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Botswana placed on money laundering high-risk list

Finance Minister, Kenneth Matambo says loopholes are being closed
The Financial Action Task Force (FATF), a global anti-money laundering organisation founded by the world’s richest countries, has placed Botswana on its list of high-risk countries.

The FATF conducts ongoing reviews of global compliance with Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) standards, alerting countries of deficiencies, particularly those that may affect international financial systems.

Placement on its high-risk list is often seen as a disincentive to most global investors and international finance institutions, as the world attempts to clean up illicit financial flows.

In a statement on Friday, the intergovernmental organisation said its latest review of Botswana had found ‘strategic deficiencies’ that resulted in the country being listed as a high risk for AML/CFT.

According to the assessment, one of these is the monitoring of Non-Profit Organisations (NPOs), commonly known locally as Non-Governmental Organisations (NGOs). The FATF said it had secured ‘high level’ political commitment from Botswana to tackle the identified deficiencies.

“Botswana will work to implement its action plan to accomplish these objectives, including assessing the risks associated with legal persons, legal arrangements, and NPOs and applying a risk-based approach to monitoring NPOs,” the statement read.

The FATF said government had also committed to developing and implementing a risk-based comprehensive national AML/CFT strategy, developing and implementing risk-based AML/CFT supervisory manuals and improving analysis and dissemination of financial intelligence by the Financial Intelligence Agency.

The government had also committed to enhancing the use of financial intelligence amongst relevant law enforcement agencies, developing and implementing CFT strategy, and ensuring the terrorism financing investigative capacity within.

“Botswana will work to achieve its action plan ensuring the implementation without delay of targeted financial sanctions measures related to terrorist financing and proliferation (of weapons of mass destruction) financing.”

The categorisation of Botswana as a high risk for money laundering flies in the face of government’s concerted efforts to plug legislative loopholes through which illicit funds have been flowing.

This year alone, legislative amendments have been introduced to force all corporations to disclose their beneficial owners, to eliminate the ‘dormant’ status for companies and to curb the abuse of transfer pricing. Other amendments include plans to dismantle a 15-year-old special tax incentives framework for offshore financial services companies known as the International Financial Services Centre.

The amendments requiring the disclosure of beneficial owners are to ensure that companies are not being used as vehicles for money laundering, terrorist financing or other illegal activities. The removal of

the dormant status for companies means companies in Botswana can only be active or deregistered, as some companies were abusing the dormant status to evade taxes or to engage in money laundering.

Transfer pricing, or transactions within and between enterprises with common ownership and control, is abused when corporates tag prices for these transactions above or below the real value in order to distort profits and taxable income.

The IFSC framework, meanwhile, has long been seen as contributing to Botswana’s ‘tax haven’ image, particularly as some of the beneficiaries have been fingered in global tax avoidance exposés such as the Panama Papers.

A local tax expert told BusinessWeek that while Botswana had indeed tightened its laws, these were mainly targeted at corporates and not NGOs, which, as the FATF suspects, are swimming under the radar.

“NGOs do get away with far less scrutiny from the authorities, including the backgrounds of characters, source of funds, where these funds are being used and overall audit and accountability,” the expert said, opting to speak on condition of anonymity for professional reasons.

“Mind you, the FATF’s definition of NPO could also include the churches and unions, which would be quite interesting as these increasingly deal with large amounts of money, with very little enforced official regulation.”

Responding to BusinessWeek, Botswana Unified Revenue Service commissioner general, Ken Morris said the agency was in the process of finalising studies to determine the extent of tax avoidance and evasion in the country.

“It varies from country to country, and we are working closely with other organisations to curb illicit financial flows.

“Currently, we are still conducting some studies and we anticipate them to be done in a few months.

“Mind you these studies are continuous,” he said, responding to questions on the sidelines of the ongoing African Tax Administration Forum conference.

The forum’s executive secretary, Logan Wort told BusinessWeek that the organisation was working on tracking tax evasion and avoidance culprits across borders. He said this was being done through effecting legislative changes in member states.

Other countries placed on FATF’s high-risk list this week include the Bahamas, Ghana, Tunisia, Ethiopia, Trinidad and Tobago, Pakistan, Yemen, Syria and Sri Lanka.


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