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Safeguarding Africa's Integrity in a Complex World

Misconceptions About Money Laundering in Sub-Saharan Africa


For many years, the AML regime in Sub-Saharan Africa has been misunderstood, especially by outsiders who have tried to impose ‘global AML standards’ on the continent. Recent attempts by international regulators to combat money laundering in Africa have fallen on rocks because there has been no effort on the part of international regulators to understand the  context of money laundering in Africa. Africa’s AML regime has not received the specific attention it deserves because global AML regulation has taken a one-size-fit-all approach in combating money laundering everywhere. This one-size-fit-all approach to AML regulation has not done much to combat money laundering in Africa because it undermines core aspects of Africa’s AML regime. In order for AML regulation to take hold and have any significant effect in combating money laundering in Africa, international regulators must adopt a set of recommendations that are specifically tailored to Sub-Saharan Africa.


The AML regime in Sub-Saharan Africa is divided into two main geographical sub-regions and overseen by two separate international bodies. The Intergovernmental Action Group against Money Laundering in West Africa (GIABA) oversees the West Africa Sub-region while the Eastern and South African Anti Money Laundering Group (ESAAMLG) oversees the Eastern and Southern Sub-regions. These two regional bodies are responsible for enforcing global AML standards in Sub-Saharan Africa. AML standards for Sub-Saharan Africa are based on global standards set forth by the Paris-based Financial Action Task Force (FATF). GIABA and ESAAMLG are collectively referred to as FATF-style bodies as they ‘collaborate’ with the FATF to implement global AML standards in Africa. 


The problem with the implementation of ‘global AML standards’ in Africa is that they were not intended for Africa – they were intended for the rather developed economies of North America and Western Europe. The implementation of global AML standards in Sub-Saharan Africa is an experimental version of regulations originally intended for western economies. As a result, African nations and their financial institutions are exposed to more challenging and more difficult impediments in their attempt to comply with global AML standards than their North American and Western European counterparts. Despite this inherent flaw in the implementation of AML standards in Africa, African countries have been single-handedly blamed for not being able to fully implement the FATF’s 40+9 recommendations [3]. In fact, those 40+9 recommendations were drafted entirely by Western nations without the consent of African nations (with the exception of South Africa) yet African nations are being asked to comply. This paper argues that a failure to understand the African context of money laundering will greatly undermine any effort by international regulators to implement global AML standards in Africa.


The Informal Economy in Sub-Saharan Africa

The informal economy is a good starting point for a discussion about misconceptions of AML regulation in Sub-Saharan Africa. The informal economy is the most vibrant sector of the African economy. It is where the majority of daily transactions take place and where many Africans go to carry out trading activities. It is important to note that in Africa, the informal economy does not carry the same negative connotation as it does in the West [4]. In the developed economies of North America and Western Europe, the informal economy is often associated with criminal activities such as smuggling, narcotics, firearms, prostitution, and gang-related activities – it is where criminals turn to for illegal activities. However, in Sub-Saharan Africa, the informal economy is a parallel economy that serves as a viable alternate to the mainstream economy. Engaging in the informal economy is not an outright crime in Sub-Saharan Africa. According to some estimates, the average share of GDP contributed by the informal sector in 32 Sub-Saharan African countries, other than South Africa, is 41% [6]. Despite the prevalence and significance of the informal economy in the daily lives of many Africans, it is often demonized in the fight against money laundering in Africa, and perceived as a major impediment to the implementation of global AML standards in the continent [5].


Doing Away With the Informal Economy

Across Africa there are ongoing reforms seeking a radical push towards economic formalization [2]. There have been attempts by both the public and private sectors to mainstream informal economic activities in Sub-Saharan Africa. For example, in 2005, Barclays Africa intervened in Ghana’s informal economy by introducing a scheme dubbed the Barclays Microbanking Program [1]. The purpose of the Barclays scheme was to convert Ghanaian market traders who were already using the indigenous/informal susu financial system for their daily savings to become clients in the mainstream Barclays Microbanking Program. After struggling to convince market traders in Accra, Kumasi, and Takoradi, Barclays ended the program in 2010 and pulled it off the market. In the end, the informal economy in Ghana won the battle over microbanking.


The problem with AML regulation in Africa is that the informal economy is perceived as a calamity that needs to be ‘fixed.’ Yusuff (2011) has cautioned against the view that the informal economy is a sector that emerges as a result of crisis; rather it should be analyzed as one that emerges out of social and historical processes. Yusuff (2011) argues that what is needed is a theoretical framework that analyzes the origin, causes, and persistence of 'informality' in African society. What is clear is that the African informal economy is not going away anytime soon (as witnessed in the case of the susu financial system in Ghana), therefore any attempt by regional and global regulators to demonize the informal economy in the fight against money laundering will only stall the implementation of global AML standards in Africa. What Africa needs is a set of AML regulations that are specifically designed to fight money laundering by accommodating the informal economy in a way that does not demonize it.


Author: Ernest Honya, Editor-in-Chief, AML Journal of Africa  


References

[1] Daily Guide, (2008). Barclays Trains Susu Collectors. Daily Guide.

​[2] Guyer, J. (2004). Marginal gains. Chicago: University of Chicago Press.

[3] Jensen, N. and Png, C. (2011). Implementation of the FATF 40+9 Recommendations. Journal of Money Laundering Control, 14(2), pp.110-120.

[4] Moshi, H. (2012). Implication of cash-dominated transactions for money laundering. Institute for Security Studies - Situation Report.

[5] Norton Rose Fulbright, (2015). Prominence of money laundering in Africa: Ten things to know. Norton Rose Fulbright, p.2.

[6] Schneider, F. (2005). Shadow economies around the world: what do we really know? European Journal of Political Economy, 21(3), pp.598-642.

[7] Yusuff, S. (2011). A Theoretical Analysis of the Concept of InformalEconomy and Informality in Developing Countries. European Journal of Social Sciences, 20(4).