Authored by Diphat Tembo-CAMS, Director-Compliance and Prevention Department of the Financial Intelligence Centre-Zambia and Kunda Kalaba-CAMs, CFE, RpT, Managing Partner KEMMAN Financial Crime Risk Compliance and Security Investigative Services.

The Corona virus-COVID-19 has infected more than 414,000 individuals globally, and killed over 18,500 people, since being identified in China at the end of 2019, spurring governments across the World introducing measures such as social distancing or refraining citizens from interacting with one another, among other drastic measures to curb the outbreak. According to Worldometer which is tracking live updates and sharing statistics and corona virus news tracking the number of confirmed cases, recovered patients and deaths, as at March 24, 2020, 12:12 GMT, there were more than (414, 000 confirmed Corona Virus Cases out of which 275,000 (95%) were mild conditions with 13,000 (5%) serious or critical condition) , 108,000 had recovered and unfortunately more than 18,500 have passed on. The number of confirmed cases has continued to rise and death-toll thereof.

The World has noted that the Novel Corona virus has impacted the global economy, daily life and human health around the World. The virus has surely changed how people live, travel, shop, work and interact every day. But in addition to the pressing threat the virus poses to human health, these rapid changes have also created conducive environments in which hackers, scammers and spammers, phishers all thrive. There are reported cases where criminals want to take advantage of this fragile situation to advance their ill agenda. The Financial Intelligence Unit (FIU) i.e. FinCEN of the United States of America on 16th March, 2020 FinCEN said that it had received multiple suspicious activity reports, or SARs, flagging attempts by fraudsters to exploit fears of the pandemic to sell sham cures, raise funds for fraudulent charities and dupe victims into handing over money by impersonating government officials, among other scams (ACAMS News, 18th March 2020).

The continent of Africa is not spared from this global pandemic. What if at all any, could be the impact of corona virus (COVID-19) in the Anti-Money Laundering (AML) and Countering Financing of Terrorism (CFT) in the African Region and Zambia in particular? To begin with, the 39th Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) meeting which was scheduled to take place in Arusha, Tanzania from 29th March to 3rd April 2020 has been postponed to a later date to be determined due to COVID 19. Other similar Style Regional Bodies (SRBs) are likely to cancel or postponed conferences and meetings because of the spread of the virus which slowly is taking root in Africa. The SRBs meetings are attended by various stakeholders some of which come from countries already designated as high risk; not from Money Laundering (ML) or Terrorism Financing (TF) point of view this time around but from the COVID-19 perspective. The immediate impact of the postponement of these meetings are changes which are likely to take place on the timelines of Mutual Evaluations that the SRBs such as ESAAMLG is currently conducting and other projects the Regions are participating in.

From the domestic point of view, there is likelihood that some AML/CFT meetings will be cancelled due to COVID-19 in order to comply with Directives by the Ministry of Health on adhering to COVID-19 preventive measures. Further, some of the amendments to the AML/CFT legal framework addressing deficiencies which were identified during the mutual evaluation of Zambia in 2019 were supposed to be introduced in Parliament during the current siting. However, the National Assembly was on Wednesday, 18th March 2020 adjourned ‘sine die’ due to COVID-19. Addressing the identified deficiencies will have to wait until the Zambian Parliament reconvenes whenever it will be safe to do so.

Will COVID-19 have any negative impact on anti-money laundering/countering the financing of terrorism regime in Zambia? The response would be in the affirmative. The measures being taken to contain COVID-19 have direct impact on the overall AML/CFT regime.

Regulatory Compliance
In accordance with the 4th round of mutual evaluations of AML/CFT measures, the Financial Action Task (FATF) has adopted complementary approaches for assessing technical compliance with the FATF Recommendations and for assessing whether and how the AML/CFT system is effective. Effectiveness assessment seeks to assess the adequacy of the implementation of the FATF Recommendations, and identifies the extent to which a country achieves a defined set of outcomes that are central to a robust AML/CFT system. The focus of the effectiveness assessment is therefore on the extent to which the legal and institutional framework is producing the expected results. FATF makes its assessment of effectiveness based on 11 immediate outcomes, each of which represents one of the key goals to be achieved by an effective AML/CFT system.
Immediate outcome 3 (IO.3) of the assessment. FATF assessment methodology updated in October, 2019 requires supervisors or indeed regulators to appropriately supervise, monitor and regulate financial institutions, Designated Non-Financial Businesses and Professions (DNFBPs) and Virtual Assets Service Providers (VASPs) for compliance with AML/CFT requirements commensurate with their risks. By and large, AML/CFT supervisors or regulators, on a risk-sensitive basis are supposed to supervise or monitor the extent to which financial institutions, DNFBPs and VASPs are complying with their AML/CFT requirements.

One of the effective tools/methods used for AML/CFT supervision is on-site inspection of reporting institutions. In the dawn of COVID-19, regulatory agencies or indeed supervisory authorities may have to consider halting or suspending this important approach to comply with policy directives or measures being pronounced in different jurisdictions to deal with COVID 19. Further, there is high possibility of suspending planned AML/CFT workshops, training, spots inspections, conferences and meetings during this period.

Covid-19 Situation Worsening
In an event that the situation worsens, which we all pray it should not as measures are being taken for flattening period, many reporting entities’ and supervisors’ employees may be asked to work from home. Such arrangements have their own challenges. Some employees may not have access to the required data bases or speed internet connectivity to enable them effectively perform their roles and functions in good time. Economic and financial activities may slow down. Among businesses, the impact of COVID-19 will vary significantly by sector and by company. It seems quite likely at this point that travel and tourism sector, entertainment, automotive, oil and gas, and healthcare industries will be most affected due to disruptions in supply and demand. As a result, there is likely to be less financial transaction activity in the banks.

From the reporting entities or accountable institutions point of view, both human resources and Software/programs/data/systems are relied upon in order to detect and action alerts and cases of Currency Transaction Reports (CTRs), Suspicious Transaction Reports (STRs) or Suspicious Activity Reports (SARs). In such an environment, there is a possibility for the number of STRs, SARs and indeed CTRs, sent by reporting entities especially banks to drop significantly. There shall also be a decline in the cross-border currency and Bearer Negotiable Instruments (BNI) declaration reports as a result of bans or travel restrictions imposed by different jurisdictions. Wire transfers are likely to drop amidst disruptions in the global economy, balancing out the surge in cash withdrawals, online banking and crypto-currency-related activity.

The compliance levels for reporting entities or accountable institutions which manually attend to reporting obligations is likely even to go down. The foregoing entails that, the number of analyzed STRs and disseminated intelligence reports to competent authorities is likely to drop significantly. However, it is expected that those institutions that have invested in acquiring transaction monitoring systems, will continue to detect and filter STRs including submission of CTRs to Financial Intelligence Units (FIUs).

During this period, competent authorities are advised to be vigilant, alert and pay particular attention to some procurement transactions related to COVID-19 kits and equipment. The United Nations on Drugs and Crime (UNODC) says approximately 10 to 25 percent of all money spend on procurement globally is lost to corruption. In the European Union (EU), 28 per cent of health corruption cases are related specifically to procurement of medicines. We do not yet have the percentages in healthy related procurement in Africa and Zambia in particular. Suffice to state that we still have ‘bad boys’ who may wish to take advantage of this desperate situation to enrich themselves by engaging in corrupt and fraudulent activities. As soon as COVID-19 was designated as being a pandemic, financial crooks i.e. “bad boys” started exploiting it and there are reports about frauds linked to CVOID-19 in many countries where the pandemic has been rampant. This calls for concerted efforts by all competent authorities and Law Enforcement Agencies (LEAs) to cooperate and make the environment hostile to these “bad boys” who would want to take advantage of the situation-COVID 19. Indeed, COVID-19 will definitely adversely affect the AML/CFT processes.

The week ending, 19th March, 2020, many Zambians received text messages from their respective banks advising or asking customers to stay away from branches. The messages encouraged the customers to handle their transactions through non-face-to-face interface due to the outbreak of COVID 19 in Zambia. Although it is a good measure to counter further spread of COVID-19, competent authorities may be aware that non-face-to-face financial transactions are inherently considered ‘high risk’ as compared to the physical presence of the customer in the brick and mortar banking hall and talking to the bank staff directly. Save the foregoing, consideration of Recommendation 15 (New Technology) of the FATF, shows that there are mitigation measures provided therein to deal with risks associated with non-face-to face transactions. But not all reporting entities appreciate money laundering/ terrorist financing (ML/TF) risks they are exposed to because not all reporting entities have conducted ML/TF institutional assessments associated with new technologies. It is in such an environment where criminals would want to exploit weaknesses in the AML/CFT regime.

During this period, reporting entities i.e. (Financial Institutions and Designated Non-Financial Businesses and Professions (DNFBPs) are encouraged to use Digital Identification documents (IDs), biometric Customer Due Diligence (CDD) which can be carried out through webcams, etc.). According to the FATF, digital identification (ID) systems have the potential to improve customer ID and verification procedures by: minimizing weaknesses in human control measures; improving customer experience and generating cost savings; and improving financial inclusion. However, some risks, like cyber attacks and security breaches, present challenges for entities’ implementation of digital ID systems.

The question is to what extent are our financial institutions and DNFBPs innovated around these technologies and systems supposed to be attending to Digital ID and biometric CDD? That is a topic for another day.

