Cameroon on FATF Grey List of Jurisdictions with Anti-Money Laundering Deficiencies : Appraisal of what will Turn the Table Around

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juillet 6, 2023

The Financial Action Task Force (FATF) on 23rd June 2023 in Paris, placed Cameroon on the famous ‘grey list’ of nations with strategic gaps in their anti-financial crimes defenses, after reviewing the Mutual Evaluation Report (MER) of the Inter-governmental Agency against Money Laundering in Central Africa (GABAC) submitted in October 2022.

GABAC carried out a mutual evaluation in 2021 on Cameroon’ anti-money laundering and combating the financing of terrorism (AML/CFT) measures in force in compliance with the 40 Recommendations of FATF, the level of effectiveness of the AML/CFT system, and finally proposed recommendations for improvement.

The mutual evaluation exercise focused on the report of the National Risk Assessment (NRA) for Cameroon which was performed by Cameroonian authorities themselves under the coordination of the National Agency for Financial Investigation (NAFI) with assistance from the World Bank.

 

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Terrorist financing threat is characterized by Cameroon’s proximity to some countries where terrorism caused by religious extremism and the militancy of armed groups or gangs prevail

 

Launched in 2018, the NRA was officially validated by Cameroonian authorities on 19 January 2021. The NRA report contained multiple vulnerabilities self-identified by Cameroonian authorities and concluded that the nation was exposed to a HIGH RISK of money laundering and HIGH RISK of terrorism and terrorism financing.

The MER of GABAC corroborate the assessment that Cameroon is exposed to high risk of terrorist financing and money laundering. The threat of money laundering is characterized by a range of predicate offences which attract general attention because of their recurrence or as a result of the huge profits generated, such as: tax and customs fraud, embezzlement of public funds, corruption, bribery, public procurement crimes, trafficking in wildlife and wood products, scamming, drug trafficking, counterfeiting and human trafficking.

Terrorist financing threat is characterized by Cameroon’s proximity to some countries where terrorism caused by religious extremism and the militancy of armed groups or gangs prevail, and also internally as a result of armed groups in the North-West and South-West regions agitating for self-rule since 2016 with support from the diaspora.

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The addition of Cameroon, Croatia and Vietnam to the Grey List during the last plenary brings the current number of countries on the list to 26. FATF did not stipulate that the international financial system should avoid dealing with these jurisdictions, neither did it recommend that a de-risking approach should be adopted towards these countries.

FATF has however advised that a risk based approach should be put in place while transacting with these countries and they will be subject to enhanced monitoring in terms of the implementation of the recommendations which have been made.

 

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The banking sector is by far the largest sub-sector of Cameroon’s financial sector, with an estimated share of about 10% of the national GDP

 

Being exposed to high risk means that strong controls ought to be designed and put in place to mitigate the inherent risks that had earlier been identified by the country itself. Unfortunately, the efforts already put in place by Cameroonian authorities do not yet meet up with the required international standards which is why the residual risk is still high.

Among the vulnerabilities raised on the different sectors of the economy, banks were rated at being highly exposed to being used as conduits for money laundering due largely to ineffective AML/CFT supervisory controls and lack of dissuasive sanctions.

The banking sector is by far the largest sub-sector of Cameroon’s financial sector, with an estimated share of about 10% of the national GDP. As a result of the increasing diversity, growth, speed, volume of transactions, and the cross-border nature of most banking transactions, exposure to ML/TF risks inherent in the sector is on the rise. This makes the focus on banks even more relevant.

The Grey List is a collective list prepared by FATF where countries involved in illegal activities like terrorist financing, money laundering, and other threats to the integrity of the international financial system are put on, and strong restrictions are placed on such countries along with close monitoring by FATF.

This is opposed to the Blacklist which is a list of countries that FATF deems to be non-compliant with its recommendations and that have failed to take sufficient action to address their deficiencies.

When FATF places a country on the Grey List, the monitoring of those countries is enhanced, and the only way out is to find a quick-paced solution to the controls discrepancy, highlighted by FATF. The strategic deficiencies highlighted by FATF must be quickly resolved within the time frames decided by the task force, failing to which more severe punishment and penalties may be imposed on such a country.

While countries on the Blacklist are normally subjected to more stringent measures, there are equally dire consequences for countries on the Grey List too. This could include; reputational damage which can lead to loss of investor confidence, downgrade of the country’s rating by global bodies which negatively impacts the borrowing capacity of the country before global lenders such as the IMF and the World Bank.

