Financial Crime World

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Senegal’s Struggle with Bank Fraud Schemes: A Growing Concern

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Senegal was added to the Financial Action Task Force (FATF) grey list in February 2021, a move that has sent shockwaves through the financial sector. The decision came after it emerged that the country had failed to fully comply with international standards against money laundering and terrorist financing.

Growing Concern about Bank Fraud Schemes

The FATF’s move highlights the growing concern about bank fraud schemes in Senegal, which has become a hotbed for money laundering activities. According to the National Risk Assessment, drug trafficking is one of the major drivers of money laundering in the country, generating an estimated $360 million annually.

Methods Used by Drug Traffickers

Drug traffickers have been using various methods to launder their ill-gotten gains, with real estate and construction being the preferred industries. The flexibility of these sectors makes them attractive for those looking to move illicit funds into the legitimate economy.

  • 96% of investment in Senegal’s real estate sector between 2011 and 2013 was found to have originated from dubious sources.
  • The lack of a central registry and the use of fake names by investors provide cover for these fraudulent activities.
  • It is estimated that around 30% of confiscated criminal goods between 2011 and 2013 were houses and buildings.

Construction Sector Boosted by Cash from Drug Trade

Senegal’s construction sector has also been boosted by cash from the drug trade, with some large building projects suspected of being financed through illegal means. For example, Akon City, a mega-project bankrolled by American-Senegalese singer Akon, is due for completion in 2029. Many fear that the project will only facilitate money laundering.

Combating Fraudulent Activities

To combat these fraudulent activities, Senegal has strengthened its legal and institutional framework to fight money laundering. However, progress has been slow, with the country’s presence on the FATF grey list indicating that more needs to be done.

Limitations of Government Response

The government’s response is also limited by its lack of technical expertise in areas such as training financial business employees to identify money laundering. As a result, the number of people prosecuted for financial crimes remains low compared to the number of infractions committed.

  • The widespread use of cash and the extent of the informal sector enable money laundering.
  • A judicial system that does not allow police to access information on suspected beneficiaries hinders efforts to combat it.

Currency Control

Senegal’s lack of control over its currency, the Communauté Financière Africaine (CFA), also contributes to these problems. The CFA is tied to the euro, and as such, Senegal and other West African Economic and Monetary Union countries have limited control over their own currency.

  • This lack of control means that Senegalese authorities are caught in a vicious cycle, relying on foreign currencies obtained through informal or illegal channels to finance their banking system.
  • The independence of the CFA would provide greater flexibility and macro- economic options for Senegal, allowing it to delink from the euro and take control of its financial sector.

Fiscal Independence

Fiscal independence would also give more leeway to Senegalese banks to provide loans, reducing the need for individuals to seek illegal alternatives. While this is not a complete solution to the money laundering problem, it could help shift the current pattern of dependence on ill-gotten gains.