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Botswana’s Economic Diversification Efforts Hampered by Money Laundering and Terrorism Financing Risks

Gaborone, Botswana - The southern African nation of Botswana is facing significant challenges in its efforts to diversify its economy, with money laundering and terrorism financing risks posing a major threat to its financial stability.

Assessment of Risk

According to a recent report by the Institute for Security Studies (ISS), Botswana has never conducted an assessment of risk vis-à-vis money laundering and terrorism financing. While there have been a few prosecutions for money laundering, no terrorism-related prosecution has ever taken place in the country. Moreover, there is no record of any terrorist threat in the public domain.

Recent Reports

However, recent reports suggest that suspected Al-Qaeda terrorists were detained by security agents in Botswana, with some awaiting deportation and others under investigation for money laundering and attempting to establish various forms of terrorist structures in the country.

Key Vulnerabilities

The report highlights several key vulnerabilities in Botswana’s financial system, including:

• The use of second-hand car dealerships as a cover for illegal activities
• The lack of bank accounts for foreign nationals
• The absence of regulations on the registration of companies and business names

“Liberal Dispensation” in Registering Companies and Business Names

“The liberal dispensation in registering companies and business names is a major loophole in the system and is subject to abuse by persons and groups that may have sinister intentions,” said Jackson Madzima, author of the ISS report.

Attracting Foreign Direct Investment (FDI)

The report also highlights Botswana’s strategy to attract foreign direct investment (FDI), which has been coupled with very lucrative and easily accessible government subsidies, grants, loans, and tax breaks for establishing businesses that propose to employ Batswana. However, this dispensation has been criticized for bringing in people of questionable motives and business credentials.

Weak Mechanism for Vetting Foreign Individuals

“The mechanism to vet foreign individuals is very weak, and this has been exposed on several occasions when foreign nationals implicated in scandalous, unlawful activities turned out to have had criminal records in other countries,” said Madzima.

Conclusions

The report concludes that unless these vulnerabilities are addressed, Botswana’s efforts to diversify its economy will be hampered by the risks of money laundering and terrorism financing. The country must take concrete steps to strengthen its financial regulations and institutions to ensure a stable and secure economic environment for all stakeholders.

Recommendations

1. Conduct a thorough assessment of risk vis-à-vis money laundering and terrorism financing.
2. Strengthen regulations on the registration of companies and business names, including verifying the integrity of beneficial owners and foreign nationals.
3. Implement stricter vetting procedures for foreign individuals seeking to establish businesses in Botswana.
4. Enhance cooperation with international authorities to prevent the entry of persons with criminal records into Botswana.
5. Increase transparency and accountability in the allocation of government subsidies, grants, loans, and tax breaks for establishing businesses.

Source

Jackson Madzima, “Money Laundering and Terrorism Financing Risks in Botswana: A Threat to Economic Diversification?” ISS Paper 184, March 2009.