Quick Wins to Consider
• Reporting entities or accountable institutions should start testing and implementing business continuity/contingency plans, which include alternate workplace arrangements such as split work sites, working from home, and rotating shifts for all types of employees

• Compliance and Money Laundering Prevention/Reporting Officers – [MLPRO] of reporting entities should reassess their approach to monitoring transactions to account for dramatic shifts in customer behavior amid the global pandemic of the new corona virus disease

• Regulators or indeed AML/CFT supervisors should find creative ways to monitor compliance, regulate the industry and enforce the AML regime if necessary, whilst at the same time being sensitive to the challenges facing the industry in these difficult and challenging times. During this period supervisors may opt to rely on ‘monitoring’ and ‘offsite inspections’ which may not be as effective as on-site inspections, if the reporting entity does not submit complete or comprehensive information for the supervisors to review or analyse.

• During this period, competent authorities and reporting entities are advised to be vigilant, alert and pay particular attention to some procurement transactions related to COVID-19 kits and equipment. ‘Bad boys would want to take advantage of the situation to involve themselves into corrupt activities to enrich themselves.

• Competent Authorities including, Prosecutors should cooperate and go after the would-be fraudsters exploiting the pandemic-COVID-19. FIUs could be good source of information on such perpetrators.

Views expressed in this correspondence represent Authors’ Thoughts and do not in any way represent those of the Institutions Authors work for.

Devastating Social Impact of Bribery, Corruption, Money Laundering & Financial Crimes

For the past quarter of a Century, I have seen, observed, experienced and dealt with various Financial Crimes on this earth. My first professional assignment entailed ëxamining the practices and procedures of client organizations and facilitating the discovery of all forms of malpractices and giving professional advice to organizations and institutions on ways and means of promoting accountability, transparency, reducing and preventing opportunities for corruption, fraud and such criminal malpractices. It is always cheaper to drain the swamps than fight the alligators and crocodiles. I will continue sharing the financial typologies on this forum and several others. I will be more inclined to touch on some high level Legal and Compliance, Financial Crime Risks, Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF), Sanctions, Anti-Bribery & Corruption (ABC), Fraud Examination – Prevention, Investigations and prosecution, Banking Security whilst at the same time promoting Good Governance, Transparency, Integrity and Accountability. You are cordially welcome. Let us begin with Africa.  There is a paper entitled “The Devastating impact of Money Laundering and other Economic and Financial Crimes on the Economy of Developing Countries: Nigeria as a Case Study by Yusuf and Ibrahim from the International Islamic University Malaysia. The paper makes very interesting reading. You are encouraged to read, if you have a moment to spare. You can google it up in PDF. The paper argues that Economic and financial crimes represent a dangerous form of criminal behaviour that affects not only individual member of a society but also having deleterious effects on the economic, health and material welfare of the community as a whole. Economic and financial crimes are non-violent criminal practices which are tantamount to sabotage of the national economy. This is because of the impact of these offences on the social well being and economic foundation of any nation. This paper examines the general consequences of economic and financial crimes especially money laundering on the economy of the developing countries using Nigeria as a case study. The study finds that the common characteristic of the effects of economic and financial crimes in the developing countries is its tendency to undermine a nation economy which in turn often results in decelerated improvement in the quality of life of citizens and paving way for economic cum political stagnation. This finding represents a major problem Nigeria like many other developing countries is presently grappling with as a result of the prevalence of economic and financial crimes. The paper concludes by recommending a strong legal regime coupled with political will to combat the menace and minimise its devastating consequences. In Section 3.1 CONSEQUENCES OF ECONOMIC AND FINANCIAL CRIMES IN NIGERIA, some very alarming figures are mentioned. The gloomy picture reminds us of Zambia and our God Given Natural Resource of “COPPER”. The paper states, “In spite of Nigeria’s enormous oil and gas deposit and abundant human resources, the nation is still a poor country with 80-90 million Nigerians out of the 140 million population living in abject poverty. For the past four decades, over $300 Billion was earned from oil exports but paradoxically Nigeria’s current per capital income is about 20% less than the 1975 level while the nation suffers under an excruciating external debt burden of about $33 Billion, equivalent of 60% of the nation’s GDP. The pathetic consequences of economic and financial crimes in Nigeria is well captured by Nuhu Ribadu, the former Executive Chairman of the Economic and Financial Crimes Commission (EFCC) Nigeria, when he disclosed thus; ” Without seeking to befog you with statistics, let me share a few example of what corruption has cost us as a people and as a nation. My pet example is the £ 20 Billion Pounds (about $500 Billion) of development assistance that has been stolen from this country since independence to date by past leaders of our country …the money could create the beauty and glory of Western Europe six times all over Nigeria. Nigerians line at the gate of Western Embassies daily in search of visas to flee the country, but the best way to appreciate this figure is to recall that it represents six times the value in money that went into rebuilding Europe via the famous Marshal at the end of the 2nd World War. We need to seriously introspect, reflect on the African Countries and Zambian current and future state. Stay well and be blessed