Financial Crime World

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Central African Republic’s Financial Institutions Struggle to Combat Money Laundering

BANGUI, CENTRAL AFRICAN REPUBLIC - The Central African Republic’s (CAR) financial institutions are failing to effectively identify and mitigate money laundering and terrorist financing risks, according to a recent report.

Weak Risk Assessments

The report found that banks in CAR categorize customers based on their profiles and transactions, but this understanding of risk does not always translate into effective, up-to-date risk maps. This makes it difficult for the institutions to determine customer risk profiles.

  • Banks’ risk assessments are not comprehensive, leading to inadequate identification of high-risk customers.
  • Lack of regular updates to risk maps hinders the effectiveness of risk-based approaches.

Insufficient Implementation of Reinforced Measures

The implementation of reinforced measures to reduce identified risks is insufficient, according to the report.

  • Financial institutions in CAR have failed to implement adequate controls to mitigate money laundering and terrorist financing risks.
  • Supervisors’ efforts to monitor financial institutions are hindered by limited resources and lack of expertise.

Concerns about Non-Bank Financial Institutions

The Central African Republic’s financial intelligence unit (FIU) expressed concerns about the lack of transparency and limited supervision of non-bank financial institutions (NBFIs), including microfinance institutions and prepaid payment cards operators.

  • NBFIs operate with minimal oversight, increasing the risk of money laundering and terrorist financing.
  • Lack of transparency makes it difficult to identify beneficial owners and track transactions.

Shortcomings in Control Functions

The report highlighted shortcomings in the control functions for financial institutions and designated non-financial businesses and professions (DNFBPs) in CAR.

  • Supervisors of financial institutions carry out generally satisfactory due diligence, but the system for identifying beneficial owners is weak.
  • There are no competent authorities designated to monitor non-compliance with anti-money laundering and combating the financing of terrorism (AML/CFT) obligations in respect of DNFBPs as a whole.

Challenges in Combating Money Laundering and Terrorist Financing

The report emphasized that the CAR’s economic and social development is being hindered by major security and political challenges, including periods of political instability and armed conflict. To address these issues, the government has drawn up a national recovery and peacebuilding plan, which aims to establish lasting peace and stability in the country.

Cryptocurrency Regulation

In April 2022, the CAR passed a law governing transactions linked to cryptocurrencies and establishing bitcoin as an official currency. However, this move has not yet been accompanied by more specific implementing measures to regulate the activities of virtual asset service providers (VASPs), leaving them exposed to ML/TF risks.

Recommendations for Improvement

Overall, the report highlights the need for stronger measures to combat money laundering and terrorist financing in CAR, including:

  • Improved risk assessments and enhanced supervision
  • Increased transparency and cooperation between financial institutions and regulatory authorities
  • Strengthened control functions and more effective monitoring of non-compliance
  • Implementation of specific regulations for virtual asset service providers (VASPs)