There is no rich or poor when it comes to the challenge of combating money laundering and terrorist financing. This is one of the few aspects where the world is not, in fact, fragmented, making the challenges to be faced almost commonplace.
Malik Amirali, executive director of the consulting firm Ernst & Young and specialist in matters related to this issue, based on experience and knowledge of global markets, clarified to E&M that, although each country has its own particularities regarding the opportunities for criminals to circulate illicit money, all have in common the possibility of being targets of the phenomenon.
In other words, there are markets that are so large and developed that, because of this aspect, they create conditions for money laundering to go unnoticed, and are therefore attractive to the phenomenon, as well as to crimes linked to the financing of terrorism. But there is the other extreme, of developing markets, meanwhile closed enough to facilitate the control of illicit practices, ending up being unattractive.
To argue the point, Malik Amirali gave the example of Denmark, which has never been on the list of countries suspected of being prone to money laundering, but which recently proved that some of the banks in its financial system did not follow any control rules. Also exemplary are the United States and the United Kingdom, among other countries, which report numerous cases in their reports.
This view is confirmed by a report by the European Court of Auditors, published last year, which concludes that “European Union (EU) efforts to combat money laundering in the banking sector are fragmented and implementation is insufficient”.
The European Court of Auditors found institutional fragmentation and poor coordination at EU level regarding action to prevent money laundering
What is happening in the old continent?
Europol estimates the value of suspicious transactions to be in the hundreds of billions of euros – equivalent to 1.3% of the EU’s gross domestic product (GDP). Internationally, it is estimated at 3% of GDP.
The EU adopted its first Money Laundering Directive in 1991, updating it in 2018 to combat threats to the internal market from money laundering and subsequently prevent terrorist financing.
Several EU bodies also intervene in this field. The European Commission develops policies, monitors their transposition and performs risk analysis. The European Banking Authority (EBA) performs analyses, investigates breaches of Union law and sets detailed standards for use by supervisors and the industry.
In 2020, the EBA’s legal mandate and powers regarding anti-money laundering and countering the financing of terrorism (AML/CFT) were substantially extended. The European Central Bank (ECB) takes into account money laundering and terrorist financing (AML/CFT) risk in the prudential supervision of banks in the euro area and, since 2019, shares relevant and necessary AML/CFT information with national supervisors.
Given the importance of EU policy in this area and the current reformist inclination, the European Court of Auditors decided to audit aspects of the efficiency and effectiveness of this policy. And what did it find?
Coordination failures
Overall, the Court observed institutional fragmentation and poor coordination at EU level as regards actions to prevent money laundering and terrorist financing and respond to the risks reported. In practice, AML/CFT supervision still occurs at country level, and the EU control framework is insufficient to ensure a level playing field.
The European Commission is required to publish a list of non-EU countries, so-called “third countries”, that pose a threat to the internal market in terms of money laundering. The Court found shortcomings in relation to communication with such countries on the list, as well as a lack of cooperation from the European External Action Service. In addition, the Commission also carries out an assessment of the risks to the internal market every two years and that assessment does not indicate changes over time, lacks a geographical focus and does not rank risks effectively.
What is more: the staff of the European Banking Authority carried out thorough investigations into potential breaches of Union law, but the Court found evidence of pressure on its Board of Supervisors (BoS), which was involved in a deliberation process. Finally, as a result of these weaknesses, the European Court of Auditors admits that, “given the high level of cross-border integration in the EU banking sector, the shortcomings of the current design and implementation of the EU AML/CFT framework pose risks to financial market integrity and public confidence.”
Africa’s problems
Most of what happens on the continent is reported by the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG) – a regional body set up in 1999, which subscribes to the global standards for this and includes 19 members, including Mozambique. Another relevant body is the Intergovernmental Action Group against Money Laundering in Africa (GIABA), set up in 2000 by the Authority of Heads of States and Governments of the Economic Community of West African States (ECOWAS).
Both organisations struggle, but face similar (or even worse) problems to those reported in Europe. One need only look not only at the high record of money laundering episodes, but also at the rapid spread of terrorism in many of the countries that make up these regions, including Mozambique, to realize how much the continent is challenged to improve the mechanisms of control and combat.
Progress diluted in difficulties
In Ethiopia, a country with a long history of terrorism, laws, once published, become publicly accessible. The process of creating legal entities (business organisations) can to some extent be accessed on the website of the Ministry of Commerce, although this does not contain all the information capable of making this sub-sector effective in its intended response to money laundering and counter-terrorism.
A positive point highlighted by ESAAMLG is that Ethiopia has a mechanism to monitor the quality of assistance it receives from other countries in response to requests for basic information and beneficial ownership or requests for assistance in locating beneficial owners of overseas residents. Overall, this country shows significant progress in addressing the deficiencies in identified technical compliance and is on track.
If terrorism grows and expands throughout the world, including in Mozambique, it is because its logistics are fuelled. Therefore, the surveillance strategy now includes it in this fight
Zambia is also considered to be a country that is making progress in addressing some of the technical compliances, but “it is not enough to justify an upgrade, and therefore should not be reclassified due to the moderate deficiencies that still prevail”, namely in the supervisory mechanism that is charged to the financial sector.
In Zimbabwe, the competent authorities have issued relevant guidelines to continue to provide feedback, which aims to assist financial institutions in applying anti-money laundering and counter-terrorist financing measures, in particular in detecting and reporting suspicious transactions. “However, there is no industry-specific guidance in this regard,” according to ESAAMLG. Therefore, the organisation’s task force determined that Zimbabwe has not made sufficient progress in addressing the identified deficiencies to warrant an upgrade in its overall rating, which is not the best.
In South Africa, the continent’s most industrialised country, the main domestic crime threats of money laundering are consistently understood by the authorities, but the understanding of the possibility of these crimes coming from outside is limited, just as the understanding of terrorist financing risks is poorly developed and uneven.
One of the relevant findings is that the country has suffered a sustained period of ‘state capture’, which has helped generate substantial revenues from corruption and undermined agencies with important roles to combat such activity. It is acknowledged, however, that government initiatives in 2018/19, which include replacing key personnel and increasing resources in law enforcement and judicial agencies, were beginning to bring encouraging results. But the Financial Intelligence Centre (FIC), the body that helps investigate crimes and track assets of illicit provenance, lacks the skills and resources to act proactively. Thus, South Africa is seen as an economy where the volume and intensity of crime is relatively high.
In Tanzania, the authorities conducted the National Risk Assessment in 2015 and 2016, which established that a significant percentage of criminal proceeds come from within, mainly from the crimes of corruption, tax evasion, drug trafficking, counterfeiting of goods, illegal mining and illegal trade in precious metals and stones, poaching and illegal trading in Government trophies.
Given its geographical position and trade links with neighbouring countries, the country is also exposed to foreign threat from smuggling of goods, drug trafficking, human trafficking and the proceeds of crime are suspected to be channelled through the hotel industry and real estate sector. Tanzania is also used as a transit route for drugs to and from Asia, Latin America, Europe and the whole of Southern Africa.
