Monday, April 22, 2024

Precious stones and fong kong dealers, estate agents and lawyers pose high money-laundering risk

It is becoming clearer and clearer how Botswana has, at least by the estimates of the Global Financial Integrity, lost billions of pula as illicit financial flows (IFFs).

When assessors from the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) visited Gaborone in 2016, they learnt from representatives of both the private and public sector that estate agents, lawyers and cattle buyers pose a high risk for money laundering. They further learnt that both professions “have a very limited awareness of the money laundering/terrorism financing risks and the Anti-Money Laundering/Combating Financing of Terrorism (AML/CFT) requirements that apply to them.”

The problem is greater because the assessors themselves identified other groups that pose equally high money-laundering risk: second hand import car dealerships, dealers in precious and semi-precious stones,  as well as cattle buyers and sellers.

Real estate agents and lawyers assist clients with the buying and selling of property. The authorities and real estate agents that the assessors interviewed said that the real estate sector is quite vulnerable to money laundering risks. Between 2010 and 2013, the Directorate on Corruption and Economic Crime and the Botswana Police Service carried investigations on illicit land dealings in which money amounting to P10 million was transacted. Separately, lawyers involved in transactions relating to the buying and selling of cattle acknowledged that this commercial activity poses significant money laundering risks for Botswana.

“Both sectors are known to be cash-intensive, which leaves a number of unrecorded transactions which are outside of the AML/CFT requirements,” says a report produced from the 2016 on-site visit by ESAAMLG assessors.

Another group that is not subject to AML/CFT requirements is that of precious metal dealers. While the Financial Intelligence Agency (FIA) had conducted awareness-raising activities to the Designated Non-Financial Businesses and Professions (DNBFP) sector to inform them of their responsibilities under the Financial Intelligence Act, the assessors concluded that “the lack of assessment of money laundering/terrorism financing risks in the DNFBP sector and absence of compliance monitoring programmes represents a significant money laundering vulnerability.”

“In general, the DNFBPs are not aware of their money laundering/terrorism risks and AML/CFT obligations. The foreign-owned or controlled accountants, casinos and dealers in precious stones operating in Botswana demonstrated a better understanding of the money laundering/terrorism risks and AML/CFT obligations that apply to them due mainly to reliance on group policies than local laws. The rest of the DNFBPs demonstrated little or no awareness of money laundering/terrorism risks and AML/CFT obligations. Consequently, the foreign-owned or controlled accountants, casinos and precious stones dealers have adopted procedures to report suspicious transactions and have in place better measures to conduct know-your-customer procedures,” the report says.

The assessors found that while dealers in precious and semi-precious stones are required to be licensed and supervised for AML/CFT, they were yet to be supervised due to lack of supervisory capacity.

“Since the FIA has not yet started supervising this sector for AML/CFT, it means the dealers are for now to a large extent left to self-regulate themselves as most of them, being foreign owned or controlled have to implement AML/CFT obligations obtaining in the home jurisdiction of the parent company. The total number of licensed dealers was estimated at 313 at the time of the on-site visit,” the report says.


At the time of the on-site visit, there were 13 money remitters and 760 car dealers. Local respondents (including FIA officials) told the assessors that imported second-hand car dealership pose a high money laundering/terrorism financing risk. The assessors were unable to fully explore the money laundering risk in the sector as there was no clear information on the sector pertaining to AML/CFT and learnt from FIA that the agency had started to engage the dealers in this industry, having already addressed those in the northern part of the country and was to engage those in the southern part in late June 2016. The assessors’ recommendation was that authorities should undertake a thorough money laundering/terrorism financing risk assessment of the sector. The assessors also point out that it would be easy for organised crime to use car dealerships as a front and mix up illegitimate funds with legitimate funds from crimes such as drug and wildlife trafficking that are inherent with cross-border businesses.

Within the financial sector, the assessors found variance in relation to the degree of understanding of the money laundering/terrorism financing risks and application of the AML/CFT procedures between foreign-owned or controlled and domestic financial institutions. In the banking sector, the assessors identified that the big four commercial banks (First National Bank, Barclays Bank, Standard Chartered Bank and Stanbic Bank) demonstrated a comprehensive understanding of money laundering/terrorism financing risks that apply to them and have put in place the relevant AML/CFT procedures to address the risks identified. The banks relied on the Financial Intelligence Act and group policies of their respective countries of origin laws.

“For example, they had already put in place compliance functions, staff training programmes, customer due diligence, record keeping, transactions reporting, systems to implement United Nations Security Council Resolution sanctions and risk assessments, amongst others. The remaining banks have demonstrated a reasonable understanding of money laundering/terrorism financing risks and emerging application of the AML/CFT obligations ÔÇô albeit not as robust as the big four commercial banks. While cross-border wire transfers are regarded as high risk transactions, the remaining six banks do not engage, (also confirmed by the Bank of Botswana), in these kind of transactions,” the report says.

While it is fully aware of the money laundering risk within the legal profession, the Law Society of Botswana told the assessors that it can’t do anything about the situation. Its representatives explained that the Legal Practitioners Act constrained it from effectively conducting its AML/CFT supervisory role due to lawyerÔÇôclient privilege requirements. They added that LSB “does not have funding to develop capacity to take up the role.”

Generally, the assessors found the cash-intensiveness of the Botswana economy to be unhelpful for purposes of preventing money laundering.

As the rest of Africa, Botswana loses a lot of money through illicit financial flows ÔÇô which include money laundering. The findings of the High Level Panel on Illicit Financial Flows from Africa, which is jointly run by the United Nations and the African Union, are that the billions of pula that are spirited out of Botswana cause the country’s under-5 child mortality rate to go up by 14.20 percent yearly. On an annual basis, Africa loses more than US$50 billion through IFFs and over the last 53 years has lost in excess of $1 trillion.

Among the “practical and realistic strategies” which President Mokgweetsi Masisi said will be implemented as a matter of urgency when he was sworn in on April 1 is “compelling accountants and tax advisors to pay their first professional allegiance in the discharge of their duties to the nation, then ensuring that their clients pay in full taxes that are legitimately due.” Indeed bill after bill that are designed to close loopholes that exist in Botswana’s financial system are being tabled in the current session of parliament on a notice of urgency.


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