African nations, including the continent’s largest economies of Nigeria and South Africa, can boost international investor sentiment towards their markets by ramping up efforts to combat financial crime such as money laundering, fraud, insider trading, terrorist financing, market abuse and general bribery and corruption.
Financial crime will inevitably migrate to countries where the implementation of anti-money laundering regulations is perhaps lagging behind the rate at which their markets are developing. As the risk of financial crime increases so too does the level of regulatory scrutiny, so it is in the interests of both companies and countries to continually improve their efforts to combat such criminality.
Corporate and government entities should tackle financial crime in an integrated manner. They need to ensure that they partner with the right strategic partners in order to build an effective deterrent to financial criminality. Financial institutions in particular need to ensure that they have the proper systems, processes and procedures in place to combat financial crime in a cost-effective and sustainable manner that offers both them and their customers a suitable degree of protection.
It is essential that companies operating in Africa learn from the experience of their international counterparts by migrating from a rules-based approach to financial risk and compliance, towards a risk-based approach that takes a more selective approach towards client risk assessment. The risk-based approach embraces the Know Your Customer (KYC) guidelines to prevent an organisation from falling foul of money laundering activity. The risk-based approach is essentially augmenting a company’s internal rules and compliance processes with an element of common sense towards the assessment of customer risk and the level of scrutiny then applied to that customer.
Companies can do this by taking into account risk factors elements such as:
- Geography e.g. private companies headquartered in offshore tax havens generally require far more scrutiny than publically-traded companies, which typically undergo far more public scrutiny in their day to day operations.
- Inherent Customer Risk e.g. companies that hide behind layers of legal and jurisdictional complexity are more likely to be trying to hide something.
- Distribution channels e.g. companies that distribute their goods or services on a face-to-face basis are more likely to be open and transparent than those that do so at arm’s length.
- Industrye.g. companies that distribute high risk products associated with terrorism, bribery and corruption such as arms may require extra levels of financial scrutiny.
The landscape of financial crime is dynamic and ever-changing, so an efficient and effective risk-based approach needs to evolve constantly in order to act as an adequate deterrent. Further more, one should not underestimate the role of technology and advanced systems that enable intelligent checks for weighing economic, political and criminal risk indicators to enable a country to radically improve its anti-money laundering capabilities. This can result in countries becoming a lot more attractive to international investors.