On May 7, 2020, the European Commission outlined a new action plan to combat money laundering and terrorism financing in European member countries.
The intention is to develop and implement the plan over the next 12 months with the aim to improve the enforcement, supervision, and coordination of the EU’s rules on combating money laundering and terrorist financing. According to Executive Vice-President Valdis Dombrovskis:
“We need to put an end to dirty money infiltrating our financial system”. I could not agree more with him. Recent scandals involving European banks have highlighted the dismal failure of EU anti-money laundering and counter financing of terrorism (AML/CFT) systems.
After outlining the six pillars of its action plan, the EU then published what it called: “a more transparent, refined methodology to identify high-risk third countries that have strategic deficiencies in their anti-money laundering and countering terrorist financing regimes that pose significant threats to the EU's financial system”. It then went on to list Botswana as one of four countries that pose a high money laundering and terrorism financing (ML/TF) risk to the financial system of the European Union.
No specific reasons were given for the inclusion of Botswana as a high-risk country by the EU. Claiming to be transparent, the decision by the EU is anything but transparent. On the same day as it listed Botswana as a country of high ML/TF risk, the EU issued a revised methodology for the identification of high-risk third countries.
And to my knowledge, Botswana was not asked to “show cause” explaining why it should not be listed! The EU just decided to kick Botswana in the guts because it could. And to do so when Botswana was mustering resources to fight the Covid-19 pandemic!
Under the new methodology the EU when making its decision on whether to list a country is to consider lists published by the peak international AML/CFT body the Financial Action Task Force (FATF) which are to be complemented by its own assessment which will involve:
• Identification of the risk profile and the level of threat to which a country is exposed, and
• An assessment of the legal framework and its effective application in eight key areas
It is clearly apparent, that when the EU made its decision to name and shame Botswana, it did not take into consideration the significant steps that the country has taken to strengthen its AML/CFT framework. Changes to the Financial Intelligence Act and regulations in late 2019 have resulted in Botswana now having one of the most comprehensive wide-ranging AML/CFT legal framework in the world. And to enhance it, the new AML/CFT and criminal money laundering laws contain very tough criminal penalties. For example, the maximum term of imprisonment for money laundering in the Netherlands is eight years, in Germany it is 10 years and the UK it is 14 years. In Botswana, the maximum penalty for money laundering is up to 20 years imprisonment.
Even the FATF acknowledges the steps undertaken by Botswana when in its April 2019 follow up report stated: “Botswana has made good progress to address the technical compliance deficiencies identified in the MER”. The reviewers of Botswana’s progress noted that in relation to some of the recommendations, there were only minor shortcomings. As a result, Botswana was re-rated upwards on 32 of the 40 FATF Recommendations. And further on February 21, 2020, the FATF advised: “Since October 2018, when Botswana made a high-level political commitment to work with the FATF and ESAAMLG to strengthen the effectiveness of its AML/CFT regime and address any related technical deficiencies, Botswana has taken steps towards improving its AML/CFT regime, including by developing its national AML/CFT strategy and operationalising the country’s company registry to maintain beneficial ownership information”.
As the FATF recognised, Botswana has revised its AML/CFT framework, particularly the Financial Intelligence Act and regulations in late 2019 which have further improved it by clarifying and tightening many of its provisions. While Botswana still have some enhancements to do in relation to its AML/CFT framework, particularly in relation to the capacity of agencies to enforce and prosecute money laundering, these cannot occur overnight. It can take many years for agencies to develop their investigative and prosecution capability. Which under no circumstances should be implemented before any agency is ready. To do so, could result in prosecution failure, costly compensation being paid by the Government and a loss of confidence in efforts to fight money laundering. Even the EU with all its wealth and power, which has had over 32 years since the passage of the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances to implement effective money laundering laws, is still grappling with how to improve its systems. As itself acknowledged when it introduced another anti-money laundering road map at the same time it listed Botswana.
The EU claims that it is listing third countries that pose a “high risk” to its financial system. How does Botswana a country of over two million people pose a high risk to the EU financial system? The new framework adopted by the EU requires it to assess the level of risk and threat posed to a country. Well does Botswana have a significant narcotic, people smuggling and human trafficking problem like Europe? No! Does Botswana have a significant number of Islamic State fighters who have returned to Europe which pose a significant terrorism risk? No. It does not have any! And given the changes made to the AML/CFT framework by Botswana, and the absence of any major internal security and law enforcement issues, Botswana would be regarded as being a low risk country.