The adverse reputation could also impact on the country’s trade opportunity with other countries that generally look over grey listed countries with a lot of speculation. Being greylisted can also negatively impact on the tourism potential of a country.

It could also impact its banking sector as its international partners such as correspondent banks may reconsider their relationship and trigger reviews thereby increasing turnaround time for international operations, local banks may face exclusion or be forced to increase compliance cost to demonstrate that their controls in place are at par with their internal partners.

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What needs to be done for Cameroon?

 

1.    Imminent regulatory and Legal Change

 

Change in certain regulatory and legal provisions must be effected since the current regime has been found inexhaustive especially the lack of legal obligation to identify ultimate beneficial owners and also lack of a legal framework for the confiscation of proceeds of money laundering that was the subject of suspicious transaction report.

CEMAC AML Regulation (2016) permits national courts to confiscate instruments and property that are the subject of financial crimes as a provisional measure. However, in practice, prosecuting authorities scarcely proffer charges for money laundering while prosecuting for predicate offences.

This means that there is little focus on seizure of property that is the subject of suspicion of money laundering. This brings to question the compliance officer’s dilemma whether to freeze a suspicious transaction and file a suspicious transaction report or allow the transaction to go through and simply file a suspicious report to NAFI even if the customer later carts away with the funds.

On the other hand, it is sensible to understand that NAFI is not a court and the constitutional presumption of innocence prevails in the country. In addition, with 19 convictions for terrorist financing recorded by 2018, there was no single case of seizure of funds. A national mechanism for the confiscation and handling of frozen and confiscated funds should be put in place to enable the execution of this penalty.

In October 2022, the Minister of Finance signed a Decision relating to the standard for ultimate beneficial owners in Cameroon, with an amendment of Article 33 of the CEMAC AML Regulation. An amendment of the OHADA law to include mandatory identification of beneficial owners is also being envisaged to be done in 2023.

 

2.    The Operational Capacity of NAFI and national cooperation to be reinforced

 

Between 2006 when it began operations, and 2018 when the NRA was done, NAFI received a total of 3,941 suspicious transaction reports from reporting entities such as financial institutions, legal experts and the Treasury. Of this number, 1,119 cases were referred to relevant authorities throughout the national territory such as the judiciary, security and administrative services for further action.

CEMAC Regulation requires that these services have to revert to NAFI and inform them of the outcome of their actions on those case. Although prosecution has been initiated for two cases so far, no conviction has been recorded of the huge number of cases referred to these services.

 

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NAFI needs to function more efficiently in the area of request for information. NAFI is said to have operational independence which means that there is no authority that dictates the way they carry out their operations

 

The question of the quality of files forwarded by NAFI cannot be sustained as GABAC received confirmations that NAFI files forwarded were of good quality. There is need for a local mechanism for enhanced cooperation between NAFI and competence services responsible for taking final action on reported cases.

An effective collaboration in this regard will make the root cause even clearer why there have been such a discouraging number of convictions even after a large number of money laundering cases have been investigated and forwarded for prosecution.

In addition, NAFI needs to function more efficiently in the area of request for information. NAFI is said to have operational independence which means that there is no authority that dictates the way they carry out their operations. This independence also rather isolates them from key data sources that are vital in their investigations.

They spend a lot of time sending hundreds of letters each day requesting for information from reporting entities and state agencies. NAFI needs to be granted direct access to vital data sources such as police, customs and taxation records as well as access to financial records of financial institutions.

NAFI has already engaged banks in the country with respect to this data access solution. Proper action must be taken to ensure direct access to relevant data by NAFI, to cut off the time wasted in waiting for replies to their requests which in many cases comes with NIL responses.

Cameroonian authorities resolved to establish a framework for consultation and effective operational cooperation between NAFI and all the entities responsible for fighting financial crime in the country such as Ministry of Justice, National Security agencies, Directorate of Customs; and between NAFI and the various supervisory, control and self-regulatory authorities such as COBAC, CIMA, COSUMAF, Cameroon Bar Association, ONECCA, MINFI etc. These MoU are expected to be signed by December 2023.

 

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3.    Complementing the existing structure of AML agencies

 

Cameroon does not have an authority responsible for coordinating national AML/CFT policies as required by FATF Recommendation 2 and Article 13 of the CEMAC AML Regulation. Similarly, there is no operational coordination mechanism for CFT and proliferation.

