Financial Crime World

Malawi’s Financial Sector: Banks Dominate, ML/TF Risks Remain

Kampala, September 2019 - A recent report by the Malawian authorities has shed light on the country’s financial sector, highlighting the dominance of banks and the significant risks posed by money laundering (ML) and terrorist financing (TF).

The Financial Sector

The report reveals that banks account for two-thirds of the total assets in the financial sector, making them a crucial part of Malawi’s economy. This is not surprising, given the country’s cash-based economy, informal remittance systems, and proximity to unstable regions exploited by militant groups like Al-Shabab.

Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT)

Malawi has made significant strides in strengthening its AML/CFT system since its last mutual evaluation in 2008. Key institutional changes include:

  • The re-establishment of the Fiscal and Fraud Unit within the Malawi Police Service
  • Strengthening of powers of the Financial Intelligence Authority
  • Establishment of a National Counter-Terrorism Panel

However, there are areas where improvement is needed, including:

  • Oversight of non-profit organizations (NPOs)
  • Cross-border wire transfers to combat externalization of currency
  • Transparency of legal persons and arrangements

While Malawi has implemented an effective AML/CFT system in some areas, the majority of financial institutions (FIs) are still in the early stages of developing policies, procedures, and processes.

Risk Assessment

Malawi demonstrated a good understanding of ML risks, but there is room for improvement, particularly regarding legal persons and arrangements. The private sector’s understanding of ML/TF risks varies, with FIs generally having a better grasp than DNFBPs (Designated Non-Financial Businesses and Professions).

Policy Setting

The Ministry of Finance, Economic Planning and Development provides policy direction and oversight on AML/CFT matters, while the National AML/CFT Committee serves as an advisory body. The report highlights the need for a more comprehensive approach to ML/TF risk assessment in some areas, including legal persons and arrangements.

Financial Intelligence

The Financial Intelligence Authority (FIA) is responsible for receiving, requesting, analyzing, and evaluating reports and disseminating financial intelligence and other relevant information to law enforcement agencies. While the FIA has autonomy and operational independence, there is a need for improvement in handling MLA (Mutual Legal Assistance) and extradition matters.

Conclusion

Malawi’s financial sector remains vulnerable to ML/TF risks, with banks playing a significant role in the economy. While authorities have made progress in strengthening their AML/CFT system, there are areas that require attention, including oversight of NPOs and cross-border wire transfers. The country’s risk assessment and policy setting processes also need improvement.

In summary, Malawi’s financial sector faces challenges posed by ML/TF risks, and it is essential for the authorities to take a more comprehensive approach to addressing these issues to ensure a stable and secure economy.