’s cheque, money transfer, bureau de changes and other such organizations that deal in raw cash in whatever currency.

Non-Financial Businesses often include casinos, bars, dealers in precious metals and real estate

It is however worthy of note to know that all forms of businesses can be susceptible to money launderers and measures must be put in place to ensure that it prevents the infiltration of the financial system by launderers.

The most clandestine employed in recent days which enjoys immunity is the legal profession. It is deeply saddening that some legal practitioners allow themselves and their practice to be used to launder funds.

The Nigerian Legal Practitioners Rules of Professional Conduct[10] guarantees confidentiality and attorney client privileges which shield the lawyer from prosecution when acting under the instruction of his client.

Section 16 of the Nigerian Freedom of Information Act[11] also recognizes attorney-client privileges as an exception to disclosure of information.

These provisions have been usurped by launderers who use lawyers as a shield to launder, transact and acquire legitimate businesses, store their largesse in the legal practitioner’s client account which is also immune under Nigerian law in Section 21 of the Legal Practitioners Act[12]. 

The recent cases in Ghana and[13] Nigeria[14] of sting operations against judicial officers involved with corruption and laundering might be an indication that the governments are taking a stance on fighting laundering. Though there are lots of nuances to consider in these cases, in our discuss on laundering, this might be pro activeness in checking a system that is riddled with laundering allegations.

MEASURES AND RECOMMENDATIONS ESSENTIAL TO COMBATING OF MONEY LAUNDERING

With the overreaching impact of money laundering, it becomes necessary for state actors to take essential measures to forestall, punish and enforce the financial system to stop the proliferation of ill gotten wealth into the global financial system.

The international society has taken veritable steps to ensure that some restrictions are put in place, and African countries have also gotten involved to ensure that their territories are not used to launder money or fund terrorist activities.

Michael and Peters[15] opined that customer due diligence ought to be adequately done by all organizations. Clients must be able to satisfy the organization as to their true identity.

Activities that appear to play with the system must be reported, and closer supervision of the most vulnerable institutions that may be easily used by launderers. And institutions that fail to follow the code strictly be sanctioned.

In the case of the Riggs Bank of Washington[16], the bank was sanctioned to the tune of $25 million for failing to do its due diligence on large sums of money laundered by Ex-President Pinochet of Chile and President Obiang of Equatorial Guinea.

The recent recovery of Sani Abacha’s[17] loots in diverse banks across the world are an indication that the wealth of African states were laundered away from their origin, and this has left severe economic hardships which the countries are still struggling to recover from. Strict measures must also be taken by the international institutions to ensure that their shores are not used as safe harbors.

Institutions and states that willfully refuse to adhere to the recommendations of the international community must also be sanctioned appropriately to ensure that the influence of launderers has not corroded the financial institution.

The global anti money laundering regime evolved differently in different quarters, and each region has its own unique experiences. The influence of America on the general principles of the Anti-money laundering campaign cannot however be overlooked.

It therefore behoves on state actors to know that each region must evolve according to its own unique challenges, and the anti-money laundering campaign in Africa must be driven in consideration with the African perspective as there is no one size fits all shoe for this campaign even though they share similarities.

In this light, the measures to be taken must be indigenous, holistic, and overall fair and transparent.

African countries are also becoming proactive in demanding repatriations of accused like the Allison Diezani[18] case in Nigeria. These measures are necessary measures in forestalling such activities.

The prime organization that has the mandate of the international community in taking international measures against laundering is the Financial Action Task Force Guidance on Anti- Money Laundering[19].

The Egmont Group of Financial Intelligence Units[20] is also an informal network of about 159 FIU’s who collect information on suspicious or unusual financial activity from the financial industry and other entities suspected of being laundered money or funds for terrorism. FIU’s are not law enforcement agencies, and they act to collate, process and analyze information with a view of sharing the data with members who will in turn take the necessary steps to forestall laundering within their jurisdiction.

The Eastern and South African Anti Money Laundering Group (ESAAMLG)[21] is an FATF styled regional body founded in August 1999 to combat money laundering and terrorist financing by implementing the recommendations of the FATF. The organization also gives room for joint strategic plans, mutual evaluation to ensure compliance with the guidelines and reports to the FATF and the Egmont Group of data collated to increase the global knowledge base of combatting laundering and terrorist financing.

The Inter-Governmental Action Group Against Money Laundering and Terrorism Financing (GIABA)[22] is the West African alliance to combat laundering, and in 2006, they reviewed the statute to reflect the growing link between money laundering and terrorism which has plagued the region.

The organization is also styled the FATF with the responsibility of preventing laundering and terrorist financing in the region. Protect national economies against infiltration by laundered funds, evaluate and implement FATF recommendations, organize self-evaluations amongst members amidst several other duties.

