The stringent know-your-customer (KYC) requirements, which were motivated by Al Qaeda’s 2001 attacks on the United States, are supposed to be foolproof. However, a High Court judgement suggests that there are still some more loopholes to exploit and cheat the system.
The judgement in question is that which was handed down two weeks ago by Justice Omphemetse Motumise in a money-laundering case involving a high-flying investment manager and a director in a strategic government department. As a basic identity verification process used by banks and other financial institutions, KYC is supposed to combat illegal activity like money laundering. The latter involves disguising financial assets so they can be used without detection of the illegal activity that produced them. However, it wasn’t KYC processes that automatically detected an unusual transaction involving millions of pula but law enforcement processes outside the banking system.
The money in question was controversially withdrawn from the National Petroleum Fund at the instance of the former Director of the Department of Energy, Kenneth Kerekang, and deposited into the bank account of Recon Security Training. Trading as Basis Points Botswana, Recon was owned by Bakang Seretse, an investment manager and businessman. Officially, the money was meant to buy oil stocks for Botswana Oil, a state-owned enterprise which manages the government’ strategic fuel reserves.
Kerekang instructed Bank Gaborone to open an account in the name of the NPF “for transaction purposes for oil stock.” The money was transferred in three tranches (P6.2 million, P10 million and P43.7 million) between July and December 2016. The first was “fees for various advisory services”, the second for “advance for the procurement of oil stock” and with the third (which occurred six months later) was instruction to close the account “due to the dormant nature of the account and the need to consolidate accounts with our transaction advisor/investment manager.”
Motumise agreed with the state that this money was ultimately used to buy real estate property (like a plot in Gaborone West for Kerekang) and a wide range of luxury goods – like the P3 million Rolls Royce Phantom which Seretse bought from the United Kingdom and sold in South Africa. In reaching that conclusion, the judge had to determine whether transactions in question met the legal definition of “money laundering” as outlined in Section 47 of the Proceeds and Instruments of Crime Act. The latter criminalises engagement in a transaction that involves property which is, or in part directly or indirectly, represents the proceeds of any crime. It also criminalises receipt, concealment, disguise, transfer, conversion, disposal as well as removal from or bringing into the country any ill-gotten property.
The judge described Seretse and Kerekang’s actions as “deceptive” and purposefully designed “to evade the watchful eyes of the banks under their Know Your Customer obligations as stipulated under the Financial Intelligence Act.” He found that the dirty money from the Fund had been cleaned with purchase of real estate and luxury goods.
What the latter means that is that the supposedly fool-proof KYC requirements can actually be circumvented. If the bank had been able to detect what the judge believes was fraud, the transactions would never have gone ahead. When such fraud was detected, the process had gone way past KYC gatekeeping. It has been questioned whether, even at levels where the fraud was detected, Botswana is adequately capacitated to handle money-laundering cases.
In the language used by assessors from the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), Botswana’s judicial system “has not yet been tested in as far as money laundering cases using the Proceeds and Instruments of Crime Act are concerned.” The problem has to do with high staff turnover, fully booked court diaries, non-availability of witnesses as well as transfer or resignation of judicial officers.
“There is generally a low understanding of money laundering/terrorism financing risks in Botswana,” says an ESAAMLG report that followed a 2016 visit by the assessors. “The reporting entities and their supervisors are still familiarising themselves with requirements of the Financial Intelligence Act. There have been very few money laundering cases investigated and two cases prosecuted (using the repealed Proceeds of Serious Crime Act). Despite some of the officers having received training in money laundering investigations, they do not pursue money laundering cases but predicate offences. There is need for the investigators to apply skills gained so far, in addition provide more specialised training on money laundering investigations and prosecution. There is low understanding of money laundering/terrorism financing risks across the spectrum.”
A year before this visit, the Directorate of Public Prosecutions (DPP) had established an Asset Forfeiture Unit (AFU). However, the assessors found the AFU to be still at infancy stage and not getting support from all stakeholders at national level. They also found DPP, which is responsible for guiding investigations and prosecutions of money laundering cases as well as confiscation cases, to be inadequately resourced.
“It has limited skilled and experienced prosecutors in money laundering and asset recovery. This situation has been compounded by the high staff turn-over of the few experienced and trained prosecutors’ available, further exacerbating capacity issues at the DPP,” says the report adding that prosecution in the DPP is not prioritised according to risk factors, nor are such risk areas prioritised in training and allocation of resources. “Further, the DPP has not taken specific measures to determine the extent of the money laundering risk posed by some of the predicate offences that are not yet criminalised.”
The bigger, more intractable problem is that described by John le Carré, whom many will remember as a spy-novel writer. Much of what he wrote about was actually based on his real-life experiences as a spy in the British Secret Service from the late 1950s until the early 1960s. In a 2010 interview with Democracy Now, a US media outlet, Le Carré said money laundering is near impossible to fight because it is “everywhere” and has also been integrated into the international banking system.
“On the grand scale, it’s endemic to banking,” said Le Carré, who had just written a novel about money-laundering itself. “You have to bear in mind that when Lehman Brothers wasn’t going to function anymore and the big banks weren’t lending to one another, back at that terrible time, $352 billion of illegal money were then tacitly released upon the market, and that was about the only money people were lending to one another. So, money laundering is not some distant fantasy. It’s actually how you handle the profits of extortion, tax evasion, criminal conspiracy and huge quantities of drug money, how you get that into the white sector.”
By the “terrible time”, he was referring to the 2009 global recession. Sometime before this interview, Le Carré had written an article in the International Herald Tribune in which he gave concrete examples to back up his assertions: “Barclays, a British bank, paid $298 million “for conducting transactions with Cuba, Iran, Libya, Myanmar and Sudan in violation of United [States] trade sanctions. Barclays was discovered to have systematically disguised the movement of hundreds of millions of dollars through wire transfers that were stripped of the critical information required by law.” Credit Suisse Group and ABN Amro Bank were also discovered to have done the same thing.
“Union Bank of California, American Express Bank International, BankAtlantic and Wachovia have all been caught moving huge sums of drug money, but no one went to jail,” wrote in the International Herald Tribune. “The banks just admitted to criminal conduct and paid the government a cut of their profits.”
Interestingly, these incidents happened some nine years after implementation of KYC legislation.
