As the clock struck midnight on Thursday, October 1, 2020, the European Union (EU) did what it threatened to do and listed Botswana as a high money laundering and terrorism financing (ML/TF) risk.
In deciding to list Botswana, the EU relied upon the Mutual Evaluation (ME) undertaken in June 2016 by the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), which is a Financial Action Task Force (FATF) Regional Body.
But since the ME, Botswana has made significant strides in improving its Anti-Money Laundering and Counter-Financing of Terrorism (AML/CFT) framework.
With the passage of the Financial Intelligence Act and Financial Intelligence Regulations in 2019, Botswana now has one of the most comprehensive AML/CFT frameworks in the world, together with some of the toughest penalties for non-compliance.
While Botswana still needs to make improvements with supervision and enforcement of the law, that will take time to implement. Building effectiveness cannot be achieved overnight. By listing Botswana as a country of high ML/TF risk, the EU is engaging in strategic risk management, and has developed its own set of criteria to evaluate countries. However, risk management is not an exact science and it has its weaknesses. The methods used vary and the data collected is subject to interpretation. And in an international environment impacted by political influence. But with any risk management assessment, the data used must be current, relevant, accurate and independent.
Based on the above four criteria, the following assessments are applied to determine if Botswana should have been listed as high ML/TF risk:
The Basel AML 2020 Index
Transparency International’s Corruption Index 2019
Tax Justice Network World Ranking 2020
Global Terrorism Index 2019
The Basel AML Index released by the Basel Institute on Governance in Switzerland measures ML/TF risk in countries. The 2020 report relates to results obtained during 2019. Transparency International 2019 Corruption Index provides an annual snapshot of the degree of corruption in countries around the globe.
Countries and jurisdictions are ranked from very clean to highly corrupt and listed accordingly (1 being the least corrupt and the last country listed being the most corrupt, with the 2019 list containing 180 countries and jurisdictions). Botswana ranked 34 in 2019.While the Tax Justice Network World Ranking Index “ranks jurisdictions according to their secrecy and the scale of their offshore financial activities.
A politically neutral ranking, it is a tool for understanding global financial secrecy, tax havens or secrecy jurisdictions, and illicit financial flows or capital flight”. The ranking method is complicated, but it lists countries from 1 (highest secrecy) through to 133 (lowest secrecy). Botswana ranked 113 in 2020.
The Institute for Economics & Peace (IEP) which releases the Global Terrorism Index measures the impact of terrorism on countries and jurisdictions around the globe. A ranking of one to four is very high; five to 18 is high; 19 to 48 is medium; 49 to 81 is low; and 82 to 137 is very low. While a rating of 138 means that a country is not impacted by terrorism. Botswana received a rating of 138.
The performance of every EU member country has been compared to Botswana and displayed in the table (pictured).
In relation to the AML Index, Botswana did not compare well against all EU member countries except Malta. But what is missing from that data is the risk from major predicate offences that drive money laundering activity.
For example, Europe is an important market for criminal organisations for the consumption of heroin and the use of cocaine and amphetamine-based substances. Further Europe is a significant market for the trafficking of humans, particularly for sexual slavery. In relation to the other three categories, compared to EU member countries, Botswana does very well. It is perceived as being less corrupt and more transparent than most EU member countries. For example, in relation to corruption, it ranked higher than 15 of the 27 EU countries. Lower perceived corruption in Botswana compared to many Western countries in the EU means that its AML/CFT systems are more likely to be effective.
Europe also has a significant terrorism problem in comparison to Botswana and hence Botswana is appropriately rated 138. This rating implies that the threat from terrorism financing in Botswana is very low.
While the data presented above confirms that Botswana is not a country of high ML/TF risk in comparison to other countries, it does not mean that the country has no money laundering and corruption problems.
Investigative and prosecution agencies still need to improve their capability and enhance their capacity to investigate serious financial offences, particularly money laundering and corruption.
In relation to corruption, Botswana scores well when compared to most countries and jurisdictions and is a standout performer in Africa. But that is not good enough and being number one should be the target of the Government. Nothing deters investment more than corruption and during this global pandemic when it is hard to secure foreign investment, rising corruption is the last thing Botswana needs.
As the data proves, the EU used out of date information to list Botswana. The country has world beating AML/CFT legislation. But it must push on and build the capacity and capability of supervisory authorities, law enforcement agencies and prosecutors which will strengthen its case to be delisted by the EU and to deter and prevent corruption, money laundering and terrorism financing in Botswana.
MICHAELA POWELL-REES & CHRIS DOUGLAS*
*Article written by Merero Partners, a boutique advisory firm based in Botswana offering Corporate Finance, Management Consulting and Risk Advisory Services. Contact Merero via email [email protected] for more information on AML/CFT training and consultancy services in Botswana