When a country is battling a crisis, which has crippled world economies, the last thing it wants is another one to deal with. Well this is precisely what happened to Botswana on 7 May 2020, when the European Commission decided to add the country along with three others to its list of countries that pose a high money laundering and terrorism financing (ML/TF) risk to the financial system of the European Union. The EU made the announcement when it introduced a new action plan to combat money laundering and terrorism financing in EU member countries. When introducing the new plan, the Executive Vice-President Valdis Dombrovskis has been quoted as saying: “We need to put an end to dirty money infiltrating our financial system”. I totally agree with him. Recent scandals involving Dutch Bank ING, Denmark’s Danske Bank and Swedbank from Sweden have highlighted the dismal failure of EU anti-money laundering and counter financing of terrorism (AML/CFT) policies and systems at all levels to prevent EU financial institutions laundering money. And large sums of it.
And it is not just banks that are involved in scandals. On 12 May 2020, 5 days after the listing of Botswana as being a high risk country, The European Ombudsman criticised the European Banking Authority (EBA) for allowing one of its executive directors to take up a new job at the Association for Financial Markets in Europe (AFME). The AFME is the peak body responsible for lobbying Governments on behalf of the world’s largest financial institutions. The Ombudsman claimed that the EBA should have stopped the man in question from joining AFME, as he would have a conflict of interest between his current regulatory role and his new job as a lobbyist. That same man apparently participated in an EBA board meeting which did not examine in detail Dansk’s Bank money-laundering scandal, the largest ever of its type in Europe.
Recent money laundering scandals in Europe and this new issue involving the EBA demonstrate that regulatory authorities in Europe are ineffective. But interesting, none of risks to the European financial system were caused by illegally earned funds originating from or passing through Botswana. They involve European banks laundering money from Russia. So why name and shame Botswana at this critical time during the global Covid-19 crisis? Where is the evidence that Botswana is a high money laundering & terrorism financing risk to the EU? Or more precisely, what evidence exists that Botswana is of any risk to the financial systems of the EU? Botswana does not have a significant narcotic, people smuggling and human trafficking problem like Europe. Neither does it have any Islamic State fighters or members of any terrorist group which pose a terrorism risk. And given the changes made to the AML/CFT framework by Botswana, and the absence of any major internal security and law enforcement issues, Botswana would be regarded as being a low risk country to any other country, including the EU.
No specific reasons were given for the inclusion of Botswana as a high-risk country by the EU. However, on the same day as it listed Botswana as a country of high ML/TF risk, the EU issued a revised methodology for the identification of high-risk third countries. Under that new framework, the EU when making a decision on whether to list a country, is to consider lists published by the peak international AML/CFT body the Financial Action Task Force (FATF) and complement it with its own assessment. Criteria the EU is to consider in forming its own assessment include the risk profile and the level of threat to which a country is exposed, and the legal framework of a country including its effectiveness.
It appears that Botswana was not asked by the EU to explain why it should not be listed as being a high-risk country before it occurred. After all, that would have been fair to Botswana and transparent, which the new EU action plan claims it wants to achieve. But what is clearly apparent, is that when the EU decided to name and shame Botswana, it did not take into consideration the recent significant steps that the country has taken to strengthen its AML/CFT framework. Changes to the Financial Intelligence Act and regulations in late 2019 have resulted in Botswana now having one of the most comprehensive wide-ranging AML/CFT legal frameworks in the world. Which is backed up with very tough criminal money laundering penalties. In Botswana, the maximum penalty for money laundering is up to 20 years imprisonment. While in the Netherlands is 8 years, in Germany it is 10 years and the UK it is 14 years imprisonment.
Even the FATF acknowledges in its April 2019 follow up report the steps undertaken by Botswana to improve its AML/CFT framework which states: “Botswana has made good progress to address the technical compliance deficiencies identified in the MER”. The progress report identified only minor shortcomings in relation to many of the FATF recommendations that Botswana must achieve compliance with. As a result, Botswana was re-rated upwards on 32 of the 40 FATF Recommendations. And as recent as 21 February 2020, just over two months before the EU listed Botswana as being high risk the FATF advised: “Since October 2018, when Botswana made a high-level political commitment to work with the FATF and ESAAMLG to strengthen the effectiveness of its AML/CFT regime and address any related technical deficiencies, Botswana has taken steps towards improving its AML/CFT regime, including by developing its national AML/CFT strategy and operationalising the country’s company registry to maintain beneficial ownership information”.
Botswana still has some enhancements to do in relation to its AML/CFT framework, particularly in relation to improving the capacity of agencies to enforce and prosecute money laundering. But these capabilities cannot be developed overnight. It can take many years for agencies to develop their investigative and prosecution capability. The development of any capability must be progressive enabling investigators and prosecutors to gain efficiency and effectiveness. When skills and knowledge will mature following each successful investigation and prosecution. A process often referred to as the “learning curve benefit”. But for that to occur, the development of staff must not be rushed, and agencies pushed into conducting investigations when they are not ready. To do so, could result in prosecution failure, costly compensation being paid by the Government and a loss of confidence in efforts to fight money laundering.
