Anti- m oney laundering and counter- t errorist financing measures Botswana Mutual Evaluation Report May 2017 The Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) is an inter- governmental organisation that is a Financial Action Task Force (FATF) Style Regional Body (FSRB). The FATF develops and promotes policies to protect the global financial system against money-laundering, terrorist financing and the financing of proliferation of weapons of mass destruction. The FATF Recommendations are recognised as the global anti-money laundering (AML) and counter-terrorist financing (CTF) standards. The ESAAMLG members have committed themselves to the effective implementation and enforcement of the internationally recognised FATF Recommendations against money- laundering and the financing of terrorism. This document and the information included therein are without any prejudice to the norms of international law, be it the status or sovereignty of any territory, delimitation of recognised borders and international boundaries, or name of any territory. For more information about the ESAAMLG, please visit the website: www.esaamlg.org This mutual evaluation report was adopted by the ESAAMLG Council of Ministers through a round robin process in May 2016. Citing reference: ESAAMLG (2017), Anti-money laundering and counter-terrorist financing measures – Botswana, Second Round Mutual Evaluation Report, ESAAMLG, Dar es Salaam http: //www.esaamlg.org/reports/me.php © 2017 ESAAMLG. All rights reserved. No reproduction or translation of this publication may be made without prior written permission. Applications for such permission, for all or part of this publication should be made to the ESAAMLG Secretariat, P. O. Box 9923, Dar es Salaam, United Republic of Tanzania. Tel: +255 22 266 7895/7679 Fax: +255 22 266 8745 Email: MUTUAL EVALUATION REPORT OF THE REPUBLIC OF BOTSWANA CONTENTS EXECUTIVE SUMMARY ............................................................................................................................ 7 A. Key Findings ................................................................................................................................... 7 B. Risks and General Situation .......................................................................................................... 8 C. Overall Level of Effectiveness and Technical Compliance .................................................... 10 D. Priority Actions ............................................................................................................................ 16 E. Effectiveness & Technical Compliance Ratings ....................................................................... 18 MUTUAL EVALUATION REPORT ........................................................................................................ 20 Preface....................................................................................................................................................... 20 CHAPTER 1. ML/TF RISKS AND CONTEXT .................................................................................... 21 1.1 ML/TF Risks and Scoping of Higher-Risk Issues .......................................................................... 21 1.2 Materiality ...................................................................................................................................... 25 1.3 Structural Elements ........................................................................................................................ 27 1.4 Background and other Contextual Factors ..................................................................................... 27 CHAPTER 2. NATIONAL AML/CFT POLICIES AND COORDINATION .................................. 40 Key Findings and Recommended Actions .......................................................................................... 40 2.1 Immediate Outcome 1 (Risk, Policy and Coordination).............................................................. 42 CHAPTER 3. LEGAL SYSTEM AND OPERATIONAL ISSUES ...................................................... 47 Key Findings and Recommended Actions .......................................................................................... 47 3.1 Immediate Outcome 6 (Financial intelligence ML/TF) ....................................................................... 51 3.2 Immediate Outcome 7 (ML investigation and prosecution) ...................................................... 58 3.3 Immediate Outcome 8 (Confiscation) .................................................................................................. 64 CHAPTER 4. TERRORIST FINANCING AND FINANCING OF PROLIFERATION ................. 68 Key Findings and Recommended Actions .......................................................................................... 68 4.1 Immediate Outcome 9 (TF investigation and prosecution) ................................................................. 70 4.2 Immediate Outcome 10 (TF preventive measures and financial sanctions) ........................................ 73 4.3 Immediate Outcome 11 (PF financial sanctions) ................................................................................ 75 CHAPTER 5. PREVENTIVE MEASURES ....................................................................................... 77 Key Findings and Recommended Actions .......................................................................................... 77 5.1 Immediate Outcome 4 (Preventive Measures)..................................................................................... 78 CHAPTER 6. SUPERVISION ............................................................................................................... 92 Key Findings and Recommended Actions .......................................................................................... 