By: Nghiinomenwa-vali Erastus
Due to the Fishrot scandal, Namibia is now under scrutiny by the International Cooperation Review Group due to some deficiencies in its domestic Anti-Money Laundering and Combating the Financing of Terrorism and Proliferation (AML/CFTP) Framework which present a risk to the international financial system.
This is according to the Mutual Evaluation Report (MER), a peer review process facilitated by the Financial Action Task Force (FATF), which was released in November 2022 by the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG).
The FATF’s primary role is to set global AML/CFT standards and ensure the effective implementation of these standards in all jurisdictions. Enhanced global compliance with the standards reduces the ML/FT risks to the international financial system, and increases transparency and effective international co-operation.
In addition to the FATF’s and FATF-style regional bodies’ mutual evaluation programmes and follow-up processes, the FATF uses additional mechanisms to identify and to respond to jurisdictions with strategic deficiencies in their AML/CFT regimes that pose a risk to the international financial system and impede efforts to combat money laundering and terrorist financing.
Marlene Miller Compliance Practitioners experts have indicated that the country’s strategic deficiencies in its framework have now led Namibia to be placed under increased monitoring by the International Cooperation Review Group (ICRG).
“Whereby we have been given until October 2023 to implement remedial actions required, failing which we may be ‘grey-listed’,” the experts wrote in their summary of the Mutual Evaluation Report (MER).
Analysis of the Namibian MER shows that it is dominated by the Fishrot scandal, similar to how the South African MER is shaded by the State Capture corruption case.
Namibia’s MER highlighted three major criminal cases which generated the most financial proceeds, damaging the country’s financial and legal systems’ credibility.
These include the Fishrot scandal, the Value-Added Tax (VAT) scam and Namibia SME Bank fraud.
The report highlighted that most of the proceeds were laundered through banks, unit trust schemes and asset management related financial services.
The MER found that some companies, services providers, lawyers and real estate agents were found to have a high money laundering vulnerability in the designated non-financial businesses and professions sector and were also central to the high-profile cases. In addition, there is significant abuse of customs clearing and forwarding agents and motor vehicle dealers in respect of cross-border remittances and tax-related offences.
The MER found abuse of legal persons and legal arrangements for money laundering (ML) purposes, though at a basic level.
The methods of using front and shelf companies, with some of them ultimately owned or controlled by government ministers is seen as one of the risks pertaining to legal persons.
In the Fishrot case, the shelf companies were used to receive bribes and any other payments for the benefit of the implicated government officials. This was due to a lack of beneficial ownership information relating to legal persons, the MER shows.
Another observation by the assessors was that both ML and corruption cases arising from the Fishrot scandal have not been proactively pursued as there are no prosecutions or convictions yet, if an account is taken that the first intelligence on the scandal surfaced in 2012.
As a result, the committee recommended Namibia should provide additional funding to the FIC to enable it to enhance its analytical capability which is essential for the FIC to support the pursuit of complex financial crimes such as the Fishrot case.
The MER indicated that the country’s Anti Corruption Commission had a significant number of intelligence disclosures (tip-offs from FIC) in 2020. The disclosure by the FIC was based on the ongoing Fishrot corruption and associated ML investigations.
“Namibia should resolve the matter urgently as this will improve the use of FIC intelligence to support the investigation of serious corruption and its associated money laundering,” the assessors recommended.
The ESAAMLG evaluation has revealed that in recent years, Namibia experienced a rise in serious fraud, grand corruption, tax crimes, and wildlife crimes as the major ML threats generating the most proceeds.
“The crimes are largely committed by high-profile persons often holding influential government positions in cohorts with the private sector. Both have strong links outside of the country which facilitates outward flow of the proceeds,” the evaluation revealed.
Using the statistics from responsible authorities, thet MER revealed that the investigation and prosecution of some of the major high-risk predicate offences are to a lesser extent in line with the country’s risk profile.
“This shows that there is a gap in the system that needs to be addressed,” the assessors wrote.
The limited number of cases investigated and prosecuted also adds to the challenge of understanding the scale/magnitude of the ML/TF/PF risks in Namibia.
They zoomed in that the country has a low capacity to identify and investigate and prosecute ML activities focusing on organised crime syndicates and money laundering enablers.
