1. THE CHALLENGES OF CUSTOMER DUE DILIGENCE IN AFRICA
Mu’Azu Umaru
Director, Research and Planning
GIABA Secretariat, Dakar, Senegal
PRESENTED TO AT the AFREXIMBANK ANNUAL CUSTOMER DUE DILIGENECE & CORPORATE GOVERNANCE FORUM
Dakar, Senegal,
28-29 OCTOBER 2014

2. CUSTOMER DUE DILLIGENCE
17/04/2017

3. INTRODUCTION
Broadly, approaches to maintaining effective anti-money laundering/combating the financing of terrorism (AML/CFT) regime is two-fold:
Preventive approach
Detection/enforcement approach
The preventive approach is designed to deter or prevent the criminals from perpetrating the crime of money laundering and the whole range of predicate offences

4. INTRODUCTION cont’d
Initiatives pursuant to the realisation of the preventive approach include Customer Identification or Customer Due Diligence (CDD)
CDD - International requirement
Financial Action Task Force
FATF 40 Recommendations (formerly 40+9)
CDD – R10 with impact on several Recommendations, including Recs 1, 11, 12, 13, 14,16, 20 etc
Basel Committee
Customer due diligence for banks
Considers KYC for client on-boarding etc

5. Nigerian Financial Intelligence Unit (NFIU)
WHAT CDD ENTAILS
17/04/2017
Nigerian Financial Intelligence Unit (NFIU)

6. IMPERATIVES OF EFFECTIVE CDD
Proper and effective CDD, amongst other things, helps to:
Prevent the mis-use of financial institutions as well as reduce the incidences of fraud and other financial crimes
Limit criminals from having access to the financial system
Maintain the integrity, reputation, soundness and stability of local and global financial system
Promote good business, governance, and risk management
Minimizes regulatory sanctions & adverse consequences of such sanctions on financial institutions
Generally, enhance implementation of robust AML/CFT programme by financial institutions

7. CENTRALITY OF CDD IN AML/CFT REGIME
STR/CTR
REPORTING
(R20)
ML/TF RISK
ASSESSMENT
(R1)
RECORDS
KEEPING
(R11)
CDD
ML/TF
INVESTIGATION
(R30)
FIU ANALYSIS
(R29)
AML/CFT
INSPECTION
(R26,28)
CONFISCATION
OF PROCEEDS
OF CRIME
(R3)
ROBUST
AML/CFT
REGIME

8. IMPLEMENTATION OF CDD MEASURES
The implementation of CDD measures presents unique challenges, especially in developing countries, and Africa in particular.
African nations are low capacity countries with largely weak and underdeveloped formal banking/financial system

9. CUSTOMER DUE DILIGENCE (R5): GLOBAL PERFORMANCE OF COUNTRIES (MER)
FSRB
MUTUAL EVALUATION RATING FOR R5 (FATF 40+9 RECs) C LC PC NC NA
ESAAMLG 5 10
MENAFATF 6 9
GIABA 2 14
CFATF 16 13
MONEYVAL 7 17
APG 3 18 19
GAFISUD 8
EAG 79 75
MENAFATF (Middle East & North Africa Financial Action Task Force) – Algeria, Bahrain, Egypt, Mauritania, Jordan, Kuwait, Lebanon, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia, United Arab Emirate, Yemen
ESAAMLG (Eastern and Southern Africa Anti-Money Laundering Group) – Botswana, Comoros, Kenya, Lesotho, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, Seychelles, Tanzania, Uganda, Zambia, Zimbabwe
GIABA (Inter Governmental Action Group Against Money Laundering in West Africa) – Benin, Burkina Faso, Cabo Verde, Cote d’Ivoire, Ghana, Guinea, Guinea Bissau, Liberia, Mali, Niger, Nigeria, Sao Tome & Principe, Senegal, Sierra Leone, Togo, The Gambia
GAFISUD (Financial Action Task Force on Money Laundering in South America) – Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay
MONEYVAL (Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures) – Albania, Andorra, Armenia, Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, Malta, Poland, Serbia, Ukraine etc
APG (Asia-Pacific Group on Money Laundering) – Australia, Bangladesh, Canada, Fiji, Indonesia, South Korea, Japan, Malaysia, Maldives, New Zealand, Pakistan, Philippines, Singapore, Sri Lanka, Thailand, United States of America etc
GAFISUD – Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay
EAG (Euroasian Anti-Money Laundering Group) – Belarus, China, India, Kazakhstan, Kyrgyzstan, Russian Federation, Tajikistan, Turkmenistan, Uzbekistan
CFATF (Caribbean Financial Action Task Force) - Anguilla, Aruba, Belize , Bermuda, Jamaica, Haiti, Venezuela etc

