Money laundering and terrorism financing are two of the hardest financial crimes to detect. Both crimes involve the use of deception and at times corruption, to mask their entry into financial markets and movement through the various systems that operate within. The methods used range from the very simple to complex which at times involve the use of multiple parties who appear to be conducting legitimate business. The range of methods used and their level of sophistication depends on the volume and timing of the illegal money to be concealed, the ingenuity of the criminals, the advice they receive from financial professionals and the level of risk they face. For smart well informed criminals, the latter is one of the driving forces behind their choice of laundering methods because the concept of risk for criminals is well understood. Money laundering is a risk management strategy used by criminals. And without effective risk management strategies to evade detection and capture, top echelon criminals would be prosecuted and their assets seized.
Organisations in the Securities industry understand risk too. They must, otherwise they cannot provide their clients with the best possible financial advice. Though the challenges involved in calculating financial risk are significantly less when it comes to assessing criminal risk. When determining financial risk, securities industry operators have at their disposal various types and volumes of open source and private in-house information. Financial markets are transparent and when they are not, there is usually an audit trail to establish why it wasn’t. And while, financial risk cannot be totally eliminated, it can be reduced by skilled and informed operators.
Criminal risk is totally the opposite. Criminals seeking to launder money, move everything by stealth. The people involved are disguised or hide behind entities that have a degree of respectability or they use third party intermediaries. And any money or property derived from crime is handled, disguised and moved in a way to prevent discovery. Organised crime does not publish information about their criminal activities or how they launder their money. And unfortunately, in many countries, such as Botswana, where the history of law enforcement in relation to money laundering is not extensive, there is little information on the local criminal environment to guide the securities industry on what criminals do with their money.
But the absence of information about criminal methods is only one ML/TF challenge facing the securities industry in Botswana. Unfortunately; there are many. And it is very important for organisations in the industry to have a very good understanding of them. As a result of the mutual evaluation by the Financial Action Task Force which placed Botswana on a list as being a country of high money laundering risk; the international community is applying higher scrutiny to transactions emanating to and from the country. Unlike large foreign organisations and western countries that get caught up in money laundering scandals, organisations in Botswana cannot afford to. One significant ML/TF incident, involving a firm within the securities industry could result in that firm being shut out of the Botswana financial system and/or international financial markets.
Provided cash is not involved, products and services provided by firms in the securities sector fall in the layering stage of money laundering. Consequently, ML/TF risks can come from many gateways either in Botswana or offshore, as illicit funds would have already entered the financial system. And before they are received by the securities industry. The criminal proceeds are therefore usually well-hidden at that stage. From a criminal investigation perspective, based on my experience, it is difficult to prove, though not impossible, a nexus between the laundering and the predicate offence once the laundering enters the layering stage. And if a law enforcement agency struggles to establish money laundering in the layering stage using surveillance, witnesses, searching premises, listening devices and telephone interception, what hope has a firm in the securities industry got without those resources?
Having an understanding of how criminals in Botswana and those based offshore launder money is necessary in order to improve the probability of detecting it. There is no substitute for knowledge derived from experience. Only when a full understanding of money laundering methods has been obtained, is it possible for a specified party that operates in the securities industry, to prepare and implement a risk based approach to counter that crime.
Acquiring information on criminal money laundering methods can be achieved by attending appropriate training workshops held by experienced money laundering investigators; sharing information with colleagues within the industry; being active amongst professional organisations that provide advice in relation to crime, not just financial crime and by having effective professional relationships with the Financial Intelligence Agency; the Non-Bank Financial Institutions Regulatory Authority and other relevant regulators particularly the Botswana Stock Exchange.
It is not possible to detect all money laundering and there is no doubt that a specified party, particularly a securities industry firm, will be involved at some stage in the handling of proceeds of crime. And it is highly probable it will occur more than once. But when local and foreign regulators and law enforcement agencies, come seeking answers, a specified party should be in a position to say that it did all it could within its limited resources to identify the money laundering and report it.