However, in practice, domestic cooperation and coordination on AML/CFT is mainly done through NAFI. Regarding terrorism, actions are coordinated by the Central Coordination Department of the Ministry of Defense, which does not include TF in its operations. Therefore, as recommended, Cameroon must establish an authority for coordinating national AML/CFT policies, based on the model established by Directive No. 01/16/CEMAC/UMAC/CM of 12 December 2016, in order to have an effective coordination, information sharing and assessment platform for the consistent implementation of national AML/CFT policies by all actors.

A draft text for the establishment, organization and functioning of this authority has already been put together by the Ministry of Finance (MINFI), expected to have been signed by June 2021. Finally, it was also recommended that an AML supervisory authority should be designated to supervise Designated Non-Financial Businesses and Professionals (DNFBPs) such as accountants, legal experts, informal sector etc. who carry out their activities largely unregulated from an AML perspective.

An instrument designating supervisors of DNFBPs and their prerogatives (after consultations with concerned associations such as the Cameroon Bar Association ONECCA, Chamber of notaries etc.) is scheduled for signature and dissemination by June 2023.

 

4.    Availability and application of exhaustive criminal sanctions for agents of reporting entities

 

The CEMAC Regulation contains dissuasive criminal sanctions for the commission of money laundering offences. Article 117 of this Regulation imposes prison sentences of six months to two years and a pecuniary penalty on the managers of banks who have breached the obligations relating to AML, in particular:

  • Informing the person under investigation of the proceedings initiated against him;
  • Destruction or removal of elements relating to identification obligations;
  • Carrying out or attempting to carry out operations under a false identity;
  • The communication to the competent authorities of erroneous information or falsified documents;
  • The communication of documents other than those requested;
  • Failure to make a suspicious transaction report;
  • Failure by banks and other reporting entities to carry out internal AML/CFT risk assessment.

However, these repressive provisions do not cover many relevant procedures, in particular a wide range of essential due diligence obligations to which banks are bound in terms of customer due diligence, document retention or communications of information to NAFI urgently. As at the time of the NRA, no prosecution against a bank for non-compliance with AML/CFT due diligence had yet been recorded.

The regulatory authority had not yet seized the competent judicial authority for a case of non-compliance with AML/CFT requirements leading to money laundering. In addition, criminal proceedings against bank staff for cases of fraud, which are however recurrent, are not systematic.

Finally, surveys show that bank staff do not generally perceive the fact that criminal proceedings could be initiated against them in the event of non-compliance with AML requirements, even as they consider the related sanctions quite dissuasive. This is a wakeup call for bankers who may be found liable under the personal liability regime of AML criminal sanctions.

To address the issue of lack of coercive provisions for violating other AML control obligations, the Priority Action Plan (PAP) looks to adopt binding legal measures accompanied by more dissuasive sanctions to be put in place by June 2024. On the other hand, for significant violations by entities, Cameroonian authorities will move to trigger a review of Article 113 of the CEMAC AML Regulation through GABAC and BEAC by September 2022 to make the penalties even more stringent.

 

5-   Effective Regulatory Supervision

 

As part of the reform of the banking system in Central Africa, the Banking Commission for Central Africa (COBAC) was created in 1990. COBAC is the supervisory and control authority for banks in Cameroon accorded with supervisory powers in terms of control and sanctions.

As such, COBAC carries out on-site and documentary checks with banks, including on the policies and procedures put in place. These checks are accompanied by reports containing corrective measures and sanctions if necessary. Given its real powers of sanction, COBAC exercises moral suasion which has a significant impact on the management of banks.

Article 113 of the CEMAC AML Regulation provides that administrative sanctions be taken against banks that disregard their AML obligations as a result of either a serious lack of vigilance or as a result willful blindness. In spite of this provision, no administrative sanction has been pronounced against a bank or bank official for breaches of AML obligations, despite all the exceptions observed by NAFI in its collaboration with these financial institutions.

In practice however, COBAC does not program or carry out thematic missions on AML/CFT and the controls it organizes are not based on ML/TF risk based approach within the meaning of the FATF Recommendations. COBAC asserted to the GABAC team to have recently pronounced administrative sanctions against some banks and microfinance institutions for non-compliance with AML/CFT diligence.

