There is no doubt that there were many and some major deficiencies found in Botswana’s AML/CFT framework but they could not be categorised as strategic. They are only national deficiencies.
The ME report lacks balance as it failed to put significant weight on the low corruption risk of Botswana, the highly educated and professional non-financial and business sector, particularly among the legal, accounting and investment communities. And the strong implementation of the rule of law in the country. Its listing by the FATF is overkill.
Yet Botswana has now been listed alongside the Bahamas, Ghana, Tunisia, Ethiopia, Trinidad and Tobago, Pakistan, Yemen, Syria and Sri Lanka.
There are many reasons why those countries are listed.
They are either plagued by serious corruption, torn apart by war or have significant internal risks, unstable governments or are a major financial centre located close to drug producing and consuming countries. These are “strategic AML/CFT risks”.
Any one of them can render an AML/CFT system ineffective. None of those situations apply to Botswana.
It is FATF members who have been and who still pose the greatest money-laundering and terrorism-financing risks to the global financial system. A recent example to support the claim is the major money-laundering scandal involving Danske Bank, Denmark’s largest financial institution.
It could be Europe’s biggest money-laundering scandal. Denmark is a FATF member.
The scandal dwarfs the recent case involving Dutch bank ING Groep, which has admitted that criminals had been able to launder money through it and has agreed to pay 775 million (R12.6billion) to settle the case. The Netherlands is another member of the FATF.
The Danske Bank scandal involves its Estonian branch, which has since 2007 been used to conceal 200bn in suspected illegal money. This equates to over half the size of Denmark’s annual gross domestic product of 324bn. This is an enormous amount of money by any measure.
The alleged money laundering wasn’t discovered until an employee blew the whistle in 2013. However, the bank board didn’t launch an investigation until last year.
Like Botswana, Denmark had its mutual evaluation on-site inspection in 2016 with the final report published last year.
The Danish Mutual Evaluation report makes no mention of the scandal which raises serious questions about the quality of the evaluation, the competence of the assessors and the effectiveness of the entire AML/CFT framework.
Questions that should now be asked include whether Danske Bank officials met with the FATF assessors in November 2016 and, if so, disclosed the alleged money-laundering scandal to them. And if the Financial Supervisory Authority (FSA) of Denmark was aware of what was occurring in the Danske Bank branch in Estonia, did it disclose to the FATF assessment team information about the scandal? Was the FATF kept in the dark over the issue and, if not, why wasn’t it addressed in the ME report?
Denmark, a wealthy European country, was found compliant with only four of the 40 FATF recommendations during its 2016 evaluation, while Botswana was found compliant with none.
That is only a marginal difference. The major difference between the two countries is that while Botswana is perceived to be of high risk to money laundering and terrorism financing, Denmark is more than a money-laundering risk. It has a major institution actually laundering money internationally.
Unlike Botswana, Denmark was not listed as a country of high risk to money laundering and terrorism financing by the FATF. The Danske Bank scandal revealed serious strategic deficiencies in the AML/CFT systems of the bank, which impacts on Denmark and the global financial system.
The deficiencies have allowed suspect money derived from crime, particularly corruption, to be leached into the global financial system - something that no institution in Botswana has done.
Denmark is also of high risk to terrorism financing. Since 2012, more than 150 Danish citizens have joined militant religious movements in Syria and Iraq - some of those militants have returned to Denmark - while in Botswana the risk from terrorist activities would be regarded as very low.
In normal circumstances it wouldn’t be appropriate to label a country as being of high risk to money laundering due to the actions of one bank, but this case is different.
Denmark is a major financial centre with more than 65percent of its gross domestic product being derived from financial services.
The FSA deems Danske Bank essential to Denmark’s financial system.
An economy that comprises 65percent from financial service industry needs to get a clean bill of health about its systems and processes.
While not suggesting that it occurred during the mutual evaluation of Denmark, an economy built on financial services increases the risk that FATF assessors might feel pressured to go easy on such a country to avoid the substantial damage that could result if it was listed as being of high risk to money laundering.
What the FATF must do now is protect the global financial system and list Denmark as being of high risk to money laundering and terrorism financing. And it must order a new mutual evaluation of the country, with assessors demanding answers to the questions posed above.
If Botswana was a European country and a FATF member with a large financial services industry, would it have been listed as being of high risk to money laundering and terrorism financing? I highly doubt it.
Botswana has a right to feel cheated by the European-dominated FATF. Clearly double standards are being applied - one for FATF members and another for African countries.
Chris Douglas is the director for Malkara Consulting in Australia and a director of Africa AML and Financial Services (Botswana).