The Arab countries
comprising the Middle East and North Africa – often referred to as the MENA
region – have seen lately series of revolutions in efforts to fight corruption,
maintain proper governance and implement political and economic reforms. Transparency International’s Corruption
Perceptions Index consistently ranks MENA countries below the world median,
with some degree of variation across countries.
the World Bank Governance Indicators, MENA countries tend to score below
countries from other regions in transparency, voice and accountability, and
control of corruption.
Due the high
level of corruption in the MENA region, money laundering activities continued
to take place in the process of legitimising the proceeds of financial crimes,
illegal earnings, mixing between political power and business, as was the
situation in Egypt and many other MENA countries.
the successful revolutions in Tunisia and Egypt, the money laundering
activities have increased through the large sums of illegal earned money of the
collapsed corrupt regimes that are transferred abroad to eventually ensure
continuity of lavish life of the criminals and corrupt PEP’s.
organisations have three objectives for laundering the proceeds of their
illegal activity which are:
- To pay
expenses related to their illegal activity.
- To invest
their proceeds in the criminal cycle and boost illegal activity.
to enjoy the profits of their criminal activity.
money laundering is not easy for any financial institution. In the MENA region,
cultural issues make the detection of money laundering a challenging task.
Banks and other financial institutions must be more alert in monitoring
customer activities and knowing their customers.
In many MENA
countries, the anti-money laundering obligations are often perceived as
conflicting with customer relationships and cultural customs. For example, a
bank employee who fails to discharge AML compliance responsibilities – whether
wittingly or to avoid asking a customer required due diligence questions that
are in most cases uncomfortable – can negatively impact the efforts of other
institutions by not demonstrating a unified effort for fighting money
laundering and making that institution more appealing to both money launderers
and customers who find AML obligations uncomfortable.
biggest problems for AML initiatives in the Middle East is cultural customs
that accept deference to customers and anonymity. Accounts lacking full
identification details or with misleading information are not unusual in the
region. Verification of customer information is often a challenge, if not
impossible in many cases.
your customer” is an element lacking at many Middle Eastern financial
institutions which follow local traditions of accommodating customers’
requests. Gathering customer information is generally a sensitive issue, as
customers may view banks’ requests for additional information as intrusive or
offensive. For example, it can be difficult for a bank to refuse to enter into
or to exit a relationship with a politically connected person. Doing so could
mean trouble for the bank staff involved.
adequate information has a significant impact on other aspects of AML
programmes, such as transaction monitoring and the bank’s ability to apply a
risk-based approach to its clientele base. Bank officials frequently claim that
they do not want to offend customers and lose business to a less law-abiding
region-specific challenge is that it can be very difficult to perform a check
against a sanctions lists based on a customer’s name due to the multiple
available spellings of names used in the region.
institutions often have a formal programme in place to test the effectiveness
of their AML systems and controls. However, the quality of some of this testing
can be questionable. Internal auditors commonly carry out this independent testing,
but a major concern is whether internal auditors have sufficient experience and
knowledge to perform this testing efficiently. Moreover, reviews often take
place infrequently and some time after the event.
challenges in the MENA region:
issues: MENA region nations tend not to share personal or financial information
with their banks, as compared to the US or Europe where people see that sharing
such information is a small compromise to fight money laundering, terrorism
financing and other financial crimes.
transparency: The MENA region has not experienced an acceptable level of
transparency in many aspects, including fair coverage of news, honest media and
announcement of non-compliant financial institutions.
awareness and training: Most MENA region financial institutions fail to
properly spread the AML awareness among their staff and customers. The failure
to implement effective and efficient training programmes is due to the
inability to see the importance of AML training in protecting the financial
institution against money laundering, terrorism financing and other financial
crime threats and risks, and accordingly not allocating budget to train staff
on AML and compliance matters as they do for business generating trainings.
This in turn leads to choosing unqualified trainers to do the job, just to tick
the box which leaves the training useless.
development of laws and regulations: The MENA region suffers from regulatory
framework issues due to lack of proactive regulations, slow development of
laws, in-effective regulations and lack of feedback from financial institutions
to enhance the laws and regulations.
responses and punishment: Regulators are gradually becoming more inclined to
investigate and punish wrongdoings, particularly in a public forum. Companies
are increasingly aware that compliance requirements will not diminish, and that
defaults may have serious consequences both commercially and personally.
issues: As regulations change rapidly and widely, technological solutions for
AML compliance tend to fall behind. Additionally, compliance tends to take a
multi-skilled approach, which is difficult to contain fully within a
checklist/tick-box environment. The design of compliance systems needs to have
a system integration focus, as often the required AML information is spread
over various sources.
qualified staff: MENA region has many qualified AML professionals, but the
number falls behind the requirement in the region, this again is due to lax
regulations, not taking AML seriously by financial institutions and lack of
training and awareness.
integrated comprehensive fight against money laundering: When it comes to money
laundering, everyone looks at banks as the one and only gate for money
launderers. Of course this is a big mistake which leaves other doors wide open
for criminals to launder their money, such as cross-border smuggling, money
laundering through real estate, insurance, commodities, precious metals and many
- Implement a
nationwide awareness campaign about the risk of money laundering and terrorism
financing. Such campaigns must be able to send a strong, convincing message to
the public at large that financial institutions are implementing “know
your customer” programs with the objective of safeguarding the country and
soundness of the financial system from terrorists or criminals.
- Improve the
efficiency and independence of financial intelligence units and encourage them
to provide feedback on suspicious transaction reports to reporting institutions
as well as sharing information with foreign financial intelligence units.
enforcement of cross-border currency controls, specifically allowing for
seizure of suspicious cross-border currency transfers.
- Empower law
enforcement and customs authorities to examine and investigate trade-based
money laundering, informal value transfer systems and customs fraud. They
should take the initiative and proactively generate leads and investigations
and be able to follow the financial trails wherever they lead.
- Update AML
laws against terrorism specifically to address the threat of terrorism
financing, including asset identification, seizure and forfeiture.
countries to ratify the UN Convention against Transnational Organized Crime; UN
International Convention for the Suppression of the Financing of Terrorism; and
UN Convention against Corruption.
charity oversight, especially in overseas operations.
- Implement and
enforce a uniform cash declaration policy for inbound and outbound travellers.
to be done to combat both money laundering and terrorism financing. While
governments and financial institutions in the region have taken effective and
advanced steps, the political and cultural environment in the region will
continue to present challenges.