Financial Crime World

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Top Priority for African Countries: Compliance with International Financial Standards

In today’s globalized economy, ensuring compliance with international financial standards is crucial for African countries. The recent non-compliant rating of Seychelles by the OECD highlights the importance of implementing robust anti-money laundering and combating the financing of terrorism (CDD) measures.

Seychelles’ Case: A Warning to African Countries

Seychelles, a financial services center perceived as high-risk due to its offshore financial sector, was rated non-compliant on several essential elements under the OECD’s current methodology. The country’s failure to provide adequate information and accessibility of accounting records led to difficulties in correspondent banking relationships, enhanced scrutiny, and additional compliance costs.

Emerging Regulatory Landscape

The international regulatory landscape is evolving rapidly, with changes to CDD requirements through multilateral and bilateral agreements, such as the OECD and FATCA. Supervisors and regulators are expected to enforce higher standards, while financial institutions must ensure they have sufficient information to make informed decisions about transactions.

Problem Questions for Afrexim-ACDIRP

The African Export-Import Bank (Afrexim) and the African Centre for Development and International Relations (ACDIRP) must address several key questions:

  • What legislative framework should be adopted?
  • How can availability and accessibility of information inform CDD and risk processes?
  • What evidence of regulatory action and enforcement is required?
  • Which risk assessment methodology should be used?

Case Studies: Politically Exposed Persons (PEPs)

Two case studies highlight the challenges of identifying PEPs:

  • A company incorporated in Country Africa 1, with a shareholder in another jurisdiction, was set up to trade building equipment.
  • Another company, operating in Country Africa 2, received inward payments from non-related foreign companies, making it difficult to determine ownership structures.

Compliance with International Standards

Financial institutions must comply with international standards, including:

  • The Financial Action Task Force (FATF) 40 Recommendations on anti-money laundering and prevention of terrorist financing
  • OECD Standard for Exchange of information for tax purposes
  • FATCA standard for country-to-country exchange of due diligence and financial information

African Countries’ Approach

Each African country can shape its CDD architecture based on its needs and specificities, while respecting minimum standards set by the international community. A distributed solution, where each State hosts a single office linked to the Afrexim Secretariat, could be a feasible approach for Africa.

Conclusion

Compliance with international financial standards is crucial for African countries to avoid reputational damage, economic losses, and increased regulatory scrutiny. The Seychelles’ case serves as a warning to other African countries to prioritize CDD measures and ensure transparency in their financial sectors.