Addressing shortfalls in Ghana’s Anti-Money Laundering Act in the era of digital financial services and post Covid19 pandemic

Money laundering is a global phenomenon that poses a threat to the stability and integrity of financial systems around the world. In response to this threat, many countries, including Ghana, have implemented anti-money laundering (AML) regulations to prevent, detect, and combat money laundering activities. Ghana’s AML Act has been in effect since 2008, and while it has been instrumental in the fight against money laundering, there are several shortfalls and areas for potential improvement.

Recent rise in fintech and the wide adoption of online payment systems, hugely influenced by the COVID19 pandemic has necessitated the need to address the shortfalls of the Act and improve it to keep up with emerging trends in financial technology.

Lack Of Comprehensive Guidelines On Risk Assessment

The Act requires financial institutions to conduct a risk assessment of their business relationships, but it does not provide specific guidelines on how to perform the assessment. As a result, financial institutions are left to interpret the requirements and develop their own methods for conducting risk assessments. This can lead to inconsistencies and gaps in the identification and mitigation of money laundering risks.

Digital Financial Services, Non-Financial Businesses and Professions (DNFBPS)

Ghana’s AML Act only applies to financial institutions, and do not comprehensively cover and include provisions for regulating FinTechs and online payment platforms. The rise of fintech and online payment systems has brought about new challenges in the fight against money laundering. These systems are designed to facilitate quick and seamless transactions, making them attractive to criminals seeking to launder money. Additionally, the anonymity associated with some of these systems makes it easier for criminals to avoid detection.

Also, DNFBPs are left vulnerable to money laundering activities. DNFBPs such as real estate agents, lawyers, and accountants can be used to facilitate money laundering, but they are not subject to the same regulatory requirements as financial institutions. It is important to capture these businesses under the purview of AML regulations to reduce the risk of money laundering and terrorist financing.

Inadequate Penalties for Non-Compliance

While the act has provisions for penalties, they are not severe enough to deter money laundering activities effectively. For example, the maximum penalty for individuals found guilty of money laundering is a fine of GHC 120,000 and/or imprisonment for up to ten years. The maximum penalty for corporations is a fine of GHC 600,000. These penalties may not be sufficient to discourage potential offenders from engaging in money laundering activities.

Inadequate Provisions for Reporting Suspicious Activities

Currently, the act requires financial institutions to report suspicious transactions to the Financial Intelligence Centre (FIC) but there is no clear guidance on what constitutes a suspicious transaction and does not impose a requirement to report all transactions above a certain threshold. The absence of mandatory reporting requirements for large transactions makes it difficult to detect and prevent money laundering activities involving high-value transactions.

Increase The Resources Allocated to AML Efforts in Ghana

The FIC is the primary agency responsible for AML regulation and enforcement in Ghana. However, the agency is understaffed, underfunded, and lacks the necessary technological infrastructure to effectively monitor and detect money laundering activities. The government should increase funding to the FIC to enable it to hire more staff, invest in technology, and improve its overall capacity.

Definition Of Politically Exposed Persons (PEPs)

Ghana’s AML Act does not have a clear definition of politically exposed persons (PEPs), who are individuals in prominent public positions that may be at higher risk for money laundering activities. This lack of clarity can make it challenging for financial institutions to identify and report suspicious transactions involving PEPs.

Lack Of Capacity Building and Awareness Creation Among Stakeholders

There is a need for regulators to create training programs to help financial institutions and other entities covered under the Act to develop a better understanding of AML regulations and how to implement them effectively. Additionally, regulators should work to create awareness among the general public to help them identify potential money laundering activities.

To address this challenge, there is a need for regulators to work closely with FinTechs and online payment service providers to ensure that AML measures are implemented in their operations. This collaboration will help to identify potential risks and ensure that adequate measures are in place to mitigate them. Regulators should also develop new AML regulations tailored to the unique characteristics of FinTechs and online payment systems.

The COVID-19 Pandemic

The COVID-19 pandemic has had a significant impact on the world economy, and the anti-money laundering (AML) landscape has not been exempted. The pandemic has led to a surge in fraud and financial crimes, as fraudsters seek to exploit vulnerabilities created by the pandemic. The pandemic has brought about new challenges in the AML landscape.

One of the most significant impacts of the COVID-19 pandemic on AML has been the shift towards digital payments. With the pandemic leading to restrictions on physical interactions and the closure of businesses, many individuals and businesses have shifted towards online and mobile banking. While this shift has brought about convenience, it has also created new vulnerabilities in the AML landscape. Criminals are now exploiting these digital payment channels to carry out money laundering and terrorist financing activities.

A major impact of the COVID-19 pandemic on AML has been the disruption of the traditional AML compliance processes. With most businesses and organizations now working remotely, it has become more challenging to implement the traditional KYC (Know Your Customer) and CDD (Customer Due Diligence) processes. The pandemic has made it difficult for businesses to verify the identities of their customers and to assess their risk levels.

The pandemic has also led to an increase in the number of false positive alerts generated by AML systems. With the pandemic leading to significant changes in customer behavior, AML systems have been inundated with alerts triggered by legitimate transactions. This has resulted in an increase in false positive alerts, making it challenging for compliance teams to focus on genuine risks.

Furthermore, the pandemic has created new opportunities for criminal groups to launder money. The pandemic has led to a rise in fraudulent activities, such as fake charities, fake PPE sales, and investment scams. Criminal groups are exploiting these opportunities to launder money, making it difficult for law enforcement agencies to identify and track these illicit activities.

In conclusion, Ghana’s AML Act has been instrumental in the fight against money laundering in the country. However, there are several shortfalls that need to be addressed to make the regulations more effective. The government should provide comprehensive guidelines for risk assessment, expand the scope of AML regulations to cover DNFBPs, strengthen reporting requirements, and increase the resources allocated to AML efforts. By addressing these issues, Ghana can strengthen its AML regime and reduce the risks associated with money laundering and terrorist financing.

It is essential for businesses, regulators, and law enforcement agencies to remain vigilant and adapt to these new challenges to ensure that the AML landscape remains effective.

By: Daniel Kwaku Ntiamoah Addai, Cyber security, Digital forensics, Forensic Investigation and Audit, and an excellent researcher in the field of Information communication and technology.