Financial Crime World

Senegal’s Grey List Status: A Wake-Up Call for Financial Crime Prevention Techniques

Background

In February 2021, Senegal was placed on the grey list of countries by the Financial Action Task Force (FATF) due to its failure to fully comply with international standards on combating money laundering and terrorist financing. The country has committed to addressing deficiencies within agreed time frames and subject to extra checks.

Money Laundering Risks

Despite efforts to strengthen its legal and institutional framework, Senegal remains vulnerable to money laundering risks, particularly in the real estate and construction sectors. Drug trafficking is a significant risk factor, with an estimated US$360 million generated every year through illegal activities.

Real Estate and Construction Sectors

  • The flexibility of the real estate sector allows investors to conceal financial origins and identities.
  • Lack of central data or registry and investors registering property under fake names further facilitates money laundering.
  • Cash from drug trafficking has boosted construction across the country, with large projects often suspected of being financed by illicit trade.

Concerns about Akon City

Akon City, a mega-project financed by American-Senegalese singer Akon, has raised concerns about its potential to facilitate money laundering. The project’s financing and ownership structure have been questioned, and some have expressed doubts about the legitimacy of the funds used to finance it.

Public Policy and Money Laundering

Senegal’s public policy indirectly nurtures these illicit financial flows, according to the Groupe Intergouvernemental d’Action Contre le Blanchiment d’Argent en Afrique de l’Ouest (GIABA). Some of the drivers of money laundering in Senegal include:

  • Widespread use of cash
  • Importance of the informal sector
  • Judicial system that does not allow law enforcement to obtain information on suspected beneficiaries of money laundering

The Role of the CFA Currency

The local currency, the Communauté Financière Africaine (CFA), is tied to the Euro, limiting control over the flow of currency within and across its territory. This has led to a vicious cycle where the banking system relies on informal or illegal channels for foreign currencies.

Recommendations for Countering Money Laundering

To counter money laundering in these sectors and promote legitimate business practices, urgent measures are needed:

  • De-link the CFA from the Euro to give Senegal greater flexibility and macroeconomic options
  • Enable banks to provide loans more easily and reduce dependence on ill-gotten gains
  • Make banking loans for construction more accessible to individuals and companies

Conclusion

Senegal’s grey list status serves as a wake-up call for the government and financial institutions to implement effective measures to prevent money laundering and terrorist financing. The country must take decisive action to address these issues and demonstrate its commitment to combating financial crimes.