10. CUSTOMER DUE DILIGENCE (R5): PERFORMANCE OF AFRICAN COUNTRIES (FATF 40+9 RECs)

11. GAPS RESULTING TO THESE POOR PERFORMANCES
Legal gaps:
No express provision in law requiring CDD when
Carrying out occasional transactions above a designated threshold
Carrying out occasional transactions that are wire transfers in the circumstances covered by SR VII
There suspicion of ML and TF
The FIs have doubts about the veracity of or adequacy of previously obtained customer identification data
No express provision in the law requiring reporting entities to verify the identity of persons purporting to act on behalf of a customer where the customer is a legal person or legal arrangement

12. GAPS ……. Cont’d
No clear obligation to identify and take reasonable measures to verify beneficial owner for all customers (including determining whether the customer is acting on his/her own behalf, understanding the ownership/control structure of the legal entity, and determine the natural persons who exercise ultimate control over the entity
Regulatory gaps
Weak AML/CFT regulatory/supervisory regime
Weak oversight of reporting entities
Poor application of administrative sanctions
Inadequate capacity

13. GAPS ……. Cont’d Implementation/Operational gaps – Reporting entities
Balancing profit with CDD/other regulatory requirements
Profitability Vs cost of undertaking CDD and complying with other AML/CFT requirements
De-risking – some financial institutions are now terminating or restricting business relationships with clients to avoid rather than manage risk in line with RBA owing to issues relating to profitability, regulatory requirements, reputational risks etc
Limited implementation of CDD requirements by FIs and non application by other reporting/accountable entities
No rules concerning CDD measures for existing customers
CDD documentation exemption for customers conducting one-off transactions
Use of threshold - for instances, specified forms of identification are required can lead to inadequate documentation being taken in circumstances where threshold is not met.
Weak human capacity

14. INFRSTARUCTURE/WAY FORWARD
Review legal and regulatory framework, especially in view of changes in the FATF standards
Develop robust national database on identification system
Reliable national databases, reliable crime reports, credit references, and other sources of information which could facilitate customer identification, proper risk assessment etc
Use of alternative means for identification/ verification of customers:
Traditional chiefs/rulers
Religious leaders
Voter’s registration cards
Biometric identification system, which will help to reduce the need for an identifiable physical address etc
Nigeria – recent introduction of the biometric identification system for bank customers 

15. INFRSTARUCTURE…. Cont’d
Improve human capacity – to improve AML/CFT awareness and assess the degree of risks associated with their customers
Well funded and independent compliance function
Introduction of low-risk banking and financial products and services that require minimal identification
Application of risk based approach in the implementation of CDD – Simplified & Enhanced CDD measures
Establishment of centralized CDD repository
Automate -Deployment of an effective AML solution software that will enhance CDD efficiency
Capture and store relevant documentation- Reviews and document management
Perform continuous risk assessment

16. CONCLUSION
The risks of financial systems being misused for ML/TF purposes is real
In spite of the challenges associated with the implementation of CDD measures, stakeholders in the continent, including regulatory authorities and financial institutions must take appropriate and practical steps to implement requisite AML/CFT measures, especially CDD to prevent the misuse of their businesses, promote financial system stability and a secure world.

17. Thank you for your attention
GAIBA Secretariat
Dakar, Senegal
Tel:
Website: