The Government’s decision to rush and pass the Financial Intelligence Bill into law may backfire.
A regional watchdog found some key gaps that may reverse efforts that led to the country being removed from a global list of territories marked as high-risk for money laundering.
The Financial Intelligence Act was aimed at addressing deficiencies in the re-rating exercise carried out by the Eastern and Southern Africa Anti Money Laundering Group (ESAAMLG), of which Botswana is a member in 2007.
At the time, the then Minister of Finance and Economic Development, Kenneth Matambo sought to have the proposed amendments to the Financial Intelligence Bill hurriedly debated but opposition Members of Parliament walked out on him accusing the ruling Botswana Democratic Party (BDP) of an attempt to push through “a rushed late-night session to table into law 13 central pieces of legislation (among them FI Bill) in one evening.”
In its latest report, a copy of which has been obtained by The Telegraph, the ESAAMLG found that the main shortcomings under the mutual evaluation report/follow up report were that the provisions of the Financial Intelligence Act of 2022 were silent on enabling Botswana to apply counter-measures proportionate to the risks when called upon to do so by the FATF or independently of any call by the Financial Action Task Force (FATF) to do so.
The report by the ESAAMLG which implements the FAFT recommendations in the region suggests that Botswana’s plan to push through a rushed night session to table bills into laws among them the FI Bill has not turned out as planned.
Immediate comment from Botswana’s Ministry of Finance and the ESAAMLG secretariat was not available.
The report says apart from what was communicated to FIs from FATF through the website, Botswana has not indicated that there are also measures in place to ensure that financial institutions are advised of concerns about weaknesses in AML/CFT systems of other countries.
The report shows that section 49(3) of the FI Act 2022 is focused on all Non-Profit Organizations (NPOs) which may be exposed to both Money Laundering (ML) and Terrorism Financing (TF) “but falls short of targeting the subset of the (NPO) sector that may be abused for terrorism financing.”
It says there is no evidence that Botswana can periodically or has reassessed the NPO sector by reviewing new information on the sector’s potential vulnerabilities to terrorist activities to ensure effective implementation of measures.
Therefore, the report found that; “The identified deficiencies in this criterion are major.” It says Botswana has not indicated whether there is a clear policy to promote accountability, integrity and public confidence in the administration and management of the NOP sector.
The report says there is a legal obligation to conduct outreach and educational programmes in Botswana in terms of the FI Act 2022. From the materials provided by Botswana, the report found, there is no indication that the high-level meeting of Christian churches held on 19 February 2022 and the anti-money laundering and counter-terrorist financing (AML/CFT) Awareness Training for Non- Profit Organisation by the Registrar of Societies on 19th February 2022 targeted the high risk NPOs nor the donor community.
The report says the ESAAMLG reviewers could not determine how collaboration during the risk assessment enabled supervisory authority to work with NPOs to develop and refine best practices to address terrorist financing risk and vulnerabilities and thus protect them from terrorist financing abuse as there is no evidence provided in the Follow Up Report (FUR) nor a relevant section to this effect in the Risk Assessment Report.
The report says Botswana further amended the FI Act to introduce section 49(3)(c) of FI Act 2022 which puts emphasis on conducting targeted supervision and monitoring of NPO at the risk of commission of a financial offence. “There is no indication that steps have been taken by supervisors to demonstrate that risk-based measures apply to NPOs at the risk of terrorist financing abuse,” the report says.
Botswana is able to impose sanctions under section 51(4) of the Financial Intelligence Act 2022 however, the report says, the range of sanctions is limited to administrative fines, deregistration and/or delicensing.
Moreover, the reviewers noted that section 51(1)(a) (ii) of FI Act 2022 does not empower competent authorities in Botswana to have full access to information on the administration and management of particular NPO which information may be obtained in the course of an investigation.
The report says Botswana has reviewed the Financial Intelligence Act in order to enable the NPO sector to comply with the AML/CFT measures of the country.
