Refocusing designated non-financial businesses and professions on the path of anti-money laundering and combating the financing of terrorism compliance
| DOI | https://doi.org/10.1108/JMLC-11-2020-0125 |
| Published date | 18 May 2021 |
| Date | 18 May 2021 |
| Pages | 693-711 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial compliance/regulation,Financial crime |
| Author | Buno (Okenyebuno) Emmanuel Nduka,Giwa Sechap |
Refocusing designated
non-financial businesses and
professions on the path of
anti-money laundering and
combating the financing of
terrorism compliance
Buno (Okenyebuno) Emmanuel Nduka
Department of Evaluation and Compliance, Inter-Governmental Action Group
against Money Laundering and Terrorist Financing in West Africa,
Dakar, Senegal, and
Giwa Sechap
Inter-governmental Action Group against Money Laundering in West Africa
(GIABA), Dakar, Senegal
Abstract
Purpose –Designated non-financialbusinesses and professions (DNFBPs) are importantactors both in the
formal and informal sectors owing to the nature of services they offer. The DNFBPs are key players in
financial and economic developmentand thus are highly vulnerable to money laundering (ML) and terrorist
financing (TF) risks.Globally, and indeed, within the West African region,typologies studies have indicated
several instances of misuse of DNFBPs for the laundering of proceeds of crime and to a lesser extent, TF.
Factors that make DNFBPs vulnerableto ML and TF in the region, include limited understanding of ML/TF
risk and anti-money laundering and combatingthe financing of terrorism (AML/CFT) obligations, and poor
implementation of AML/CFT measures by the sector. As reporting institutions, DNFBPs are required to
implement appropriatemeasures to mitigate the ML/TF risk facing them. Mutual evaluation reports (MERs)
of countries in the region noted weak implementation of AML/CFT measures by DNFBPs compares to
financial institutions. These coupled with the general poor monitoring and supervision of DNFBPs for
compliance, make them a weak link in member states’AML/CFT regime. This study examined how
Economic Community of West African States member states can plug the loopholes in the DNFBPs to
strengthentheir AML/CFT regime and thus improve their performanceduring mutual evaluation. This study
reviewed data fromthe publications of Inter-Governmental Action Group againstMoney Laundering in West
Africa (GIABA),Financial Action Task Force (FATF)and other credible sources.
Design/methodology/approach –This study is more of desk-review based on secondary data,
including information obtained fromGIABA, and FATF publications, and websites as well as information
obtained fromreliable sources on the internet. The authors reviewedthe MERs of GIABA member states that
have been assessed under the secondround, especially that of Ghana, Senegal, Cape Verde, Mali and Burkina
Faso, with particular focus on sections of the reports relating to preventive measures and supervision. In
general, this paper adopts a policy approach with a view to explaining the importance and benefits of
implementingAML/CFT preventive measures by reporting entities, especiallythe DNFBPs.
Findings –This study foundthat there is a general lack of information on the exact sizeof DNFBPs across
member states, the risk of ML/TF associated with DNFBPs is generally identified as high across member
states (albeit at different levels), the extent and level of monitoring/supervision of DNFBPs for AML/CFT
compliance trailswhat is obtainable in financial institutions; the institutionaland operational frameworks for
regulating, supervising and monitoringDNFBPs are either weak or poorly defined in many member states;
Anti-money
laundering
693
Journalof Money Laundering
Control
Vol.24 No. 4, 2021
pp. 693-711
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-11-2020-0125
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1368-5201.htm
and the focus of AML/CFT technical assistance has been more on financial institutions than DNFBPs.
Although the number of MERs reviewed for this work may be few, the findings and conclusions in the
concludedMERs reflect regional peculiarities, including highinformality of the economies, preponderance use
of cash in transactions, diversity of DNFBPs and the general weak application of AML/CFT preventive
measures by these entities, andthe weak AML/CFT supervision or monitoring of DNFBPs which cut across
all GIABA memberstates. Although efforts to address the weaknessesin the DNFBPs, including training and
supervision,have commenced, in most member states,these are still at rudimentary levels.
Research limitations/implications –However, this study is limitedby the fact that it was desk-based
review withoutdirect inputs of industry players (DNFBPs and their supervisors).
Practical implications –In general, this paper adopts a policyapproach with a view to explaining the
importance andbenefits of implementing AML/CFT preventive measuresby reporting entities, especially the
DNFBPs. It aims to bring to the fore the weaknesses of the DNFBPs in the implementation of AML/CFT
preventive measures and therefore will be useful to national authorities who are striving toward
strengtheningtheir national AML/CT regimes and to DNFBPs who wish to protect the integrity and stability
of their system.
Originality/value –It is imperative to mention that the weak complianceby DNFBPs, and indeed other
challenges inhibiting effective implementation of preventive measures, is not peculiar to West Africa. A
review of MERs of 17 African countries (eight countries in the Eastern and Southern Africa Anti Money
Laundering Group region, five in GIABA region and three in the Middle East and North Africa region
assessedunder the current round as on October 2020, show a similar pattern of weak ratings underImmediate
Outcome4.
Keywords Compliance, Anti-money laundering and combating the financing of terrorism,
Designated non-financial businesses and professions, Member states, Mutual evaluation report
Paper type General review
Introduction
Several anti-money laundering and combating the financing of terrorism (AML/CFT)
literatures and typologies studies indicate the vulnerabilities of designated non-financial
businesses and profession (DNFBPs) [1] to money laundering and terrorist financing (ML/
TF) risks and instances of misuse of these entities for the launderingof proceeds of crime. It
was against this backdrop that the FinancialAction Task Force (FATF) in 2003 revised its
standards [2] to bring these entities under the global AML/CFT compliance framework.
Thus, the DNFBPs are classified as accountable institutions or reporting entities with
defined AML/CFT obligations. Broadly, the FATF standards consist of the FATF 40
Recommendations, and their interpretive notes, together with the applicable definitions in
the Glossary, and the FATF Methodology for Assessing Technical Compliance with The
FATF Recommendations and the Effectiveness of AML/CFT Systems. The FATF 40
Recommendationsare summarized into seven components in Table 1 below.
Table 1.
FATF 40
Recommendations
Component Recommendation Description
1R1–R2 AML/CFT Policies and Coordination
2R3–R4 Money Laundering and Confiscation
3R5–R8 Terrorist Financing and Financing of Proliferation
4R9–R23 Preventive Measures
5 R24–R25 Transparency and Beneficial Ownership of Legal Persons and
Arrangements
6 R26–R35 Powers and Responsibilities of Competent Authorities and other
institutional measures
7 R36–R40 International Cooperation
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