Tighter 'dirty money' laws squeeze banks, insurers

Fairgrounds is home to many of the entities affected by the new FIA act. PIC: MORERI SEJAKGOMO
Fairgrounds is home to many of the entities affected by the new FIA act. PIC: MORERI SEJAKGOMO

Banks, insurance companies and a host of other financial sector actors now bear the brunt of the country's fight against ‘dirty money,' with a new law threatening fines of up to P20 million, licence revocation and jail terms for violations.

The new Financial Intelligence Act kicked in on September 4, officially repealing its 10-year old predecessor whose loopholes eventually led to the greylisting of Botswana by global money laundering authorities.

Last June, Parliament passed amendments to tighten the old Act. But apparently under pressure from global anti-money laundering authorities, the Finance Ministry decided to repeal the entire Act and introduce the new one that kicked in earlier this month.

Under the new Act, specified parties, who include banks, insurance companies, bureaux de change, savings cooperatives, car dealerships, money transfer providers, casinos and others, face fines of P1 million for failing to properly mitigate the risk of a financial offence. Other specified parties include attorneys, accountants, real estate professionals and others.                    

Failing to take “reasonable” action to ensure that their services are not used for dirty money crimes also attracts a P1 million fine, while failing to conduct due diligence attracts similar fines. Failure to conduct a due diligence on “a prominent influential person” will attract a P1.5 million fine, while failing to monitor and report complex, unusual and high-risk transactions also attracts a similar fine.

According to the new Act, when a bank, insurance company or other specified company believes it is dealing with a “prominent influential person,” it is required to take “reasonable measures to establish the source of wealth and source of funds of the prospective customer.”

The highest fines in the new Act, up to P20 million, are reserved for specified parties that open false accounts or deal with terrorists/terrorism. Customers also face hefty penalties and jail terms for falsehoods and other violations.

Specified parties are also required to report all transactions, including wire transfers above P10,000 within five days, and keep customers’ records and transactions for periods exceeding 20 years. The “Know Your Customer” or KYC records updating, an exercise much hated by the public, is also required to be conducted every two years.

BusinessWeek is informed that financial industry players had held out hope that there would be a relaxation between the June amendments and the new Act. Instead, with the international agencies breathing down the country’s neck and a January 2020 deadline for compliance looming, the new FIA has emerged tighter than its June amendments.

Industry players are generally unwilling to talk on the record about the new FIA for fear of being seen as resisting the efforts to lift the greylisting.

“The concerns were not addressed in the new Act, but as an industry, we have to comply with the international best practice that the new Act is introducing and take that pain,” a senior executive with a local bank told BusinessWeek.

“The Act is meant to standardise our law with the international best practice on the recommendations of bodies such as the Financial Action Task Force.” Amongst their major concerns, financial sector actors, particularly banks, are worried that the definition of “prominent and influential persons” is now complex.

Before, prominent persons used to be politicians, but now it includes senior executives of private companies and religious leaders.

“Even people running their small private businesses and calling themselves MDs fall under this definition and the banks have to apply the same rigour the Act requires. In addition, the requirement that customer records be kept for a minimum of 20 years is quite onerous and you can imagine the documentation that financial institutions have on their clients on a daily basis.

“On the suspicious transaction reporting, you can imagine how many amounts above P10,000 banks are dealing with on a daily basis amongst their clients and the reporting must now be done within five days.

“There are complications everywhere such as clients depositing P5,000 in one branch and the same elsewhere and those have to be reconciled and reported.” One of the few financial sector leaders to speak out on the new changes, BIHL CEO, Catherine Lesetedi previously described the proposals as “very, very serious and challenging”.

BIHL is the country’s largest diversified financial services group, and one of the most affected by the latest developments through its major subsidiaries such as Botswana Life, BIFM and Legal Guard.

The group also has significant stakes in entities such as Letshego, Funeral Services Group and Botswana Insurance Company.  “When you sit down and give a proposal to a client, there is now so much information that we are expected to get from the client than in the past,” Lesetedi said last September at a results briefing, shortly after the June amendments were passed.

“Depending on the product and who you are selling to, you will find that there are issues around payslips and people needing to secure affidavits to confirm various requirements, which lengthens the period for closing new business.

“We are studying the Act and its risk-based approach and it is possible that some challenges will go away or decline with time.” Customers of banks, insurance companies, bureaux de change and other specified parties will also be unhappy about the frequent KYC updates required under the new law.

However, industry actors said despite the additional burden placed by the new Act, companies were in support of a lifting of the greylisting.

“This is international best practice and if we are to participate in the international market, this is what we have to get used to and reach for.

“We have to go through it and maintain that standard, whatever the pain is,” an official said.

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