Most organized crime shares a common denominator — the financial motive. After all, for crime to pay, criminals must be able to launder their proceeds.
In the second part of our five-part global series exploring the financial crime market, we focus on Africa and the Middle East and what 2024 holds for the region in the continued fight against financial crime and terrorist financing.
Jurisdictions with Strategic Deficiencies
Once again, this region has the highest number of countries on FATF’s watchlist for “strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing” – 16 out of 28 countries since Cameroon’s addition in June 2023.
Iran remains on the blacklist for not making any significant attempts to address shortcomings.
The increased risk of bad financial actors in cross-border transactions is a worrisome trend.
To address this, financial institutions should establish robust frameworks that include detailed KYC procedures when dealing with entities from high-risk jurisdictions.
Declining Democracy: Political Risk
2024 is the biggest and most diverse election year in history, with more than half of the world's population going to the polls.
This includes Algeria, Botswana, Iraq, Kuwait, Morocco, South Africa, and Türkiye, to name a few. In theory, it should be a triumphant year for democracy; in practice, it will be the opposite.
Without democracy, the erosion of civil liberties, weakened rule of law, corruption, and human rights abuses increase, creating civil unrest and economic instability.
During AML checks this year, it’s crucial to identify and pay special attention to Politically Exposed Persons (PEPs). They are generally more vulnerable to bribery and other financial crimes due to their prominent roles and influence and, as a result, pose a greater money laundering risk to your firm.
If you do decide to conduct business with a PEP or are engaged with one already, you’ll need to carry out Enhanced Due Diligence, and they’ll need more ongoing monitoring than other potential clients or customers. Sophisticated screening software can also help to identify and manage PEP risk profiles.
Geopolitical Conflict: Rooting out Terrorist Financing
2023 was a tumultuous and challenging year for the Middle East and North Africa (MENA), with the Israel-Hamas conflict continuing to reverberate into 2024.
From Houthi rebels in Yemen and the Lebanese militant group Hezbollah to Iranian-backed militants in Iraq, transnational jihadism is on the rise.
Geopolitical shifts, armed conflict, and political polarization have a far-reaching impact by fragmenting and destabilizing the global economic landscape.
We are already seeing this in the maritime trade sector, with several cargo vessels linked or en route to Israel transiting through the Red Sea attacked by drones and missiles, forcing ships to reroute around the Cape of Good Hope.
Likewise, global insurers (who play a crucial role in the global economy) have hastily inserted cancelation clauses into policies, increasing the cost and risk for businesses operating in the region.
Rooting out terrorist financing is now a top priority for 2024, and institutions can expect greater scrutiny and regulatory insight into transaction flows and alternative payment mechanisms such as cryptocurrencies and crowdfunding platforms – sectors that terrorists often use to raise money.
While we have already seen parts of the international community restricting the illicit flow of terrorist funds, ultimately, the responsibility falls on financial institutions, payment gateways, and businesses to stay compliant.
Business leaders must evaluate their third-party relationships and de-risk their supply chains, while financial institutions must manage operational risk and resilience more effectively.
Regional Decline: Corruption Is Fueling Violence
The lack of independent mechanisms to detect and prevent systemic corruption is pervasive in the region – and the more corrupt a regime, the less cooperative its population becomes.
Corruption can foster social hostility and frustrations stemming from perceived injustice, which can escalate into violent protests, riots, and strikes to express discontent.
This not only leads to societal breakdown and violence but pushes individuals down the path of radicalization and eventual involvement in terrorist movements, particularly when governments lose the trust of their citizens.
In recent years, there has been a string of successful coups in Sudan, Chad, Niger, Mali, Burkina Faso, and Guinea. With elections looming in many countries this year, we could see more coup attempts and the extension of military and authoritarian rulers.
These types of environments are also extremely attractive to criminal organizations, increasing the prevalence of trade-based money laundering and drug trafficking, in turn creating more violence.
Until leaders step up to protect the rights and voices of people across the region, the deadly spiral of corruption, crime, and violence will only continue to escalate. As with any high money laundering and financial crime risk, firms operating in this region must identify, assess, and mitigate these risks in their frameworks.
Final Thoughts: A Vicious Circle
High-risk jurisdictions, declining democracy, conflict, corruption, insecurity – all these factors are profoundly intertwined and give rise to the other. It's a vicious circle.
As a result, 2024 will be a challenging year for the region and organizations that operate within it. Banks and financial institutions must dedicate time and resources to understand how these market conditions will affect business models and face the issues that come with them.
We have a range of solutions, including state-of-the-art software, expert advisors with decades of experience, and a fully managed in-house team of trained analysts ready to be deployed to help optimize and streamline compliance processes in the most challenging environments.
Contact us today, and let's start the conversation.