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EU blacklisting's potential impact on Botswana's COVID-19 measures

Firing line: The country’s structural capacity to prevent dirty money is being questioned
Botswana is a member of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), which is an intergovernmental organisation responsible for ensuring effectiveness, implementation and enforcement of the internationally recognised Financial Action Task Force (FATF) Recommendations against money laundering and the financing of terrorism.

Through its membership of the ESAAMLG, Botswana was subjected to an AML/CFT risk assessment in 2016 to evaluate measures in place and the effectiveness of the country’s AML/CFT systems in detecting and deterring money laundering and terrorist financing and providing recommendations on how the system could be further strengthened.

Following the review, it was noted that the country’s AML/CFT systems have deficiencies, which led to the country being put on the FATF list of countries that need to improve AML/CFT measures (Grey Listing). 

Botswana then made commitments to improve and strengthen its AML/CFT systems and address any related technical deficiencies identified during the review period.

A follow up review was conducted, and a report dated April 2019 stated that, “Botswana made good progress in addressing most of its technical compliance deficiencies identified while pending the review progress on improving effectiveness as recommended previously”.

Botswana has formed an AML Task Force that is dealing with the remediation of these findings and provides a quarterly progress update to the FATF.

The European Commission (EC) has updated its list of countries with AML/CFT deficiencies from the FATF list, and this list includes, amongst others, Botswana. Furthermore, the EC notes that Botswana has pledged to implement policies, procedures and rules in order to address the deficiencies. If the EU decides to implement the new list as it has blacklisted Botswana during the COVID-19 pandemic, this would impact government and private sector business transactions and activities in the following manner (e.g. in procuring COVID-19 related preventative goods:

that transaction is highly unlikely to be successful; or

  • There will be a delay in concluding that transaction compared to a transaction that comes from a low risk country (i.e. a country that is not on the blacklist);
  • Further enhanced due diligence on the transaction would be required (this may lead to additional request for documentation for source of funds and purpose of funds).

This is because the processing financial institution(s) will almost certainly reject the transaction, in line with rules on sanctions against the blacklisted country. Allowing such transactions to proceed without conducting enhanced due diligence on them would likely result in reputational risk and potential regulatory fines for the receiving bank.

This is due to International Bodies demanding financial institutions to be more vigilant and alert during the COVID-19 pandemic, which could lead to a marked increase in financial crime risk activities involving cross-border transactions.

Therefore, Botswana’s COVID-19 efforts may be negatively impacted due to delays in processing purchases for the preventative goods and medicine as well as increased cost of compliance. This is due to the risk associated with dealing or receiving money and sending goods to a high-risk country, especially goods related to Health and Pharmaceuticals.

The Health and Pharmaceuticals sector is considered a high target for financial crime since medical and humanitarian supplies, which are currently in high demand, are exempted from sanctions. How can Botswana avoid being blacklisted? The recent update to the FATF shows that Botswana has made good progress in addressing its AML/CFT deficiencies.

The major changes Botswana made was to amend its legal framework, including the Financial Intelligence Act and Regulations, Companies Act, Income Tax Act, Trust and Property

Control Act and Counter Terrorism Act. Furthermore, the Companies and Intellectual Property Authority (CIPA) introduced the Online Business Registration System (OBRS), which requires existing and new businesses to re-register online publicly disclosing amongst others, the identity of their beneficial owners. In order to improve effectiveness and efficiency, the Botswana Unified Revenue Service has also developed and implemented a new tax collection system called Lekgetho Live.

Additionally, there is ongoing re-registration of all Trusts operating in Botswana through the Master of High Court as an effort to identify beneficial owners (Trustees).

These efforts, if fully rolled out and implemented should improve the country’s efforts in AML/CFT and proliferation of weapons of mass destruction.

Botswana should continue to address other remaining deficiencies and provide progress update as and when required. These efforts should include all impacted stakeholders to ensure that there are no gaps.

Blacklisting impacts the entire economy and has dire consequences on individuals and the society. It is imperative that each person or body of persons play their role in ensuring that Botswana’s AML/CFT systems are robust.

The government should continue to address the AML/CFT deficiencies and provide guidance for compliance with the requirements of AML/CFT rules and regulations. The Regulator should provide oversight/monitor on all institutions to ensure adherence to the regulations. Non-compliant businesses and individuals should be penalised accordingly.

Legal entities should implement programmes to combat the commission of a financial offence. As per the Financial Intelligence Act, they should develop and implement internal rules and procedures that guide and promote suspicious transactions and cash transactions above the prescribed amount reporting.

Most importantly, all companies providing COVID-19 supplies must ensure that the necessary compliance documents are in place and be ready to submit them upon request by financial institutions.

For individual persons, we need to be able to know the kind of person we are dealing with (Know Your Customer), especially when we conduct transactions above the prescribed amount (P10,000). For example, if an individual has a car or a plot to sell, it is in their best interest to know the person they are dealing with, especial when the person requests to pay in cash. The recommended solution to conclude cash transactions above the prescribed reporting requirements is to refer the customer to deposit the money to your bank account. Where the individual does not have a bank account, their identification details should be recorded (request a copy of an ID).

This will in future assist when there is an investigation in relation to that customer’s transactions or when you deposit the cash and you are required to provide proof of your source of funds. Citizens should also be interested in educational awareness on Financial Crime Risk and ask more information from their financial institutions.

The government has done exceptionally well to address AML/CFT deficiencies. The safeguarding of Botswana’s economy against financial crime should not be the sole responsibility of the government, but requires involvement of the public and private sector, particularly other private professionals in AML/CFT in the spirit of ‘Kgetsi ya tsie, e kgonwa ke go tshwaraganelwa’.

*Lesego Kgalemang is a Financial Crime Risk Analyst with First National Bank Botswana.


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