92 6.1 Immediate Outcome 3 (Supervision) ................................................................................................... 93 CHAPTER 7. LEGAL PERSONS AND ARRANGEMENTS ........................................................... 101 Key Findings and Recommended Actions ........................................................................................ 101 7.1 Immediate Outcome 5 (Legal Persons and Arrangements) ............................................................... 102 Anti-money laundering and counter –terrorist financing measures in Botswana - 2017 2 CHAPTER 8. INTERNATIONAL COOPERATION ........................................................................ 109 Key Findings and Recommended Actions ........................................................................................ 109 8.1 Immediate Outcome 2 (International Cooperation) ................................................................... 110 TECHNICAL COMPLIANCE ANNEX ............................................................................................... 115 Recommendation 1 - Assessing Risks and applying a Risk-Based Approach ............................. 115 Recommendation 2 - National Cooperation and Coordination ..................................................... 116 Recommendation 3 - Money laundering offence ............................................................................. 117 Recommendation 4 - Confiscation and provisional measures ....................................................... 121 Recommendation 5 - Terrorist financing offence ............................................................................. 123 Recommendation 6 - Targeted financial sanctions related to terrorism and terrorist financing ................................................................................................................................................................. 125 Recommendation 7 – Targeted financial sanctions related to proliferation ................................. 127 Recommendation 8 – Non-profit organisations ............................................................................... 127 Recommandation 9 – Financial institution secrecy laws ................................................................. 129 Recommendation 10 – Customer due diligence ............................................................................... 130 Recommendation 11 – Record-keeping ............................................................................................. 132 Recommendation 12 – Politically exposed persons ......................................................................... 134 Recommendation 13 – Correspondent banking ............................................................................... 134 Recommendation 14 – Money or value transfer services ................................................................ 134 Recommendation 15 – New technologies .......................................................................................... 135 Recommendation 16 Wire transfers ................................................................................................... 136 Recommendation 17 – Reliance on third parties .............................................................................. 136 Recommendation 18 – Internal controls and foreign branches and subsidiaries ........................ 137 Recommendation 19 – Higher-risk countries.................................................................................... 138 Recommendation 20 – Reporting of suspicious transaction ........................................................... 138 Recommendation 21 – Tipping-off and confidentiality ................................................................... 139 Recommendation 22 – DNFBPs: Customer due diligence .............................................................. 140 Recommendation 23 – DNFBPs: Other measures ............................................................................ 141 Recommendation 24 – Transparency and beneficial ownership of legal persons ....................... 142 Recommendation 25 – Transparency and beneficial ownership of legal arrangements ............ 145 Recommendation 26 – Regulation and supervision of financial institutions ............................... 147 Recommendation 27 – Powers of supervisors .................................................................................. 150 Recommendation 28 – Regulation and supervision of DNFBPs .................................................... 151 Recommendation 29 - Financial intelligence units ........................................................................... 152 Recommendation 30 – Responsibilities of law enforcement and investigative authorities ....... 154 Recommendation 31 - Powers of law enforcement and investigative authorities....................... 156 Recommendation 32 – Cash Couriers ................................................................................................ 158 Recommendation 33 – Statistics .......................................................................................................... 160 Recommendation 34 – Guidance and feedback ................................................................................ 161 Recommendation 35 – Sanctions ........................................................................................................ 162 Recommendation 36 – International instruments ............................................................................ 163 Recommendation 37 - Mutual legal assistance ................................................................................. 163 Recommendation 38 – Mutual legal assistance: freezing and confiscation .................................. 165 Recommendation 39 – Extradition ..................................................................................................... 