“Whereas Botswana has demonstrated that it conducted a risk assessment of the NPO sector the submission made fall short of indicating the source of information that authorities in Botswana used to identify the features, and types of NPOs which by virtue of their activities or characteristics are likely to be at risk of terrorist financing abuse,” the report says. Thus, the report says, ESAAMLG reviewers could not determine whether Botswana has identified a subset of organisations that fall within the FATF’s definition of NPO and the extent to which they are likely to be at risk of terrorist financing abuse.
It says the NPO Risk Assessment Report has identified the nature of threats that may be posed by terrorist entities but falls short to assess how terrorist actors can abuse or abuse the NPOs through using the banking sector.
The report also shows that there is a legal obligation to conduct outreach and educational programmes in Botswana (section 49(3) of the FI Act 2022) but the outreach or awareness made so far do not show that high risk NPOs or donor community have been targeted.
The report says submissions made by Botswana authorities fall short of demonstrating that Botswana police have investigative expertise and capability to examine those NPOs suspected of either being exploited by or actively supporting terrorist activities or organisations.
“Furthermore, Botswana has not shared a mechanism it uses to target a particular NPO that may fall within the scope of the three itemised scenarios. On the other hand, the legal provisions provided do not target a particular NPO but are general for persons or entities that may fulfill the criteria for national listing,” the report says.
The report indicates that while the Registrar of Societies (NPO) has not been identified as one of the competent authorities to respond to international requests for information where a particular NPO is suspected of terrorist financing or involvement in other forms of terrorist support in particular where this may not require formal procedures.
Regarding virtual assets, report says the main shortcomings, were that the authorities had not demonstrated whether Botswana as a country and financial institutions operating in Botswana had identified and assessed the ML/TF risks that might arise in relation to the development of new products and new business practices, including new delivery mechanisms, and the use of new or developing technologies for both new and pre-existing products.
“Botswana has not identified and assessed the money laundering and terrorist financing risks emerging from virtual asset activities and the activities or operations of virtual asset service providers (VASPs) nor has it applied a risk-based approach on ML/TF risks related to VA activities or operations or activities of VASPs,” the report says.
It says there is a legal requirement on VASPs (as specified parties) to assess the ML/TF risk and to manage and mitigate the identified risk of commission of financial offences. However, section 13 (1) (a) -(c) of the Financial Intelligence Act, 2022 does not factor in customers, countries or geographic areas and falls short of explicitly including requirements of criterion 1.10 (a)-(d).
“There is no evidence that Botswana has taken action to identify natural or legal persons that carry out VASPs activities without the requisite licence and as a result, no sanctions have been applied in terms of section 31 of the Virtual Assets Act 2022,” the report says.
The report says subsequent to its first follow up report, Botswana conducted a sectoral risk assessment of the legal persons and amended the Companies Act in February 2022 to give more powers to competent authorities in accessing information held by companies created in Botswana.
The reviewers found that although Botswana has undertaken a risk assessment on legal persons, the Risk Assessment report has a very limited information/analysis on whether the assessment covered associated ML/TF all types of legal persons that can be created and operate in Botswana.
The main shortcomings under the mutual evaluation report/follow up report were that there was no requirement to keep, obtain and keep accurate and up-to-date information on any natural person exercising ultimate effective control over the trust. It says the Trust Property Control Act did not specify whether Botswana requires trustees to also keep basic information of the other regulated agents of trust and service providers to the trust including investment advisors or managers, accountants, and tax advisors.
The report says while the Financial Institutions Act was amended to impose a legal obligation on a supervisory authority to review the assessment of the money-laundering terrorist financing and financing of proliferation risk profile of a specified party or accountable institution, Botswana has not indicated how each of the supervisory authorities reviews the assessment of the ML/TF risk profile of a specified party or accountable institution in order to ensure the implementation of this provision.
It has also been noted that the new Financial Intelligence Act 2022 requires competent authorities to take the necessary legal or regulatory measures to prevent criminals from holding, or being the beneficial owner of, or controlling interest, or holding a management function in, a real estate profession (which has been lacking in this sector in the previous FURs). [section 49(1)(a) of Financial Intelligence Centre Act 2022]. However, criminal associates in terms of section 49(1)(a) of the FI Act 2022 are not legally barred by this requirement and again deficiencies identified in Recommendation 35 to deal with failure to comply with AML/CFT requirements.