Even the EU with all its enormous wealth and power, which has had over 32 years since the passage of the Vienna Convention, which introduced criminal money laundering offences in relation to drug trafficking into international law, is still grappling with how to improve the effectiveness of its AML/CFT systems.
The EU does have significant risks to its financial systems, a fact it recently acknowledged. But those risks originate from larger unlisted countries and from within its own jurisdiction. The listing of Botswana is not the first attempt by the EU to name and shame countries. In March 2019, the EU tried to add to its high-risk ML/TF list of countries Saudi Arabia, Panama and four territories of the United States. The US Treasury attacked the EU listing and told all US banks to ignore it. Which the banks did. Saudi Arabia lobbied individual EU members and threatened to cancel lucrative contracts with some European countries if it was listed as being a high ML/TF risk. Following representations from the UK and Spain, Saudi Arabia was not included on the list. The EU then decided to drop the entire listing issue for the time being.
However, surprisingly, less than 3 months later, on 21 June 2019, Saudi Arabia was granted full membership of the FATF on the grounds of its commitment to fighting money laundering and terrorism financing through the development and enhancement of its regulatory framework. Wow! How was that possible given the EU was going to list Saudi Arabia as a country of high ML/TF risk to its financial systems only months before? And less than 9 months after journalist Jamal Ahmad Khashoggi was assassinated at the Saudi consulate in Istanbul Turkey by agents of the Saudi government. A clear act of state sponsored terrorism!
The EUs decision to back down in the face of external and internal criticism and FATFs decision to include Saudi Arabia as a member, demonstrate once again that big powerful or wealthy countries are untouchable when it comes to the enforcement of international AML/CFT standards. The EU clearly demonstrated then that it does not have the courage to stand up to the largest economy in the world nor to some of its powerful members and will bend to pressure from wealthy countries. And let us not forget Russia, which has been the centre of the recent money laundering scandals in Europe. It should be added to EU’s list of high-risk money laundering & terrorism financing countries because there is substantial evidence that Russian organised crime money has infiltrated and corrupted the EU financial network. But it is like other large countries, it is too big to name and shame. And European banks, investment firms and real estate companies just love having Russian investors as clients.
But some of the greatest threats to the EU financial system originate from within Europe and from territories controlled by EU members. I am referring here to tax havens. These jurisdictions profit from helping organisations and people avoid regulation and act as entry points into the European financial system. The EU likes to name and shame other jurisdictions as being tax havens but within Europe there are at least 16 jurisdictions that are used to hide and move illegally earned funds, including the proceeds of tax evasion and capital flight, particularly from Africa. Those countries are listed in the table below.
| Andorra | Cyprus | City of London | Gibraltar |
| Isle of Man | Ireland | Jersey | Latvia |
| Luxembourg | Madeira | Malta | Monaco |
| Guernsey | Liechtenstein | San Marino | Switzerland |
Another 8 secrecy jurisdictions in the Caribbean which are identified below, are still controlled, or influenced by European countries:
| Anguilla | Aruba | Bermuda | British Virgin Islands |
| Cayman Islands | Montserrat | Netherlands Antilles | Turks & Caicos Islands |
Secrecy jurisdictions host international business companies which are used to receive funds derived from inflated royalties charged on trademark, copyright and patents for goods and services provided in developing countries by international companies. With the transfer pricing arrangements used to skim profits from poor countries designed by OECD members, many of which are European.
You never hear the EU taking serious action against any tax haven within its jurisdiction or influence. That would incur the wrath of some of its biggest members, particularly the UK. All jurisdictions referred to should be listed as being of high ML/TF risk to the EU. But a safe and perhaps cowardly strategy is to just let sleeping dogs lie. Why cause any grief within the EU by upsetting members? It is much easier to target low hanging fruit like Botswana. Even though Botswana probably has better government, a developed economy and lower corruption. Having low corruption is important, because no matter what FATF says about a jurisdictions AMLCFT framework on paper, it comes crashing down in practice if corruption risk is high. And that is what is occurring in many tax havens.
The EUs listing of Botswana as being a high ML/TF risk is simply a demonstration by organisation that it can only tackle small fish. It has shown its true colours. The EU is a bully and lacks the courage, commitment, and unity to tackle powerful and wealthy countries, so it attacks a small African country instead. The EU has failed to show how Botswana, a country of just over 2 million people, is a “high risk” to its financial systems. It has added Botswana without consideration of the recent changes the country has made to its AML/CFT framework, its comprehensive, effective, and transparent rule of law, its competent government and the low crime risk that exists there.
The listing will make it harder for the Government of Botswana and Botswana entities to raise, move and invest funds. It will increase their borrowing costs at a time when the country can ill afford it. The EU has kicked Botswana in the guts when the country needs to focus its scare resources on the Covid-19 crisis.
The people of Botswana, proud and independent, should insist that the Government call upon every EU member country individually and demand that the country be removed from the list immediately. And then given the appalling death toll within Europe from the Covid-19 pandemic, Botswana having effectively handled the situation, should offer to teach the EU how to effectively manage a crisis. Because given its handling of the Covid-19 situation and the on-going money laundering problems that are occurring in Europe, the EU seriously needs it.
Written by
Chris Douglas, Director, Malkara Consulting (Australia)
Readers are encouraged to share their view with the author: Chris.douglas@malkaraconsulting.com