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Money Laundering

Posted in Finacial Intelligence Agency

The Proceeds of Serious Crime Act, in section 14, provides that;

  “A person shall be deemed to engage in money laundering if he engages, directly or indirectly, in a transaction that involves money, or other property, that is the proceeds of a serious offence, whether committed in Botswana or elsewhere, or if he receives, possesses, conceals, disposes of, or brings into Botswana, any money, or other property that is the proceeds of a serious offence, whether committed in Botswana or elsewhere, and the person knows, or ought reasonably to know, that such money or property is derived or realised, directly or indirectly, from some sort of unlawful activity”.

The Money Laundering Cycle

Money laundering is easier conceptualised as a process that can be broken down into three key stages.
Placement: This is the initial point of entry of “dirty money” into the legitimate financial system. This can be done by either depositing money into a bank account or undertaking a transaction.
Structuring/Layering: This is the deliberate creation of complex transactions to hide the criminal origin of the money. It is typically designed to confuse law enforcement who would be forced to commit more resources to follow a more complex paper trail.

Integration: This is the ultimate introduction of money into the legitimate financial system where the criminal believes it would no longer be possible or easy to associate the money with the underlying criminal offense. 

However, these stages are not mutually exclusive and need not happen simultaneously for the offense of money laundering to be committed. In other words, any one of the above activities can amount to money laundering, hence the Proceeds of Serious Crime Act definition.

The United Nations Office on Drugs and Crime illustrates a typical money Laundering Cycle as follows

Source: The United Nations Office on Drugs and Crime

Why should Botswana worry about money laundering?

Money laundering is bad for Botswana because it significantly undermines economic development. If Botswana does not deal effectively with organised crime and money laundering, the country will be regarded by its counterparts as a money laundering haven that attracts and harbours criminals who are intent on hiding and laundering proceeds of their criminal activities. Botswana’s Financial institutions will be associated with criminal activity and will suffer loss of public confidence. Legitimate businesses will be undermined by unfair competition from businesses sponsored with proceeds of crime. In turn the country will suffer loss of investor confidence that will subsequently undermine the country’s economic diversification efforts. Being associated with money laundering can result in loss of donor funding because the country will be regarded as a country that aids and supports criminals and criminal activities. If the country loses donor funding and Foreign Direct Investment, its efforts to attain the Millennium Development Goals and achieve the National Vision 2016 objectives will be serious hindered.

Where is it easiest to identify potential money laundering activity? 

It is actually getting more and more difficult to identify suspicious activity because criminals are becoming increasingly clever in ways that they “wash their dirty money”.  However, there are two essential steps that organisations must be aware of in their anti-money laundering procedures:
  • Organisations must put in place Know Your Customer (KYC) checks and procedures; and
  • They must actively look for “Red Flags” that signify money laundering. Red flags are those elements in a transaction, pattern of transactions (such as unusual transactions, large cash payments and movements for funds that have no real logic), and/or customer profile or customer’s activities that may indicate possible laundering activity.

Many laundering procedures are dependent on employees identifying suspicions of money laundering and reporting these suspicions to relevant authorities, in this case to the Financial Intelligence Agency. 

Whereas originally banks or other financial institutions were the primary focus, now any employee anywhere who deals with financial transactions is (or should be) under an obligation to identify anything that may be suspicious and to report it. This responsibility is generally referred to as gate-keeping.

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