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
CUSTOMER DUE DILLIGENCE
08/04/2015
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
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
WHAT CDD ENTAILS
08/04/2015
Nigerian Financial Intelligence Unit (NFIU)
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
CENTRALITY OF CDD IN AML/CFT REGIME
ML/TF RISK
ASSESSMENT
(R1)
ML/TF
INVESTIGATION
(R30)
CONFISCATION
OF PROCEEDS
OF CRIME
(R3)
STR/CTR
REPORTING
(R20)
CDD
ROBUST
AML/CFT
REGIME
RECORDS
KEEPING
(R11)
FIU ANALYSIS
(R29)
AML/CFT
INSPECTION
(R26,28)
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
CUSTOMER DUE DILIGENCE (R5): GLOBAL
PERFORMANCE OF COUNTRIES (MER)
FSRB
MUTUAL EVALUATION RATING FOR R5 (FATF 40+9 RECs)
C
LC
PC
NC
NA
0
0
5
10
0
MENAFATF 0
0
6
9
0
GIABA
0
0
2
14
0
CFATF
0
0
16
13
0
MONEYVAL 0
7
17
6
0
APG
0
3
18
19
0
GAFISUD
0
0
8
2
0
EAG
0
0
7
2
0
10
79
75
ESAAMLG
CUSTOMER DUE DILIGENCE (R5): PERFORMANCE
OF AFRICAN COUNTRIES (FATF 40+9 RECs)
16
14
12
10
ESAAMLG
8
MENAFATF
GIABA
6
4
2
0
C
LC
PC
NC
NA
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
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
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 oneoff 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
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
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
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.
Thank you for your attention
GAIBA Secretariat
Dakar, Senegal
Tel: +221338591818
Email: secretariat@giaba.org
Website: www.giaba.org