Tuesday, October 3, 2023

Botswana highly vulnerable to money laundering – NBFIRA

Botswana will need to bolster up its anti-money laundering efforts as it becomes clear that the diamond led economy remains vulnerable to money laundering with the financial services sector flagged as the most vulnerable to concealment of the origins of illegally obtained money to appear as if it’s from legitimate sources.

Botswana’s national risk assessment results show that at national level the country is grappling with money laundering, rating the outlook at medium-high, as the national vulnerability to money laundering remains high.  The results released on Tuesday by Non-Bank Financial Institutions Regulatory Authority (NBFIRA) also reveal that the economy’s main threats emanate from the high incidence of poaching, motor vehicle theft, tax evasion, fraud and corruption.

“The wide expanse of the country and inadequate monitoring of the long and porous borders created vulnerabilities to all sorts of crimes including trans-national organised crime and the resultant vulnerability to money laundering risks,” said Oaitse Ramasedi, CEO of NBFIRA, the country’s regulator of non-banking institutions.

“Botswana’s geographical position presented a potential transit point for illicit funds and other illegal materials/substances including drug trafficking and human trafficking,” he said before adding that, “the political stability and the prosperity of the country also attracted illegal immigrants some of whom were found to have entered the country for the sole purpose  committing crime.”

Leading the pack in the most vulnerable sectors of the economy is the banking sector, followed closely by car dealers, insurance and the list also include professional misconducts. While money laundering activities were evident in many sectors of the economy, it was more common in the financial services sector due to the amount of large transactions involved.

The banking sector, rated medium-high in terms of vulnerability, has been hit by a spate of fraud related activities. Recently the Botswana Police arrested three Bulgarians who are alleged to have been behind the card skimming that led to customers losing their money after their cards were cloned, with some cash withdrawals happening as far as Indonesia.

For the non-banking sector, securities and insurance were rated medium and medium-high respectively, signalling a growing element of criminality in the billion pula sectors. Under the securities sector, the assessment was on the four sub-sectors: asset managers (rated medium-high), International Financial Services Sector (IFSCs) rated high, brokers (rated medium) and investment advisors (rated medium).

NBFIRA singled out IFSCs as the most vulnerable to acts of money laundering due to the nature of their complex and diverse portfolio which comprises of insurance, fund management, lending and leasing as well as holding companies. Furthermore, majority of the IFSC companies set up headquarters in Botswana but have their subsidiaries and clients located outside the country, resulting in lack of cross border supervision and monitoring.

Investment institutions have of recent faced intense scrutiny following withering criticism of how they are conducting their business. In what is regarded as the biggest known financial scandal in the country, asset managers have found themselves hauled over the coals for their role in the P250 million National Petroleum fund scandal. Botswana Public Officers Pension Fund (BPOPF), the country’s biggest pension fund, had to cut ties with asset managers and investment advisors caught in compromising positions that have brought their fiduciary duties, ethics and governance to question.

The assessment results for the insurance sector show that the entire insurance industry’s vulnerability was medium high with higher vulnerability in the life insurance sector. Life insurance’s high exposure to money laundering emanates from its products which are long term and have investment feature. Life insurers are potentially prone to abuse by criminals including money launderers and terrorist financiers, as they promote highly flexible investmentÔÇötype products offering potential clients the opportunity to dispose of large volumes of money with relative ease and to recover their money whenever they want, even if that means taking a relatively small loss.

NBFIRA says the results of the national risk assessment are indicative of a low level awareness of money laundering or terrorist financing across all sectors of the economy.  The country’s increased vulnerability has also been partly blamed on ineffective enforcement of laws by regulators and supervisors. Another stumbling block to combating money laundering is the lack of collaboration among the relevant anti-money laundering authorities.

To this end the regulator has identified high priority actions which include development of a national policy and strategy on anti money laundering to guide national efforts to combat money laundering and terrorist financing. Other recommendations involve the closure of deficiencies and gaps in relevant legislations, and enhancement of supervision and enforcement of anti money laundering law by entities to ensure compliance with the anti money laundering obligations.

“Financial institutions should also consider the results of the national risk assessment when assessing their money laundering risk factors in relation to their customers, geographical exposure, products, services, transactions and delivery channels, and whether they are more susceptible to the prevailing crime types identified in the national risk assessment,” advised Ramasedi.


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