Anti-Money Laundering and Countering the Financing of Terrorism

CC, by KriKri01

Money laundering is the process of disguising the illegal origin of the proceeds of crime (notably from drug trafficking, illegal arms trafficking, corruption and other activities relating to organised crime).  Illegal funds are usually inserted as cash into the financial system, often through cash-intensive pretence businesses, and then relocated or circulated in the financial system to disguise their illicit origin, hence preparing them for reinvestment into legitimate businesses. 

Closely connected with money laundering is the financing of terrorism, or the channelling of legal or illegal funds towards the illegal activities related to terrorism.  As both activities can be prevented by similar measures these are usually considered jointly.

The Financial Action Task Force (FATF) coordinates international efforts to fight money laundering and terrorist financing.  In their 40 Recommendations and 9 Special Recommendations, the FATF has outlined the legal framework and basic measures that governments should establish in order to comply with AML/CFT requirements.

Generally, the AML/CFT framework in Africa is still under development and has not yet reached the level of other regions.  Nigeria was removed from the FATF list of non-cooperating countries and territories in 2006, while in Sao Tome and Principe – the last African country raising FATF concerns – significant amendments to the legal framework have been made since 2008.  South Africa, is the only African member of the FATF.

Three FATF-style regional bodies (FSRBs) coordinate efforts on AML/CFT in Africa, conducting research, developing strategies and conducting mutual evaluation assessments of the AML/CFT frameworks in member countries. These are:

  • Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG)
  • Middle East and North Africa Financial Action Task Force (MENAFATF)
  • Inter Governmental Action Group against Money Laundering in West Africa (GIABA)

The AML/CFT landscape in Africa is diverse and fragmented. While all African countries have established some legal provisions relating to AML/CFT, these are frequently not specialized stand-alone laws, but are rather embedded into general criminal offence frameworks, raising problems of their applicability to complex crimes.  The same holds true for the implementation of measures; some countries have well functioning Financial Intelligence Units (FIUs) while most countries are still struggling with problems regarding capacity, resources and law enforcement. Post-conflict or fragile political and governmental situations in many African states may also influence the crime situation and government efforts towards AML/CFT.  In addition, due to the presence of informal financial services in many countries, criminal activities may simply move away from the official financial system into less regulated and supervised ones.

One significant concern regarding AML/CFT in Africa is the costs arising from AML/CFT measures taken.  These are especially hard to bear for those institutions serving the poorest parts of the population, including microfinance institutions, cooperatives and rural/agricultural banks, and may hence hamper financial sector development.