Central African Republic Fails to Effectively Manage Financial Risks

Inadequate Risk Management by Financial Institutions and Non-Bank Entities

A recent evaluation has revealed significant shortcomings in the way financial institutions and non-bank financial entities in the Central African Republic (CAR) categorize their customers based on profiles and transactions. Despite understanding the risk, many fail to implement effective, up-to-date risk maps, making it difficult to determine customer risk profiles.

Limited Understanding of Anti-Money Laundering and Combating the Financing of Terrorism Risks

• Banks: Only moderately fulfilling their duty of vigilance, with a limited number of Suspicious Transaction Reports (STRs) filed despite the criticality of the risks in the sector.
• Money transfer service providers: Fail to implement effective AML/CFT measures, operating under agreements with banks that do not ensure compliance with international standards.
• Non-bank financial institutions (FIs): Patchy understanding of AML/CFT risks and duties, with limited knowledge in this area among insurance sectors, microfinance institutions, and savings and transactional funds.

Ineffective Measures to Combat Money Laundering and Terrorist Financing

• Foreign exchange bureaus: Lack of effective measures to identify and sanction clandestine operators despite being disqualified under new regulations.
• Designated non-financial businesses and professions (DNFBPs): Limited understanding of ML/TF risks, with many unaware of CAR’s AML/CFT regulation and failing to implement these measures.

Shortcomings in Control Functions

• Inadequate supervision and monitoring of financial institutions and DNFBPs.
• Lack of competent authorities designated to monitor non-compliance with AML/CFT obligations for DNFBPs as a whole.

Ongoing Security and Political Challenges

• Significant security and political challenges impacting economic and social development, leading to ML/TF risks including misappropriation of public funds, drug trafficking, corruption, and human trafficking.
• Country still lacks specific implementing measures to regulate the cryptocurrency sector, exposing it to significant ML/TF risks.

Conclusion and Recommendations

The report concludes that CAR’s financial sector faces a range of challenges in effectively managing financial risks, including inadequate risk categorization, limited understanding of AML/CFT risks, and shortcomings in control functions. The country must take immediate action to address these weaknesses and strengthen its AML/CFT regime to prevent the exploitation of its financial system for illicit purposes.

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