African markets need to tighten measures to combat financial crime in order to boost investor confidence and avoid migration of crime from stricter nations. Countries including the continent’s largest economies of Nigeria and South Africa could still do a lot to decrease crimes, including money laundering, insider trading, terror finance, market abuse and general bribery and corruption.
This was the message at the Anti Money Laundering Conference hosted by professional services firm, Deloitte, and financial data provider, Thomson Reuters, in Johannesburg yesterday.
“Financial crime is international and will inevitably migrate to countries where the implementation of anti money laundering regulations is perhaps lagging the rate at which their markets are developing,” said Martin Woods, global head of financial crime for the Regulated Businesses of Thomson Reuters.
“As the risk of financial crime increases, so too does the level of regulatory scrutiny, so it is in the interests of both companies and countries to continually improve their efforts to combat such crime. People prefer doing business with businesses and countries that have the proper systems in place to reduce financial risk and ensure that anti money laundering regulations are not transgressed,” he continued.
The conference brought together key stakeholders required to combat financial crime, ranging from banks to regulators and government representatives, and demonstrated how companies and governments can tackle financial crime through the use of sophisticated technological solutions.
It is essential that companies operating in Africa learn from the experience of their international counterparts by migrating from a rules-based approach to financial risk and compliance, which Woods describes as ‘box ticking’, towards a risk-based approach that takes a selective attitude towards client risk assessment. The risk-based approach embraces the ‘know your customer’ (KYC) guidelines to prevent an organisation from falling foul of money laundering activity.
Marc Anley, risk advisory partner at Deloitte, described the risk-based approach as augmenting a company’s internal rules and compliance processes with an element of common sense towards the assessment of customer risk and the level of scrutiny applied to that customer.
Companies can do this by taking into account risk factor elements such as:
Geography e.g. private companies headquartered in offshore tax havens generally require far more scrutiny than publically-traded companies, which typically undergo far more public scrutiny in their day to day operations.
Inherent Customer Risk e.g. companies that hide behind layers of legal and jurisdictional complexity are more likely to be trying to hide something.
Distribution channels e.g. companies that distribute their goods or services on a face-to-face basis are more likely to be open and transparent than those that do so at arm’s length.
Industry e.g. companies that distribute high risk products associated with terrorism, bribery and corruption such as arms, may require extra levels of financial scrutiny.
“Financial crime is dynamic and ever-changing, so an efficient and effective risk-based approach needs to evolve constantly in order to act as an adequate deterrent,” said Anley.
Companies should not underestimate the role of technology and advanced systems that enable intelligent checks for weighing economic, political and criminal risk indicators to enable a country to radically improve its anti money laundering capabilities. This can result in countries becoming a lot more attractive to international investors, says Woods.
“To attract inward investment you need to put in place regulations that appeal to the type of investor you’re looking to attract. In the absence of those regulations and controls, you end up attracting the kind of financial flows that you really don’t want, such as terror financing, money from international drug cartels and other organised crime,” he warned.
Woods says financial crime needs to be tackled in an integrated manner through the establishment of close partnerships with local and international regulators as well as the private sector, in order for countries and corporate entities to safeguard against financial risk. Financial institutions in particular need to ensure that they have the proper systems, processes and procedures in place to combat financial crime in a cost-effective and sustainable manner that offers both them and their customers a suitable degree of protection.
“For large financial institutions, it’s wise to use technological solutions that are familiar to their overseas correspondents so as to inspire trust in their operations. Financial crime is international so what happens in countries like South Africa or Nigeria has an impact in even large financial centres such as London and New York. Of course, the opposite is also true so it is advisable to make every effort to remain at the forefront of efforts to weed out financial impropriety,” he concluded.