Saturday, February 4, 2023

Fear that IFSC companies could be used as a conduit for money laundering

The secrecy on the operation of International Financial Services Centre(IFSC) companies with subsidiaries abroad is feared that it could put the country at risk of being used as conduit for money laundering, terrorism financing.

The Tax Justice Network Africa 208 Financial Secrecy Index stated in their latest report titled ‘’Botswana: the unknown costs of secrecy” that the absence of suitable legal framework for the exchange of tax information enables companies and wealthy foreigners to get away with tax avoidance and evasion by avoiding detection in their home countries and where they are operate business.

National Banking Financial Regulatory Authority has raised a red flag on IFSC companies vulnerability to money laundering and Terrorism Financing in their latest report released last month titled “National Risk for Botswana Non Financial Institution”. 

The Eastern and Southern Africa Anti Money Laundering Group in their 2017 evaluation shared NBFIRA sentiments about the vulnerability of Botswana IFSC being used for illicit and criminal practice as a result of limited information on Botswana’s IFSC operations.

NBFIRA CEO Oaitse Ramasedi is not in dispute with the Tax Justice Network Africa concerns that information sharing on IFSC remains limited which resulted in NBFIRA listing the IFSC as the highest risk non financial institutions vulnerable to money laundering and terrorism financing. He decried about lack of supervision and monitoring of IFSC in Botswana.

“The reason for high vulnerability in the IFSC segment was that the entities were foreign owned and there was absence of cross-border supervision and monitoring, “stated Ramasedi.

Ramasedi indicated that this exist despite Botswana has an obligation to support international efforts to combat money laundering, prevent, disrupt proliferation of weapons of mass destruction and the financing of terrorism.

Ramasedi further noted in a report that the IFSC portfolio is diverse and complex, comprising of insurance, fund management, lending, leasing and Holding companies.

“There was a challenge in risk  assessment of IFSCs due to the complexity emanating from the fact that a majority of IFSC accredited entities set up headquarters in Botswana, but have their subsidiaries and clients abroad, away from the NBFIRA jurisdiction. Since there was no cross border supervision and monitoring, the IFSC vulnerability to money laundering and terrorism financing was high”, added Ramasedi.

A risk assessment for Non Bank Financial Institution absolve pension funds as one of the non financial institutions that are not vulnerable to money laundering despite recent corruption cases and money laundering besieging pension funds. 

The Non Bank Financial Institution Regulatory Authority has listed insurance companies and securities sector vulnerable compared to pension funds.  

The report has placed insurance companies, securities sector as most vulnerable while retirement funds comprised of pension funds, provident fund and fund administrators are mentioned as the list sector vulnerable to money laundering.

This came light on a latest report that NBFIRA disbursed last month titled ‘” National Risk Assessment Summary for the NBFI sector in Botswana”.

Ramasedi report only raise a red flag about the vulnerability of insurance sector and securities sector while he is mum on the vulnerability of money laundering in pension funds.

According to the report released last month NBFIRA indicated that in their inspections conducted by the Retirement Funds Department revealed that there was absence of anti money laundering policies majority of pension funds which represent 85% of the entire retirement funds industry while 60% of pension funds employees were not trained on money laundering.

The report indicated that quality of anti money laundering controls for the retirement funds industry was rated medium low on the vulnerability of money laundering on account of inadequate anti money laundering policies, procedures and quality of operations.

According to the report the conclusion that retirement funds were immune to money laundering could be as a result of the retirement’s failure to file suspicious transaction report with Financial Intelligence Agency.

The report also called on retirement funds to implement anti money laundering initiatives to combat possible money laundering in the sector. 

The report comes at a time when pension funds are embroiled in a number of corruption allegations and money laundering.

Some cases of money laundering and corruption have already been taken before the courts while the crime busting agency Directorate of Corruption and Economic Crime is also investigating allegations of corruption in some of the pension funds in the country.

According to NBFIRA boss the national risk assessment was part of the Anti-Money Laundering and Counter Financing of Terrorism National Risk Assessment of the country which was initiated by Finance and Development Planning Ministry.


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