Derisking in Africa providing opportunities for money laundering and terrorist financing

A senior SWIFT official focused on Africa has shed light on how the trend known as derisking is affecting banks across the continent.

Hugo Smit, SWIFT’s head for sub-Saharan Africa, also maintains that the process of derisking is creating its own risks and providing opportunities for money laundering and terrorist financing.

AML/CFT driven process

In an article written for Business Day, Smit explains that derisking is largely driven by banks concerned about the penalties for breaching ever more stringent anti-money laundering and counter financing of terrorism (AML/CFT) regulations.

He also describes how data from global financial messaging co-operative SWIFT show many countries in Africa have experienced a reduction in foreign counterparties.

Regional dsiparities

South Africa, for example, lost more than 10 per cent of its foreign counterparties between 2013 and 2015. In Angola the decline was even steeper, with the number of foreign counterparties dropping by 37 per cent in two years.

Interestingly, even while Nigeria’s international banking network has seen limited derisking, its local banks have been cutting their own relationships with other African banks, financial services providers or counterparties perceived to be more risky.

Illicit financing opportunities

Amongst the several risks inherent in derisking according to Smit is that reduced access to traditional banking channels may force people to find other ways of making and receiving payments, such as using informal money services or physically transporting cash across borders.

Smit says these unregulated channels may bring additional risks and leave people more vulnerable to criminal activity while a shift away from traditional channels could create opportunities for money laundering and terrorist financing activities to thrive.

The full version of Smit’s article can be found here.



Categories: Trade Based Financial crimes News