Refocusing designated non-financial businesses and professions on the path of anti-money laundering and combating the financing of terrorism compliance

Abstract

Purpose

Designated non-financial businesses and professions (DNFBPs) are important actors both in the formal and informal sectors owing to the nature of services they offer. The DNFBPs are key players in financial and economic development and thus are highly vulnerable to money laundering (ML) and terrorist financing (TF) risks. Globally, and indeed, within the West African region, typologies studies have indicated several instances of misuse of DNFBPs for the laundering of proceeds of crime and to a lesser extent, TF. Factors that make DNFBPs vulnerable to ML and TF in the region, include limited understanding of ML/TF risk and anti-money laundering and combating the financing of terrorism (AML/CFT) obligations, and poor implementation of AML/CFT measures by the sector. As reporting institutions, DNFBPs are required to implement appropriate measures to mitigate the ML/TF risk facing them. Mutual evaluation reports (MERs) of countries in the region noted weak implementation of AML/CFT measures by DNFBPs compares to financial institutions. These coupled with the general poor monitoring and supervision of DNFBPs for compliance, make them a weak link in member states’ AML/CFT regime. This study examined how Economic Community of West African States member states can plug the loopholes in the DNFBPs to strengthen their AML/CFT regime and thus improve their performance during mutual evaluation. This study reviewed data from the publications of Inter-Governmental Action Group against Money Laundering in West Africa (GIABA), Financial Action Task Force (FATF) and other credible sources.

Design/methodology/approach

This study is more of desk-review based on secondary data, including information obtained from GIABA, and FATF publications, and websites as well as information obtained from reliable sources on the internet. The authors reviewed the MERs of GIABA member states that have been assessed under the second round, especially that of Ghana, Senegal, Cape Verde, Mali and Burkina Faso, with particular focus on sections of the reports relating to preventive measures and supervision. In general, this paper adopts a policy approach with a view to explaining the importance and benefits of implementing AML/CFT preventive measures by reporting entities, especially the DNFBPs.

Findings

This study found that there is a general lack of information on the exact size of DNFBPs across member states, the risk of ML/TF associated with DNFBPs is generally identified as high across member states (albeit at different levels), the extent and level of monitoring/supervision of DNFBPs for AML/CFT compliance trails what is obtainable in financial institutions; the institutional and operational frameworks for regulating, supervising and monitoring DNFBPs are either weak or poorly defined in many member states; and the focus of AML/CFT technical assistance has been more on financial institutions than DNFBPs. Although the number of MERs reviewed for this work may be few, the findings and conclusions in the concluded MERs reflect regional peculiarities, including high informality of the economies, preponderance use of cash in transactions, diversity of DNFBPs and the general weak application of AML/CFT preventive measures by these entities, and the weak AML/CFT supervision or monitoring of DNFBPs which cut across all GIABA member states. Although efforts to address the weaknesses in the DNFBPs, including training and supervision, have commenced, in most member states, these are still at rudimentary levels.

Research limitations/implications

However, this study is limited by the fact that it was desk-based review without direct inputs of industry players (DNFBPs and their supervisors).

Practical implications

In general, this paper adopts a policy approach with a view to explaining the importance and benefits of implementing AML/CFT preventive measures by reporting entities, especially the DNFBPs. It aims to bring to the fore the weaknesses of the DNFBPs in the implementation of AML/CFT preventive measures and therefore will be useful to national authorities who are striving toward strengthening their national AML/CT regimes and to DNFBPs who wish to protect the integrity and stability of their system.

Originality/value

It is imperative to mention that the weak compliance by DNFBPs, and indeed other challenges inhibiting effective implementation of preventive measures, is not peculiar to West Africa. A review of MERs of 17 African countries (eight countries in the Eastern and Southern Africa Anti Money Laundering Group region, five in GIABA region and three in the Middle East and North Africa region assessed under the current round as on October 2020, show a similar pattern of weak ratings under Immediate Outcome 4.

Citation

Nduka, B.(O).E. and Sechap, G. (2021), "Refocusing designated non-financial businesses and professions on the path of anti-money laundering and combating the financing of terrorism compliance", Journal of Money Laundering Control, Vol. 24 No. 4, pp. 693-711. https://doi.org/10.1108/JMLC-11-2020-0125