Commercial banks and lawyers may be charged in NPF saga

17 Dec 2018

Three of Botswana’s leading commercial banks have been identified to answer allegations of failing to comply with the Financial Intelligence Act and may face a range of fines from P250 thousand to One million pula for each violation as well as compensatory orders for money transferred though their systems. The revelations come after the Financial Intelligence Agency and Directorate of Public Prosecutions have engaged high level consultants to assist in the recovery of misappropriated funds from the National Petroleum Fund.

The Directorate on Corruption and Economic Crime and the Directorate of Public Prosecutions launched criminal proceedings almost a year ago to the day against Bakang Seretse and others on allegations of money laundering and misappropriation of government funds. In November the DPP expanded the initial single count to 65 and introduced seven new accused to the charge, including former Minister Sadique Kebonang and his twin brother, High Court Judge Zein Kebonang, two “prominent influential persons”, as defined by the Financial Intelligence Act.  

Information availed to the Sunday Standard reveals that the DCEC and DPP are concerned that even if they secure convictions against the 12 currently accused and are given disposal of asset orders under either the criminal case or under civil forfeiture legislation, the amounts recovered will be insufficient to recoup the losses suffered by the NPF. The concerns have resulted in the DPP seeking expert opinion on the untested and unused powers of the Financial Intelligence Agency to charge commercial Banks, attorneys and other parties for violations of their duty to report suspicious transactions under the FIA. Each of the 65 counts filed in court in the NPF case, constitutes an alleged violation of the FIA Act, claims the FIA.

Internal communication between the three law enforcement agencies, the FIA, DCEC and the DPP indicates that investigations into a spate of FIA violations by 3 of the countries top commercial banks will form the basis of government’s recovery effort to replenish the “bankrupt” NPF. Government is seeking to recover an estimated 750 million Pula that remains unaccounted from the NPF fund. Government in June was required to borrow 500 million from the Motor Vehicle Accident fund to sustain the NPF.

The FIA Act requires that reporting bodies, such as Banks and law firms to have the ability to know their customers (KYC) and have in place appropriate procedures, regulations and personnel to identify suspicious transactions and report them to the oversight agency. According to the FIA Act a “suspicious transaction” has various definitions, but key among them is that a transaction which is inconsistent with a customer’s known legitimate business, personal activities or with the normal business for the type of account which the customer holds, is required to be reported to the FIA.

Each violation of the Act may encounter penalties up to a maximum of two million pula. The Act requires the reporting institutions, namely banks, accountants and lawyers to be particularly vigilant for transactions relating to “prominent influential person” which is defined as a person who is entrusted with public functions within Botswana or by a foreign country or an international organisation, his or her close associates or immediate member of the family and includes Ministers and Judges.

The FIA and DPP are looking at charges that include banks having insufficient knowledge of non-resident customers, failure to train staff in how to prevent money laundering and failure to integrate the bank’s risk-management and control systems. Investigations reveal that key commercial banks have failed to set up or maintain adequate anti-money laundering systems. The FIA alleges that across the commercial spectrum, including those not being investigated for transactions on the NPA misappropriation may have sufficient staff devoted to meet the requirements of the Act but that they are stretched thin and that banks’ practices miss "substantial" numbers of suspicious transactions. FIA is concerned that bank staff try to hide such personnel limitations from the regulator, FIA, out of fear that it would act against.

Internationally financial intelligence agencies have increasingly cracked down on Reporting violations. In 2016 Barclays was taken to task by FINRA, the securities-industry watchdog in the US, which fined the UK-based bank $1.3m for “systemic” reporting violations. Also, in 2016 the U.S. Department of the Treasury’s Office of Foreign Assets Control, in an enforcement release said that Barclays, through its units in New York, the UK and Zimbabwe, helped the Industrial Development Corporation of Zimbabwe, a state-sponsored development institution, process 159 funds transfers valued at around $3.4 million between July 2008 and September 2013. According to the Treasury, Barclays processed transactions through financial institutions in the U.S., including the company’s New York branch, for corporate customers of Barclays Bank of Zimbabwe, which were majority-owned by people that are on U.S. sanctions lists. The apparent sanctions breaches, which represented a non-egregious cases, were not voluntarily self-disclosed by Barclays. The total base penalty amount for the apparent violations was $5 million.

Last month Danske Bank was taken to task for its reporting violations. Investors have priced in a fine of approximately US$4.5 billion.

In almost all instances in which regulators have taken reporting entities to task for violations, the defaulting bank has settled the claim in negotiated plea deal. “The money laundering case is very serious. It is reasonable and necessary that Danske Bank now be accountable in court,” Danish business minister Rasmus Jarlov stated on the revelations of the Banks violations being made public.

In June 2018, under the Financial Intelligence (Amendment) Bill, 2018 the Financial Intelligence Agency was moved from ministerial control to the direct authority of the Office of the President.  Information reaching the Sunday Standard indicates that the move was done in anticipation of a larger anti-corruption crackdown by the Masisi administration. The office of the President denied media reports that it was consolidating authority over the FIA and indicated that the move was to bring the appointment of the agency’s Director in line with section 112 of the constitution of Botswana.

In 2015 Financial Intelligence Agency Director Dr Abram Sethibe highlighted that his organizations mandate is to coordinate Anti-Money Laundering and the Counter Terrorism Financing strategies in Botswana. “In doing this, FIA collaborates with other stakeholders, including the Non-Bank Financial Institutions Regulatory Authority, NBFIRA as the regulator and supervisor of Non-Bank Financial Institutions (NBFIs).”

The current move marks a positive shift in the role of the FIA by using its enforcement capabilities to punish banks which allow, either deliberately or inadvertently themselves to be used to transfer illicit funds by failing to report suspicious transactions.