It has been argued that the previous AML/CFT framework of Botswana made it vulnerable to the laundering
The EU does have significant risks to its financial systems, but they originate from larger unlisted countries and from within its own jurisdiction. For example, in March 2019, the EU tried to add to its high-risk ML/TF list of countries four U.S. territories, Saudi Arabia and Panama. The US Treasury attacked the EU listing and told all US banks to ignore it. Which they did. While Saudi Arabia lobbied individual EU members and threatened to cancel lucrative contracts with some European countries if it was listed as being a high ML/TF risk. The UK and Spain came to the rescue and Saudi Arabia was not included on the list. The entire listing issue was then dropped by the EU. Interestingly, less than three months later, on June 21, 2019, Saudi Arabia was granted full membership of the FATF. And less than nine months after journalist Jamal Ahmad Khashoggi was assassinated at the Saudi consulate in Istanbul Turkey by agents of the Saudi government. FATF membership was granted based on Saudi Arabia’s commitment to fighting money laundering and terrorism financing through the development and enhancement of its regulatory framework. How was that possible given the EU was going to list Saudi Arabia as a country of high ML/TF risk to its financial systems only months before and the state had engaged in an act of terrorism abroad? No doubt politics and hypocrisy go hand in hand and those with wealth always win.
The EU clearly demonstrated then that it does not have the courage to stand up to the largest economy in the world nor to some of its powerful members and will bend to pressure from wealthy countries. And let us not forget Russia. It should be added to EU’s list but with all the Russian organised crime money flooding into European banks it too is too big to name and shame.
But some of the greatest threats to the EU financial system originate from within Europe and from territories controlled by EU members. I am talking here about tax havens. The EU likes to name and shame other jurisdictions as being tax havens but within Europe there are at least 16 jurisdictions, which are listed below, that are used to hide and move illegally earned funds, particularly the proceeds of tax evasion and capital flight, particularly from Africa. These include
Andorra, Cyprus, City of London, Gibraltar, Isle of Man, Ireland and others.
Add to that list are jurisdictions in the Caribbean still controlled by or influenced by European countries such as Anguilla, Aruba, Bermuda, Netherlands Antilles, Turks & Caicos Islands and others.
The biggest of these is the Cayman Islands, which like many secrecy jurisdictions hosts international business companies which are used to receive funds derived from inflated royalties charged on trademark, copyright and patents for goods and services provided in developing countries by international companies. With the transfer pricing arrangements used to skim profits from poor countries designed by OECD members, many of which are European.
You never hear the EU taking serious action against any tax haven within its jurisdiction or influence. That would incur the wrath of some of its biggest members. Much easier to target low hanging fruit like Botswana. All of them should be listed as being of high ML/TF risk to the EU. A safe and perhaps cowardly strategy is to just let sleeping dogs lie. Even though Botswana probably has better government, a developed economy and lower corruption. Low corruption is important, because no matter what FATF says about a jurisdictions AMLCFT framework on paper, it comes crashing down in practice if corruption risk is high. And that is what is occurring in many tax havens.
This latest effort by the EU to list Botswana is simply the organisation demonstrating that it can only tackle small fish. It has demonstrated its true colours. It has shown that it is a bully and lacks the courage, commitment, and unity to tackle powerful western countries, so it attacks a small African country instead. Its leaders should be ashamed. The EU thinks that Botswana does not have the international political and diplomatic clout to put up much of a fight. But as it did back in 2019, the EU has bungled the listing. The EU in listing Botswana has failed to show how the country is a “high risk” to its financial systems. It has added Botswana without consideration of the recent changes the country has made to its AML/CFT framework, its effective and transparent rule of law and the low risk of crime that exists there.
The Government of Botswana must, and its people should insist that it call upon every EU member country individually and demand that the country be removed from the list. Then Botswana having effectively managed the Covid-19 situation and given the appalling death toll within Europe, should offer to teach the EU how to effectively manage a crisis. Because given its handling of the Covid-19 situation and its botched listing of Botswana, the EU seriously needs it.
*Chris Douglas is director of Malkara Consulting (Australia). Readers can engage with him on Chris.firstname.lastname@example.org