While many continue to blame the powerful and ruthless looters for stealing from the public coffers, it continues to emerge that unsympathetic embezzlement is actually aided and condoned by the watchdog authorities like Bank of Botswana (BoB) who are incompetence to police the environment- a 2017 report on Money Laundering in Botswana has shown.
While the report gives other players in the sector the thumbs up, the same cannot be said about BoB, suggesting that the public should be seeing the arraignment of more looters that is the case.
“The lack of adequate supervision of banks by BoB owing to capacity and absence of understanding of its supervisory role under the Financial Intelligence Act, represent a significant concern for detection and prevention of Money Laundering and Terrorism Financing in Botswana based on risk exposure and materiality of the sector,” the report said.
The report further criticises BoB saying “the BoB applies a rules-based approach to supervision of banks and bureau de change institutions and does not supervise its regulated entities for compliance with the Financial Intelligence Act and its Regulations due to a lack of appreciation of its supervisory role under the same Act.” Instead, the report continues, the BoB uses the Banking Act, BoB Act and its Regulations to conduct Anti-Money Laundering inspections.
In practice however, the BoB-Prudential Supervision Division has conducted 9 inspections including -up inspections over the period (2012-2016). Of concern is that seven (7) banks have not been subjected to any form of Anti Money Laundering inspections over this period. The assessors said it is clear that the choice of entities to supervise is not determined by any level of Money Laundering and Terrorism Financing risks identified.
“Excluding 2 joint inspections with foreign supervisors conducted in 2016, the content of all inspections conducted by BoB are very brief and the scope is limited to Customer Due Diligence Anti Money Laundering policy and training requirements only,” the report said.
The report said BoB did and does not cover and take heed of significant requirements under the Financial Action Task Force on Money Laundering Standards such as correspondent banking, wire transfers, home-host requirements, politically exposed persons, risk based approach, cash threshold reporting, electronic funds transfers and UNSCR list implementation, among others. The assessors noted that “despite the large foreign owned or controlled banks having Money Laundering risk assessments, the BoB did not consider or use these assessments when planning or carrying out its inspections on the banks.”
The report further says, just like NBFIRA, BoB’s inspection coverage is very low when compared to the total number of entities supervised and is not risk-based.
According to the report, more than 99 percent of the total Suspicious Transaction Reporting-STRs filed with Financial Intelligence Agency-FIA were from the Financial institutions, with the majority coming from commercial banks with an average of 83% for the period under review.
“This is despite the provisions of section 43 of the Banking Act which prohibit banks to exchange transaction information without seeking authorisation from the customer involved. Further, all banks filed STRs to the FIA only in direct contradiction of section 21 of the Banking Act which requires submission of the same to the BoB,” reads the report.
The rest, the report said, are contributed by insurance companies, bureaux de change, Money Value Transfer Services and with only one STR filed by the casino for the same period.
The assessors said supervisors should as a matter of urgency take the necessary steps to understand their Money Laundering risks, supervisory responsibilities under the Financial Intelligence Act and establish supervisory capacity to adequately supervise and enforce compliance with Anti-Money
Laundering/Combating Financing of Terrorism requirements on a risk based approach, taking into account the findings of the National Risk Assessment, once it is completed.
Controls Preventing Criminals and Associates from Entering the Market
BoB-Prudential Supervision Division (PSD) of BoB is responsible for licencing and supervision of banks, while Bureau de Change Division (BCD) is responsible for licensing and supervision of foreign currency exchange entities.
In the absence of a legal or regulatory framework for licensing of money or value transfer dealers, BoB issues a “Letter of no Objection” which serves as authorisation to operate the service. The sad story however is that there are no fit and proper and Anti Money Laundering requirements nor supervision activities being conducted on Money Value Transfer Services providers and their agents.
Section 25 prohibits a person involved in the reporting under this part to disclose to the person involved in the transaction or to an unauthorized third party that the transaction has been reported to the FIA or that the FIA has requested for further information.
However, the report says, there is no provision which prohibits a financial institution, director, officer and employees other than the person involved in reporting a Suspicious Transaction Report-STR from disclosing that an STR or related information is being submitted to FIA.
Tipping-off and Confidentiality -the contradiction in the law
Section 26 states that no evidence concerning the identity of a person who has made, initiated or contributed to a report or who has furnished additional information concerning the report shall be admissible as evidence in proceedings before a court. On the other hand, contrary to the above provision, Sections 43 of the Banking Act subjects directors, principal officers, officers, employees or agents of a bank or any other person having access to records of a bank to secrecy obligations.
Section 43 of the Act provides that any person who acts in breach of this shall be guilty of an offence and liable to a fine of P10,000 and to imprisonment of 3 years. The FI Act does not contain a secrecy overriding provision. The FI Act provide for disciplinary and financial sanctions including the power to suspend or revoke the FI’s license. The Act unfortunately does not provide for criminal sanctions to cater for serious violations. In most cases, the fines are levied against the financial institution and do not include directors and senior management of the institution.
The assessors considered some fines too small, ranging from about P10 000 to P50 000 to discourage entities from non-compliance behaviour. “For this purpose, the sanctions are not proportionate and dissuasive as required under Recommendation 35.1,” concluded the report.