Thursday, August 13, 2020

Money laundering: The EU says Botswana poses a risk

While Botswana has its hands already full dealing with the Covid-19 impact on the economy, which is set for its largest contraction, the European Union Commission on Thursday dealt the diamond producing country a heavy blow that will affect the flow of foreign direct investment (FDI).

The EU added Botswana to the “high-risk third countries” in terms of money laundering and terror funding activities. Botswana was last year March flagged by the EU Commission as lacking strategic deficiencies in anti-money laundering and counter-terrorist financing regulations.

The latest EU list now include 22 countries: Bahamas, Mauritius, Barbados, Botswana, Cambodia, Ghana, Jamaica, Mongolia, Myanmar, Nicaragua and Zimbabwe to its list of countries that “pose significant threats to the financial system of the Union” because of failings in tackling money laundering and terrorism financing.

The “High-risk” status does not make it illegal to invest in the countries, but it will require European banks to probe clients with ties to these markets more intensively — potentially making it too costly to continue business.

Expectations were high that Botswana will be removed from the list of the countries this year after the country passed a series of  legislation pieces geared at closing the gaps that led to the country being flagged for lacking proper anti-money laundering controls. Earlier this year in January, those expectations were heightened when France finally removed Botswana from its non-cooperative states and territories (NCST) in tax matters. The country was placed in the list in 2012.

The decision by France to exclude Botswana from countries likened to tax havens  was seen as a sign that the country’s efforts to strengthen its financial controls were bearing fruit – clearing the way for Botswana which in recent years found itself under the scrutiny of other financial regulators.

In November 2019, Botswana was once again kept in the list of countries grey-listed for having strategic Anti Money Laundering and Counter-Terrorism Financing despite some efforts the country undertook to avert being black-listed by international regulators.  The diamond nation was stunned by the Financial Action Task Force (FAFT) in 2018  when it was listed alongside countries that do not comply with AML/CFT regulations.

After Botswana was grey listed, the government made high-level commitment to work with the FAFT and Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) to strengthen the effectiveness of its anti-money laundering controls. The country’s law-making body, parliament, rushed through several  Bills concerned with AML/CFT regulations in the hope that Botswana will be removed from FAFT and EU lists.

The passed regulations partly helped when in 2019 when the FAFT said the country has reduced some strategic deficiencies that were noted in 2018, signalling that the country is getting close to being removed entirely from the list.  

The government has previously expressed concerns on how the grey-listing was making it hard to attract foreign direct investment (FDI). Now with the EU maintaining Botswana as a high-risk country, this will slowdown the efforts by President Mokgweetsi Masisi, who upon ascending to the presidency in April 2018, took around the globe seeking FDI. The challenge is  that the country will find it hard to attract investors who are willing to undergo the cumbersome stringent conditions, that increase the cost of doing business.

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