Senegal’s Fight Against Money Laundering: A Complex Challenge Ahead
Introduction
In February 2021, Senegal was designated as a Financial Action Task Force (FATF) grey list country, highlighting the country’s struggles against money laundering and terrorist financing. Despite being committed to addressing deficiencies, Senegal still faces significant challenges in combating these illegal activities.
The Problem: Money Laundering and Terrorist Financing
Money laundering remains a major concern in Senegal, driven primarily by drug trafficking. According to the National Risk Assessment, drug traffickers generate nearly $360 million (CFA 200 billion) annually, using real estate and construction as preferred methods for laundering their profits.
Real Estate: A Lucrative Avenue for Money Laundering
The flexibility of real estate transactions makes them attractive to criminals seeking to conceal the financial origins of their investments. The lack of a central registry and use of fake names by investors provide cover for illegal activities. In 2013, it was estimated that approximately 96% of $480 million invested in Senegal’s real estate sector came from dubious sources.
Construction: A Suspect Industry
Cash generated from drug trafficking has also boosted construction across the country, with some large projects suspected of being financed via illicit means. For example, Akon City, a mega-project bankrolled by American-Senegalese singer Akon, is due for completion in 2029 and has raised concerns about its potential to facilitate money laundering.
Challenges in Combating Money Laundering
Despite efforts to strengthen Senegal’s legal and institutional framework, progress has been slow. The country’s lack of technical expertise to train financial business employees to identify money laundering remains a significant challenge. Additionally:
- Widespread use of cash
- Informal sector activities
- Limited judicial system access to information on suspected beneficiaries
These factors enable money laundering, making it difficult for authorities to track and prevent illegal transactions.
The Role of the CFA: A Potential Solution?
Senegal’s current financial public policy may indirectly nurture illicit flows by enabling the use of cash and the extent of the informal sector. The country’s currency, the Communauté Financière Africaine (CFA), is tied to the euro, limiting control over foreign exchange transactions.
Muazu Umar, Policy and Research Director at GIABA, notes that this lack of control creates a vicious cycle, where Senegalese authorities rely on informal or illegal channels for foreign currencies. This situation contributes to the country’s banking system indirectly relying on these flows, making it difficult to control financial transactions.
Advocating for Independence
Advocates are calling for the independence of the CFA, which would provide greater flexibility and macroeconomic options for Senegal. Fiscal independence would give banks more leeway to provide loans, potentially reducing the reliance on ill-gotten gains.
The Way Forward
While this is not a complete solution to the money laundering problem, it could shift the current pattern of dependence on illicit funds. The path forward will require:
- Continued cooperation with international organizations
- Strengthening of domestic institutions to combat money laundering in real estate and construction sectors
Ultimately, Senegal must work towards strengthening its financial system and combating money laundering if it hopes to address the complex challenges facing its economy.