Shoring up Sanctions Enforcement in Sub-Saharan Africa
Two North Koreans abroad walk into a bank, open an account with access to U.S. dollars and euros, and go about conducting business with high-level politicians in their host country. Despite hundreds of sanctions actions against North Korea over the years, with numerous banks, businesses, ships, and individuals designated for supporting the country’s nuclear weapons program, this maneuver just two years ago to gain access to the international financial system was relatively easy.
How did this happen? For one, North Korean agents seem to
have an ever-evolving ability to come up with sanctions-busting tactics, as
reported by the United Nation’s own Panel of Experts and several civil society
organizations like the Royal United Services Institute. These tactics are
significantly easier to deploy in the weak regulatory and compliance
environment in parts of sub-Saharan Africa.
The two businessmen from North Korea in this case (outlined
in full in a recent report from my organization, The Sentry), had traveled to
the Democratic Republic of Congo (DRC). As is the situation in many parts of
the world, and especially in sub-Saharan Africa, weak enforcement in the DRC
allows for a host of sanctions-evasion and money laundering tactics,
undermining the effectiveness of international economic sanctions in achieving
their intended goals.
For sanctions to work, the U.N., the United States, the
European Union, and other international bodies must provide assistance to
countries implementing sanctions on the front lines, and help build robust
regulatory environments that support compliance in the banking sectors.
Banks on the Front Line of Sanctions
The United States has doled out record fines to major
multinational banks failing to comply with sanctions, as seen in the case of
the $8.9 billion fine levied on BNP Paribas for violating Iran-, Cuba-, and
Sudan-related sanctions. Banks now spend tens of millions of dollars each year
to bolster their due diligence capacities to detect and prevent sanctions
violations. However, at the regional and local level in sub-Saharan Africa,
active compliance in the banking sector is constrained by the lack of capacity
and regulatory support, as well as by meddling from corrupt political leaders
and their associates.
In this North Korea case, basic due diligence by the local
bank involved, Afriland First Bank, would have thrown up red flags as the two
men sought banking services. Local regulation, while poorly enforced, does
require banks to ask for incorporation and identity documents from companies
and individuals looking to create accounts.
According to The Sentry’s findings, the North Koreans
furnished passports revealing their nationality but still managed to open an
account without issue, pointing to a grave compliance failure at Afriland. The
bank, headquartered in Cameroon, has been in the news recently in relation to
another case. The bank was reportedly integral to the money laundering network
of Israeli diamond-dealer Dan Gertler, an individual sanctioned by the United
States under the Global Magnitsky Act.
Afriland had U.S. dollar and euro clearing access through
its correspondent relationship with the Paris branch of London-headquartered
BMCE Bank International. This allowed the North Koreans to deal in U.S. dollars
and euros, potentially without BMCE’s knowledge.
Local and regional banks often rely on such global financial
institutions to access western currencies. These correspondent banking
relationships allow regional banks to conduct business internationally and
provide global banks with a product line that expands their reach.
Correspondent relationships, given their nature, come with a certain amount of
inherent risk. While global banks can closely screen their own customers, they
often do not have the same window into the risk profiles of their correspondent
bank’s customers. So while due diligence at the global banking level might be increasingly
robust, failures at the local and regional level can open a host of avenues for
sanctions evasion. The problem is further compounded if the global bank is
lacking in its own compliance measures.
Regulatory Support
Sound sanctions enforcement requires a country having
adequate anti-money laundering measures in place, but, in many nations of
sub-Saharan Africa, frameworks and laws to counter money laundering and the
financing of terrorism (AML/CFT) are lacking. Financial Intelligence Units
(FIUs), the national regulatory bodies providing compliance guidance to the
financial community, receiving suspicious activity reports from banks, and
investigating cases, often lack capacity and funding, as in the case of the
DRC’s FIU, Cellule nationale des renseignements financiers (CENAREF).
Additionally, a lack of political will, active political meddling, and
corruption can undermine sanctions implementation.
This lack of regulatory support opens a host of
possibilities for sanctioned entities to conduct business and pursue
opportunities unavailable in jurisdictions with better enforcement. These same
shortcomings also effectively allow for a range of financial crimes and corrupt
activities to thrive; in countries like the DRC and Zimbabwe, corrupt political
elites and their networks actually benefit from the lack of enforcement
capacity.
Helping Build a Better System
Sanctions are only as good as their enforcement. The U.N.,
U.S., EU, and other international bodies such as the International Monetary
Fund (IMF), the Egmont Group of FIUs, the Financial Action Task Force (FATF),
and its regional affiliates known as FATF-style regional bodies (FSRBs), should
play a stronger role in building capacity and assisting countries in
sub-Saharan Africa in creating a more robust and independent regulatory and
compliance environment.
This includes providing technical assistance to regulatory
bodies, sharing intelligence and information where appropriate, and providing
guidance on how to create adequate frameworks that close money-laundering and
sanctions-evasion loopholes and allow for empowered, independent regulatory
bodies. Often these regulatory bodies are reduced to paper tigers, beset by
meddling from corrupt actors, with little operational funding or support for existing
technocrats. U.N., U.S., and EU officials also should, therefore, engage with
their counterparts in sub-Saharan Africa to build political will and consensus
on sanctions and money-laundering enforcement. And herein lies the hard work.
But access to dollars, euros, and the international financial system remain
coveted and provides important leverage for diplomatic and other efforts,
especially in highly dollarized economies like DRC.
Global banks have a role to play, too. Local compliance
failures and shortcomings often lead global banks to end correspondent
relationships and pull out of markets, a move known as de-risking. This
effectively eliminates banking access for legitimate businesses and the general
public, with far-reaching consequences for a country’s economy.
Instead of de-risking, global banks providing correspondent
banking services should actively engage their regional partner banks to improve
due diligence practices and foster a culture of compliance. Standard Chartered
Bank’s “Regional Correspondent Banking Academy” is an example of one such
effort.
Environments that allow for sanctions evasion are also
susceptible to widespread financial crimes and corruption. Helping to build
systems for better sanctions enforcement in pursuit of national security priorities
and countering proliferation will also help stymie a host of other nefarious
actors who exploit the same failures. The result could be a more sound
international financial system overall.
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