The Middle East and North Africa Financial Action Task Force[23], is also modeled after the FATF system as a voluntary and co-operative organization agreed by members to regulate and cooperate in combatting money laundering and terrorist financing in the region.

CHALLENGES OF COMBATTING MONEY LAUNDERING IN AFRICA

The size of the African economy on the global scale is low, and this information is known to launderers who use it to their advantage by moving low levels of cash to avoid raising suspicion.

The porous nature of African borders makes it even more possible for persons to carry cash sums of money across borders without anyone knowing or interfering.

Strict compliance with international standards will also be impractical for some economies because of a lack of capacity in investigation and monitoring. Though the international community has taken off some of this responsibility, there is still a lot that needs to be done.

Political will and interference in prosecuting launderers who are highly placed persons have proven to be a major bane in combatting the ills of laundering and terrorist financing in Africa.

The punishment of kicking out countries from the Egmont group[24] may be counterproductive as it shuts the country out of much needed information and tactics, blacklisting of the country in international finance and further driving the continent into a recession course. The international community must find a balanced punishment for noncompliant countries instead of pushing a continental economy into recession.

Some of the recommendations set forth by the FATF Guidance on Anti-Money Laundering and Terrorist Financing Measures and Financial Inclusion set forth the groups recommendations which focus on ensuring that controls, do not inhibit access to well regulated financial services.

There is a need for balancing and fighting crime, allowing law-abiding citizens to conduct financial transactions with minimal difficulty as it is essential to the growth of the African continent.

The FATF recommendations were created to help countries combat money laundering within a defined framework to suit the individual country, though a lot of the African regional setups are modeled after the FATF system.

There is a need for a more precise agreement and cooperation between all African states to identify risks, and in turn to create specific responses towards it. This is necessary to apply preventive measures for the stability of the African economy and financial infrastructure.

Member states must be willing to enforce and supervise the strict adherence of global standards as it will go a long way in curtailing the source of funds to terrorists and launderers.

These recommendations are vital to stop money laundering and the criminal activity which produces the proceeds of crime and terrorism.

Although there is little research done to examine how laundering contributes or funds the refugee crisis; a stabilized economy may however impact significantly on the migration problem been suffered on the African continent.

It is imperative however that in fighting the devil of laundering and terrorist financing, a new disaster is not created in unwittingly denying and stereotyping Africans in the global financial system for fears that they may be laundering or involving in something illegal. It is already a challenge for Africans involved in international trade to deal easily with the European community.

Nigeria has very strict regulations on money transfers. They only allow bank to bank transfers into the country, but the funds are available right away. They also allow mobile airtime top-ups. When it comes to sending money out of Nigeria, it is only possible to do so through a bank or through either Money Gram International or Western Union.

If African nations and the region as a whole are serious about helping in the global fight then we need to re-assess what we are doing. We need to acknowledge that in many regions significant progress has been made but there is still more that needs to be done. And if we are to make progress, we need to work collectively to realize its full potentials.

CONCLUSION

One of the most important steps for all African countries is to engage fully with global financial compliance institutions such as the Financial Action Task Force (FATF) which has developed international standards for legal, regulatory and operational measures with the political will required to achieve national legislative and regulatory reforms.

It is important to remember that Africa is not like other continents, it has its peculiar challenges and solutions should be adopted to its particular need. Systemic and structural challenges must be considered by the international organization before punishing noncompliant jurisdictions with highly detrimental sanctions.

Adoption of international policies is, only part of the journey; prevention and punishment in present African nations pose an even greater challenge as politics is oftentimes intertwined with the punishment of highly placed individuals who launder national wealth.

We must acknowledge that Africa has a reputation of laundering, terrorism, corruption and poor transparency which the world knows, and we need to repair our broken image.

Institutions that are susceptible to launderers must on their own set up systems to guard against being taken advantage of, and our law enforcement must step up their actions in safe guarding national interest.

Legislation that applies to dealers in goods who are paid in cash, public accountants, auditors, notaries, lawyers and other individuals concerned with the buying and selling of property and shares ought to do proper customer diligence when the transaction cost reaches a certain threshold to be fixed by law.

African banks need to work harder to ensure that interbank transactions are within the law and that each party implements their respective compliance mechanisms. Dealings with other international organizations should also be done in good faith.

 As has already happened in Angola, central banks need to inform banks within their own borders of global regulatory requirements.

In a continent that has such a diverse range of economic models, financial systems and varied approach, the African Union must step up to the challenge of participating internationally in the global economic market with the intention of promoting African interest.

African financial institutions must be weary of alliances with other European or Asian institutions that have a reputation for laundering or ties to terrorism to purge away external influence.

We recognize that all African countries need to work together if we are to win the war against laundering, terrorism and global criminal networks.        

NOAH AJARE ESQ,