One such case is surely that of Banque Atlantique Cameroon that was sanctioned in August 2021 by COBAC for breaching AML regulation with particulars that were unclear, leading to the dismissal of the entire board of directors of that bank. The COBAC Decision has later quashed by the CEMAC Court on 28 December 2021 as being unfounded largely on technical grounds.

GABAC’ engagement with the various supervisory authorities seems to have revealed a very low level of implementation of sanctions on reporting entities for non-compliance with their AML/CFT obligations.

In addition, the financial institutions with whom the GABAC team was able to discuss, did not mention the sanctions they suffered following any failure of their AML/CFT system. This situation led the assessment team to believe that the actual implementation of effective, proportionate and dissuasive sanctions and/or corrective actions did not appear to be effective at the time of the on-site visit. This means that defaulting banks must be seen to be sanctioned to match the word of regulatory agencies with their actions.

COBAC will certainly have to embark on an aggressive scrutiny of the AML framework of banks in Cameroon and mete out decisive sanctions in order to send out a clear message. The milestone action contained in the PAP on this vulnerability is that Cameroonian authorities would step up measures and mechanisms for the regulation and control of regulated professions and set up mechanisms for evaluating the action of the regulatory authorities.

This however raises questions on the practicability of a national framework that will supervise sub-regional authorities like COBAC and BEAC. This mechanism ought to have been put in place since September 2022.

 

6-   Create a sanctions list against terrorism financing

 

Another deficiency recorded against the country is the lack of an institutional framework for the establishment, management and dissemination of lists established under Resolutions 1267 and 1373 of the United Nations Security Council, also known as sanctioned lists. Cameroon has not presented a national list on the basis of United Nations Security Council resolution.

 

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What is required of Cameroonian authorities on this exception is to set up a mechanism for the immediate creation and dissemination of a local sanctions list to those entitled to receive them

 

This therefore means that no terrorist is subject to an asset freeze in the country. There is also no mechanism for the prompt dissemination of sanctions lists to reporting entities. This list can be used by banks to filter details of cross border transactions to detect, prevent and report attempted terrorism financing as well as freezing of the funds.

As a result, no freezing measures have been taken on the basis of these resolutions. Despite the absence of a sanction list dissemination mechanism, banks, some insurance companies and leasing companies receive sanctioned lists from other countries through commercial software which they use to screen their transactions to prevent sanction breaches.

What is required of Cameroonian authorities on this exception is to set up a mechanism for the immediate creation and dissemination of a local sanctions list to those entitled to receive them. The mechanism should include an authority responsible for notifying decisions relating to targeted financial sanctions, monitoring compliance by all reporting entities with their sanctions obligations and applying penalty in the event of breaches in the implementation, without delay.

The list should be made available for exploitation and use by both local and international organizations involved in the AML/CFT combat. According to the PAP, the country was to define a formal framework for establishing and managing the lists with the assistance of UNODC and the World Bank by March 2023.

In summing, Cameroonian authorities have demonstrated strong commitment and action to resolve the deficiencies and strengthen controls as recommended by international supervisory bodies. The Ministry of Finance has come up with the PAP which spans 2021-2024 for implementation.

This document is the Government’s road map for managing the threats and vulnerabilities identified in the NRA report. Under the Plan, four action thrusts have been proposed which relates to;

  •  Strengthening the legal and institutional framework,
  •  Developing a national coordination framework,
  •  Stepping up the control and supervision system for prevention actors, and
  •  Improving the efficiency of the investigation and prosecution authorities.

 

The Plan contains 12 TOP PRIORITY actions, ten MEDIUM PRIORITY actions and four OTHER PRIORITY actions. Visibly, there are obvious delays recorded in the implementation of some of these plans which can cast aspersions as to the level of seriousness with which the state of Cameroon is approaching this exercise.

In essence, grey listing can be considered as a warning and a remedial phase where countries are given a chance to amend their mistakes and strategic deficiencies before FATF declares a country under its Blacklist where the punishment and penalties are more severe.

To avoid such listing, such a country must adopt ethical practices and should not get involved in terrorist financing and money laundering activities by itself or through its ineffective application of international standards. Effective clean-up of the deficiencies raised is obligatory for FATF to review positively the status of Cameroon and delist the country from the grey list come 2025.

 

written by Cletus Azah, CAMS. Azah is a Barrister and a Certified Anti-Money Laundering Specialist. He is also a University lecturer of Financial Services Regulation.
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