Financial Crime World

West African Region Struggles to Combat Money Laundering and Terrorist Financing

The West African Economic and Monetary Union (WAEMU) region is facing significant challenges in combating money laundering and terrorist financing (AML/CFT). Despite efforts to strengthen its AML/CFT framework, several member states have been identified as being under increased monitoring by the Financial Action Task Force (FATF).

Challenges in Combating AML/CFT

According to a recent report, all WAEMU member-states except for Côte d’Ivoire have completed mutual evaluation reports (MERs) that reveal important weaknesses in AML/CFT supervision. The FATF has placed three countries - Burkina Faso, Mali, and Senegal - under increased monitoring due to the range of deficiencies noted in their MERs.

Deficiencies in Supervisory Regimes

The MERs adopted by WAEMU member-states show a “low effectiveness” rating in their AML/CFT supervisory regimes, with deficiencies likely having a significant impact on banking supervision given the risks in the sector. The Bank of Central African States (BC) actively participates in GIABA Working Group and Plenary Meetings, while WAEMU holds observer status at GIABA.

Consequences of Enhanced Monitoring

The consequences of being under enhanced monitoring by the FATF can be severe, including:

  • Increased reputational risk for listed countries and even the region
  • Correspondent relationships may become more difficult or expensive to maintain
  • Transactions conducted by banks in listed countries may be subject to enhanced customer due diligence by banks in other countries

Reforms Implemented

Despite these challenges, the WAEMU has implemented several key reforms in recent years to strengthen its AML/CFT framework. In 2015, the Council of Ministers adopted a new Uniform Law on AML/CFT, which aimed to integrate FATF Recommendations adopted in 2012.

Shortcomings in Current Framework

However, the Uniform Law is not fully in line with FATF Standards, limiting the BC’s ability to monitor and enforce compliance with FATF-prescribed preventive measures. Recent MERs have identified deficiencies in the application of FATF-prescribed preventive measures, including those related to:

  • Customer due diligence
  • Regulation and supervision of financial institutions

Concerns from International Monetary Fund (IMF)

The IMF has expressed concerns about the effectiveness of AML/CFT assessors in the region, noting that while they can monitor bank employment of international AML/CFT “good practices,” they can only enforce compliance with banks’ formal, legal obligations. The IMF has also identified clear gaps in the effectiveness of AML/CFT measures, including:

  • Lack of legal requirements for financial institutions to identify and verify the beneficial owners of their customers

Urgent Reforms Needed

Overall, the WAEMU region faces significant challenges in combating money laundering and terrorist financing, and urgent reforms are needed to strengthen its AML/CFT framework and bring it into line with international standards.