166 Anti-money laundering and counter –terrorist financing measures in Botswana - 2017 3 Recommendation 40 – Other forms of international cooperation .................................................. 167 Summary of Technical Compliance – Key Deficiencies .................................................................. 173 Anti-money laundering and counter –terrorist financing measures in Botswana - 2017 4 TABLE OF ACRONYMS AG Attorney General AFU Asset Forfeiture Unit AMLCO Anti-Money Laundering Compliance Officer AML/CFT Anti-Money Laundering/Combating Financing of Terrorism BICA Botswana Institute of Chartered Accountants BITC Botswana Investment and Trade Centre BoB Bank of Botswana BPS Botswana Police Service BURS Botswana Unified Revenue Services BNI Bearer Negotiable Instrument CDD Customer Due Diligence CEDA Customs Excise and Duty Act CECA Corruption and Economic Crimes Act CIPA Companies and Intellectual Property Authority CTA Counter Terrorism Act CTR Cash Transaction Report DCEC Directorate on Corruption and Economic Crimes DIS Directorate of Intelligence and Security DNFBPS Designated Non-Financial Businesses and Professions DPP Directorate of Public Prosecutions FATF Financial Action Task Force FI Financial Institution FIA Financial Intelligence Agency FI Act Financial Intelligence Act GDP Gross Domestic Product IFSC International Financial Services Centre KYC Know Your Customer ML Money Laundering ML/TF Money Laundering/ Terrorist Financing MoFAIC Ministry of Foreign Affairs and International Cooperation MoU Memorandum of Understanding MVTS Money Value Transfer Services NBFI Non-Bank Financial Institutions NBFIRA Non-Bank Financial Institutions Regulatory Authority NCCFI National Coordinating Committee on Financial Intelligence NIC National Intelligence Community NPO Non-Profit Organisations NRA National Risk Assessment NTA National Threat Assessment PEP Politically Exposed Person PICA Proceeds and Instruments of Crime Act RBA Risk Based Approach Anti-money laundering and counter –terrorist financing measures in Botswana - 2017 5 REAC Real Estate Advisory Council SADC Southern African Development Community STR Suspicious Transaction Reporting TF Terrorist Financing UNSCR United Nations Security Council Resolution Anti-money laundering and counter –terrorist financing measures in Botswana - 2017 6 EXECUTIVE SUMMARY 1. This report provides a summary of the AML/CFT measures in place in the Republic of Botswana (Botswana) as at the date of the on-site visit [13-24 June 2016]. It analyses the level of compliance with the FATF 40 Recommendations and the level of effectiveness of Botswana’s AML/CFT system, and provides recommendations on how the system could be strengthened. A. Key Findings  Generally, Botswana’s AML/CFT regime is not yet developed, with competent authorities still in the process of understanding their responsibilities and building capacity to deal with ML/TF.  Botswana’s level of domestic coordination and cooperation is generally good, although that can get better with the presence of shared understanding of ML/TF risks of the country among all stakeholders, and signed MoUs among competent authorities to facilitate information sharing.  The money laundering legal framework in Botswana has major deficiencies arising from limited scope of predicate offences and absen ce of essential elements of the offence of ML. There is inconsistency between the minimum threshold of a serious offence as d efined in the PICA and the penalty provisions provided for most of the offence,s which do not fall under the threshold thereby disqualifying them from being categorised as predicate offences for ML purposes.  Competent authorities in Botswana have varied capacity and understanding of their AML/CFT responsibilities. The DPP has insufficient resources and is not in control of the resources. The BPS and BURS do not have specialised units to conduct ML/TF investigations. Although the DCEC has commenced investigating ML cases, it still needs more capacitation in conducting specialised ML investigations. The FIA has sufficient resources to carry out its core functions. However, it requires capacity to carry out its supervisory role. The BoB demonstrated limited understanding and lack of implementation of its AML/CFT supervisory role. NBFIRA demonstrated an emerging understanding of its AML/CFT supervisory role but it has limited implementation due to inadequate specialised human resource.  In general, Botswana has a sound legal framework on confiscation of proceeds of crime. However, there is very limited implementation of the provisions mostly because more attention is being given to investigation and prosecution of predicate offences.  The TF legal framework in Botswana has major deficiencies arising mainly from non- criminalisation of individual terrorists, the penalty is not proportionate and does not cover legal persons. Competent authorities responsible for investigating and prosecuting TF have different levels of understanding of the TF offences and risks.  The authorities have not determined which NPOs in Botswana could be vulnerable to TF risk and the kind of measures to take to mitigate such risks. Further, the authorities have not carried out any awareness to this sector on its possible exposure to TF risks. Anti-money laundering and counter –terrorist financing measures in Botswana - 2017 7  Botswana is currently conducting its first NRA which involve of different public and private sector entities with a view to developing a National Strategy to facilitate implementation of AML/CFT measures on a risk-sensitive basis. Therefore, currently there is no common understanding of ML/TF risks at national level by the authorities.  The FIA’s receipt of reports from financial institutions is limited.I t only receives STRs and other reports mainly from banks, and does not receive cross-border cash and BNI declaration reports from the BURS.  