Adding that sanctions set by law are solid and severe to be effective and proportionate, but in practice, non-custodial or suspended sentences are often imposed and the sanctions can only be effective, proportionate, and dissuasive to a lesser extent
Namibia has also been found to have weak (ultimate) beneficial ownership identification and law enforcement agency capacities to effectively mitigate the rising misuse of legal persons for both predicate offences and money laundering.
The assessors in their engagements with law enforcement agencies and the intelligence community suggested the potential use of Namibia for raising, storing, and moving funds for foreign terrorism.
Even though the MER found that generally, the appreciation for terrorist financing risk was low- the country’s terrorist and proliferation financing mitigation strategies were found inadequate due to limited attention to the said risks.
The country is now expected to take significant action to address the strategic deficiencies identified in line with the effectiveness and technical assessments made.
The effectiveness of a country’s AML/CFT/CFP system is measured against 11 pre-determined immediate outcomes (IOs) and ratings can be either HE – highly effective, SE – substantially effective, MD – moderately effective, or LE – low level of effectiveness.
The effectiveness mark to aspire to is HE/SE.
Neither South Africa nor Namibia achieved any HE/SE ratings on their ME and scored in the sub-par category of moderately effective, with a number of LE ratings.
Namibia scored slightly worse than South Africa on the effectiveness of its AML/CFT/CFP system, according to Marlene Miller, Compliance Practitioners expert’s assessment.
Technical compliance is measured against the FATF 40 Recommendations and ratings can be either a C – compliant, LC – largely compliant, PC – partially compliant or NC – non-compliant.
Both Namibia and South Africa came out average on technical compliance. The technical compliance mark to aspire to is C/LG.
All other ratings indicate a failure to some extent, wrote Marlene Miller Compliance Practitioners experts.
A country is found to have strategic deficiencies in its framework that present a risk to the international financial system, it is subjected to a review process known as the ICRG (International Cooperation Review Group).
South Africa finds itself in this process of intense scrutiny, with its fate to be determined at the February 2023 plenary of the FATF.
Under the enhanced follow-up process (ICRG), the country in question is, as a rule, given 12 months to remediate strategic deficiencies identified to the satisfaction of the FATF.
Namibia and South Africa have gone through the Mutual Evaluation process and received their report around the same time last year.
The result of the outcome of South Africa’s MER is a real risk of being “grey-listed” by the FATF.
Marlene Miller Compliance Practitioners experts have, however, noted that the “glaring resemblances between Namibia’s MER and that of South Africa, could not be ignored; with both countries scoring below par on its overall level of effectiveness.
The FATF is tasked to protect the integrity of the global financial system by issuing public warnings about the risks emanating from identified jurisdictions.
They do this by public warnings to put pressure on listed jurisdictions/countries to address the deficiencies to maintain their position in the global economy.
The FATF has 2 essential high-risk country lists, i.e., the ‘Call for Action’ list (“blacklist”), and the ‘jurisdictions under increased monitoring’ (“grey list”) lists.
According to Marlene Miller Compliance Practitioners expert, Namibia finds itself in an undesirable position. They advised accountable institutions to understand the role they play in the bigger scheme of things.
Moreover, government and the private sector alike will have to work closely together to weather the brewing storm of “greylisting”, “destroying our hard-earned global reputation,” the expert wrote.
Marlene Miller Compliance experts noted that going forward there are expectations from accountable institutions despite the MER conclusion that inherent ML/TF/PF risk exposure is not sufficiently understood.
Accountable institutions may therefore be expected to revisit their institutional risk assessments to ensure a sound understanding of the inherent ML/TF/PF risk to their organisation is exposed to.
Furthermore, the institutional risk assessment must be credible and must reflect an appreciation of client types, products/services offered, distribution channels deployed, and geographical areas operated within/from, which are more vulnerable to ML/TF/PF risk/abuse than others.
It is recommended that accountable institutions revive the application of preventative measures (customer identification and verification, client risk assessment etc).
This is with the aim to achieve the desired outcomes of identifying and reporting suspicious transactions and activities and thereby combating financial crime, as opposed to only ticking boxes to satisfy regulatory requirements. Email: erastus@thevillager.com.na
