Money laundering is a financial crime that masks illegal profits without compromising the criminals who wish to benefit from the proceeds by disguising the sources, changing the form, or moving the funds to a place where they are less likely to attract attention. In layman's terms; it involves ways to conceal ill-gotten funds which is considered ‘dirty money’ by making it appear ‘clean’ through elaborate and complex financial transactions also known as ‘cleaning’, ‘washing’, or ‘laundering.’
While it may have existed in some shape or form in the past, modern Anti-Money Laundering (AML) initiatives only rose to global prominence in 1989 at the G7 Summit in Paris, when a group of countries and organisations around the world formed the Financial Action Task Force (FATF). Its mission is to devise international standards to prevent money laundering and promote their implementation. Following the 9/11 terrorist attacks in 2001, FATF expanded its mandate to include combating the financing of terrorism (CFT). Other early players on the field who also proactively try to identify and stop financial crimes include the United Nations Office on Drugs and Crime (UNODC) and the International Monetary Fund (IMF).
Since then, governments around the world have stepped up their efforts to combat money laundering and terrorist financing by forming and joining regulatory bodies that require obligated institutions to put systems in place to detect and report suspicious activity.
The amount of money involved is substantial; according to the UNODC, global money laundering transactions can account for up to 5% of the global GDP, that is USD2 trillion, every year.
Due to the growing international dimension to these crimes, better coordination and cooperation among national and international agencies are part of the solution.
Africa has four FATF-style regional bodies (FSRBs) that connect the entire continent. East Africa's jurisdiction falls under the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG). Formed in 1999, The ESAAMLG Secretariat is in Dar es Salaam, Tanzania - and its goal is to assist members in complying with international standards by implementing the FATF recommendations.
Money laundering in Africa is as rife as in any other developing region and the East African subregion is no exception; it is a hotspot for money laundering-related activities, including the narcotics trade, smuggling, human and wildlife trafficking, as well as diamond dealings.
In KPMG’s 2012 AML Survey, 44% of respondents in East Africa indicated that they rely on front office staff to identify politically exposed persons (PEPs) and only 39% screened their customers when there were changes in customer information.
Luckily since then, East Africa’s efforts have constantly improved with the FATF commending Kenya, Tanzania, and Uganda on their continuous progress as FATF-monitored countries. Yet, even considering this, Reuters recently reported that several banks from Tanzania and Kenya were fined vast amounts due to non-compliance to AML regulations in the region.
East Africa remains vulnerable to money laundering, financial fraud, and terrorist financing. Even though Kenya is its financial hub and at the forefront of mobile banking, money laundering still occurs in the formal and informal sectors, deriving from domestic and foreign criminal operations. Additionally, Tanzania’s money laundering laws are used as political tools, which dilutes their efficacy in combating crime alongside an underdeveloped financial sector and limited capacity to address such criminal activity.
The rapid growth of mobile banking technology through phones and tablets reflects the central role that these devices now play in the lives of consumers around the world, and none more so than in East Africa. Kenya has the reputation for being the world’s mobile money pacesetter ever since Safaricom launched one of the first mobile payment (m-payment) programmes in 2007, called M-Pesa; ‘Pesa’ meaning ‘money’ in Swahili. This service is now used by over 20 million Kenyans, and with more than 60,000 corner shops around the country registered as M-Pesa agents, they far outnumber Kenya’s bank branches which is believed to be somewhere between 800 and 900 branches. Annual transactions on M-Pesa are equivalent to over 20% of the country’s GDP.
This trend is not only limited to Kenya, as m-payments have become crucial throughout East Africa in providing basic financial services for low-income earners who cannot afford the charges levied by the formal banking system. M-payments provide the needed financial services to the unbanked population, much of which lives in remote areas of the region - especially in Uganda, where annual remittances are one of its largest sources of foreign currency.
A new INTERPOL report has found the billion-dollar mobile money industry in Africa is being exploited by organised crime groups – a trend only set to increase as the service is rolled out across the continent, hence prevention measures need to take into account the prevalence of m-payments and the fraud risks associated with it.
The risk-based approach is central to the effective implementation of the FATF Recommendations. A risk-based approach means that countries, competent authorities, and banks identify, assess, and understand the money laundering and terrorist financing risk to which they are exposed, and take the appropriate mitigation measures in accordance with the level of risk.
AML and CFT measures have become a major focus area for regulators within the East Africa region, and financial institutions have come under increasing scrutiny for non-compliance. To manage financial crime effectively, particularly with the growing roll out of real-time and m-payments, institutions must be able to analyse every client interaction in real-time.
According to PWC’s recent surveys for Fraud and Economic Crime and East Africa Banking, amongst measures that organisations have taken to detect and deter financial crime, the most effective by far has been the monitoring of suspicious transactions using technology - ranked first by respondents of these surveys.
The Sybrin Intelligent KYC and AML offering is a complete solution for onboarding customers, automating cognitive ‘know your customer’ (KYC) procedures, and performing client due diligence (CDD) and enhanced due diligence (EDD) investigations to prevent fraud and ensure regulatory compliance.
ID Capturing and Digital Onboarding
Our seamless, real-time ID capture product enables the rapid ID capture, data extraction, and validation of over 4500 global IDs. while our frictionless and fast AI-powered onboarding solution enables you to verify and onboard both businesses and consumers digitally. This involves a very effective automated process that leverages machine learning, AI, liveness detection, as well as facial and other biometrics to verify an identity by matching a user’s live selfie with the photo shown on their government-issued ID. Other features include verifying residential addresses using geolocation or utility bills, as well as digital signatures.
Real-Time Sanction, Watchlists, and PEP Screening, as well as Continuous Monitoring
Not only does our solution offer real-time matching and monitoring against national and international lists, it also incorporates intelligent fuzzy matching algorithms designed to create fewer false positives. It also allows you to define your own real-time monitoring schedules as well as the capability to create your own ‘black and white’ lists.
Our real-time PEP screening uses machine learning and offers global coverage for automated tracking of entities based on their risk, formulated from predefined risk rating modules while also providing adverse media screening.
Our solution offers you the ability to set predefined investigation and workflows for CDD and EDD so that you will always have the information on hand when the need arises. Easily consolidate customer information, documents, comments, and findings into a case while enjoying single, integrated, holistic KYC views through dashboards and reports from the management cockpit.
For more on how Sybrin can help you with compliance, onboarding, and other KYC-related requirements, visit apex.sybrin.com/kyc-and-aml
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