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Financial Crime and AML Compliance
June 17, 2020
Flipping the Paradigm: Modernizing Anti-Money Laundering Compliance in Africa
Why Now Is the Time for African Banks to Modernize Anti-Money Laundering Programs
Anti-money laundering (AML) enforcement in several African nations moved into the spotlight last month. The European Commission announced its latest list of countries that pose risks to the European Union due to shortfalls in anti-money laundering initiatives and requirements. The updated list, which includes 22 countries, added four African nations―Botswana, Ghana, Mauritius, and Zimbabwe. A fifth African nation, Uganda, remained on the list. In a positive development―the Commission removed Ethiopia and Tunisia as they made significant progress in tightening money laundering enforcement.
The banking system is on the front lines of the fight against money laundering in Africa, and many factors, both internal and external to the industry, affect success in this area. That said, as a continent, Africa underperforms in comparison to the rest of the world with respect to measures of compliance to AML and combatting the financing of terrorism (CFT) legislation, according to the Basel AML Index and Financial Action Task Force (FATF) analysis. Two areas in which individual African nations ranked lowest were in 1) bribery and corruption and 2) financial transparency and standards.
Impact on the Banking Business in Africa
Historically, banks in Africa and across the world have viewed regulatory compliance as a compulsory and onerous exercise that involves significant cost without yielding any positive direct benefit to the bottom line. AML compliance has been no different. Today, however, financial institutions that simply check the box when it comes to AML compliance or fall short all together, place their business, correspondent banking relationships, profitability, and potential for regional and global growth in peril.
Banks across Africa that have not proactively invested in AML/CFT program modernization are facing two costly consequences:
- Punitive Fines: Over 50 AML penalties were issued globally in 2019, totaling approximately $8 billion. In the last two years in Africa, more than 20 financial institutions from Kenya, Uganda, Tanzania, Nigeria, and South Africa have paid hefty penalties to regulators. There are immediate and long-term costs to these penalties. First is the direct financial impact. Secondly, and perhaps even more costly in the long term, is the reputational damage that can take years, if not decades, to repair.
- De-risking Impact: To avoid compliance and regulatory risks, global financial institutions are terminating their existing correspondent banking relationships with financial institutions in Africa and elsewhere that are deficient in compliance initiatives―a practice called de-risking. African banks experiencing these severed relationships face significant financial losses as they are unable to render cash management, trade finance, and payment services to their customers.
In 2017, the Eastern and Southern Africa AML Group (ESAAMLG) published a report on de-risking in the region. Over 600 banks across 18 countries participated in that survey. According to the report, as a result of an unacceptable level of money laundering/terrorism finance (ML/TF) activity:
- 40 percent of respondent banks have been impacted by de-risking through termination and/or restriction of CBRs. For some institutions, the terminations and/or restrictions affected multiple correspondent banking accounts in USD, EUR, AUD and GBP currencies.
- Respondent banks in the ESAAMLG region indicated that the principal reason provided by correspondent banks for the terminations and/or restrictions was a decrease in the overall risk appetite by correspondent banks.
- For some jurisdictions in the ESAAMLG region, de-risking has negatively impacted access to financial products and services, thereby affecting financial inclusion. For these jurisdictions, the product that were most affected (though to varying extents) was access to remittance products.
Flipping the Paradigm
The ESAAMLG found that the bulk of institutions spend less than five percent of their overall institutional budgets on AML/CFT programs. As the business risk associated with less-than-robust AML/CFT compliance initiatives continues to rise, banks are beginning to re-think their regulatory compliance programs and investment strategies.
In addition, banks not only underestimate the potential risks associated every time a product is launched or a new customer is onboarded, but also overlook opportunities for generating revenues by converting their customer and transaction monitoring data into valuable insights or reducing compliance costs through automation.
The Way Forward
As financial institutions across Africa look to modernize and expand their AML programs, they seek solutions that are scalable, flexible, and easy to manage for the short and long term. Automation and advanced analytics are imperative to more thorough and cost-effective compliance.
A critical element of a modern AML program is a unified platform that can consolidate data and automate multiple processes, including Know Your Customer/customer due diligence, transaction monitoring, investigation, and reporting functions, to provide the transparency required to comply with global AML requirements.
When selecting a solution, financial institutions must consider the long-term picture as the regulatory and threat landscape continues to evolve. They should look for a solution that can scale and incorporate machine learning, artificial intelligence, deep learning, and powerful graphic analytics that can deliver next-generation insight and efficiency while reducing the risk of false positives, which require costly and highly manual investigations.
Evolving Compliance Program with Oracle
Oracle has empowered financial institutions across the globe in their fight against financial crime. We offer a comprehensive platform that brings together innovative capabilities and an ecosystem that enables financial institutions, irrespective of size, to intelligently counter financial crime.
At Oracle, we recognize the maturity level and timelines of the compliance technology an organization has currently—and are a partner in the journey towards establishing the necessary foundation for adoption of advanced analytics to achieve greater effectiveness and efficiency.
Importantly, every suspicious transaction reported could prevent a serious crime, such as human trafficking, illegal wildlife trade, or even a terror attack. It is the duty of all financial institutions to work tirelessly and efficiently to combat money laundering, making the world a better and safer place.
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