Emerging Markets

The Сhallenges of Fighting Money Laundering in Africa

challenges-of-fighting-money-laundering

British Prime Minister quickly hit the headlines recently when he was overheard describing Afghanistan and Nigeria to the Queen as “fantastically corrupt” countries. This unfortunate faux-pas has been unpicked and analysed by economists and journalists across the world, raising questions over money laundering and corruption some of the world’s most conflicted and impoverished countries. Except Nigeria doesn’t really fit this description – at least, not anymore.

While the West African country has seen more than its fair share of conflict over the years, its last civil war ended in 1970 and since then it has grown to become one of the most economically successful countries on the entire continent. In fact, recent data from the International Monetary Fund (IMF) named Nigeria as Africa’s largest economy ahead of both South Africa and Egypt.

So why is money laundering still a problem?

In order to answer this questions, it is first necessary to look at the overall economics of Africa. Although Africa’s economy is one of the fastest growing in the world, it still lags far behind the more sophisticated markets of Asia-Pacific, Australasia, Latin America, the Middle East, Europe and the U.S. This is largely due to the fact that these countries share a complex and tragic history of slavery, colonisation, and vulnerability to extreme weather conditions and natural disasters. The ongoing socio-economic ramifications have resulted in widespread political instability, as series of failed (Morocco, Benin, Burkina Faso) and successful (Egypt, Libya, Ghana) coups, as well as the infamous Arab Spring (in the northern countries of Libya, Egypt, Tunisia and Algeria). Corruption flourishes in chaos, and in the absence of strong governments and long-term economic plans, it is hard to keep track of the billions of dollars in international aid, trade and domestic wealth which fuel the African economies.

How does money laundering happen?

Africa is a commodity-rich continent, home to some of the world’s most valuable mines. Tiny but valuable commodities such as diamonds, sapphires and gold nuggets can easily be stolen and smuggled across borders, and used to fund illegal activities. Everyone has heard of ‘conflict diamonds’ (or ‘blood diamonds’), the illegally-acquired gemstones which have been used to fund civil wars and violent uprisings in countries such as Sierra Leone, Angola and the Ivory Coast. While huge steps have been taken to wipe out the trade in conflict diamonds, the problem still very much exists.

Furthermore, many African economies are cash-based, which makes it much more difficult to trace financial transactions. As of 2015, there were only 23 stock exchanges in the whole of Africa with less than 1,600 companies listed – that’s less than 1% of the world’s overall stock exchange activity. Although there are a number of financial regulators across Africa, they are only able to regulate the transactions which go through the proper channels. This means that money laundering almost always falls under the purview of the police and the armed forces who patrol the borders. And in many cases, the national military is firmly under the control of the government. Which brings us back to Nigeria. A recent TIME investigation singled out Nigeria as having one of the most corrupt armies in Africa, and even linked military money laundering with the rise of terrorist organisations such as Boko Haram. The danger of trickle-down corruption is that this sort of behaviour becomes normalised, and there is plenty of evidence of cash bribery and low level extortion happening on a day to day basis.

What can be done to fight money laundering?

This is the $2 trillion question. There are plenty of measures in place, including regulation and support from the G-20 and non-profit organisations such as Transparency International. However, in order to fight money laundering in Africa, major change is needed at the ground level.

The general population must be encouraged and incentivised to use banks, investment companies, stock markets, insurance agencies, and other financial instruments where their money can be properly tracked, regulated and protected. This will require an enormous amount of education, particularly in rural areas where trade takes precedence over cash transactions; and in Islamic countries where any financial dealings must be in compliance with Sharia standards.

There also needs to be a de-coupling of the government and military in areas which are rife for corruption, for instance at check points, ports, airports, markets and borders. This could be achieved by implementing ‘transparency officers’ to act as on-the-ground regulators, or by adopting a ‘zero tolerance’ approach to bribery among public workers.

And finally, there must be a concerted effort on behalf of Africa’s trade partners to discourage corruption and reward transparency. There is no doubt that Africa possesses the resources to become a global economic power, but it does not have the experience and technology that other countries have used to their advantage. Africa needs the support and understanding of its trading partners if it is going to defeat the scourge of money laundering – and it will take much more than an overheard comment at Buckingham Palace to achieve this.

Related topics:Africa Investigation
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