There is very low usage of financial intelligence by BPS, DCEC and BURS to initiate or support ML investigations, with the LEAs preferring to pursue predicate offences.  The BoB and FIA have not demonstrated an understanding of ML/TF risks applying to their regulated entities. NBFIRA has demonstrated an emerging understanding of ML/TF risks applying to its regulated entities. The regulated entities demonstrated a varied understanding of ML/TF risks with the large foreign-owned banks and non-bank financial institutions demonstrating a better understanding of their ML/TF risks.  The FI Act does not provide for a risk sensitive approach to implementation of AML/CFT obligations. In addition, the FI Act has major deficiencies as it does not cover most of the AML/CFT obligations. As a result, there is little or no application and implementation of mitigating controls.  In general, Botswana’s legal framework does not provide for a requirement to identify and verify the identity of legal persons and legal arrangements; a requirem ent to obtain and retain information on beneficial ownership . The authorities have not determined nor are they aware of the ML/TF risks which are associated with the legal persons and arrangements in Botswana.  Supervisory bodies have powers to issue sanct ions under the FI Act for non-compliance with AML/CFT obligations. However, the sanctions are not dissuasive and proportionate , and have not been applied .  Botswana has a legal system in place to facilitate international cooperation in mutual legal assistance and extradition matters which they have applied on a few cases of ML . However, non -criminalisation of all predicate offences limits the scope of international cooperation provided. B. Risks and General Situation 2. At the time of the on-site visit, Botswana was in the process of carrying out a National Risk Assessment (NRA) and the preliminary findings of the exercise were not shared with assessors. There are no sectoral risk assessments by the competent authorities which were shared with the assessors in the absence of a completed NRA. As a result, the assessors had to determine the ML/TF risks facing Botswana based on the information gathered during the Technical Compliance review process, information provided by the authorities in preparation for the on-site visit and the information gathered during the interviews with the authorities during the on-site. The assessors mostly based their assessment of the ML/TF risks of Botswana on the major crimes identified to be Anti-money laundering and counter –terrorist financing measures in Botswana - 2017 8 generating most of the proceeds which were likely to be laundered and the vulnerabilities in both the public and private sectors through which the risks may manifest. The crimes identified included: obtaining by false pretences, stealing by persons in public service, corruption in the construction industry involving contractors of mega–projects (with the bulk of the offences committed by public officials), theft of motor vehicles, and dealing in imported second hand vehicles and real estate. The BPS, BURS and DCEC reported cases of wildlife trafficking being of low risk at the time of the on-site visit due to measures which had been put in place by the authorities. They also accorded the decline in such cases due to the cooperation in enforcing requirements and control of movement of wildlife and wildlife products by LEAs in the SADC Region on exit and entry points. This view is also supported by the findings of the typologies study on “Poaching, Illegal Trade in Wildlife & Wildlife Products & Associated Money Laundering in the ESAAMLG Region” carried out by the ESAAMLG in 2015, which indicated that Botswana had only two rhinos killed in the period between 2006 -2013 compared to the statistics of other neighbouring 1 countries during the same period . 3. Although, the offence of ML was criminalised under the repealed “Proceeds of Serious Crime Act”, from the interviews with the authorities and criminal cases cited, the repealed Act had not been extensively used to charge offenders with the offence of ML. The enactment of the Proceeds and Instruments of Crime Act (PICA) in 2014 brought in a new regime of the offence in terms of scope posing new challenges in terms of skills to identify, investigate and prosecute such cases as well as implementing an effective confiscation regime of proceeds of crime. The PICA complemented by the Financial Intelligence Act (FI Act), enacted in 2009 have strengthened the AML/CFT regime of Botswana and has also increased the list of specified parties (hereinafter referred to as “reporting entities”) which are obliged to implement AML/CFT preventive measures. Whilst the large foreign-owned financial institutions (FIs), in general, had a good understanding of their AML/CFT obligations including their inherent ML/TF risks, the same could not be said about the majority of the other FIs. Designated Non-Financial Businesses and Professions (DNFBPs) have no understanding of their AML/CFT obligations and ML/TF facing them. 4. The FI Act designates AML/CFT supervisors for FIs and DNFBPs. Most supervisors are in the process of developing capacity to ensure compliance with AML/CFT obligations by their regulated entities. The supervisors are yet to develop and implement a risk-based approach (RBA) to supervise and monitor compliance for AML/CFT purposes. Generally, the supervisory framework is still emerging as most of the supervisors are focusing on raising awareness on AML/CFT obligations and developing internal capacity to effectively implement compliance monitoring programmes. 5. In 2003, Botswana formed the International Financial Services Centre (IFSC) which was later merged with the Botswana Export Development and Investment Authority in 2012 to form the Botswana Investment and Trade Centre (BITC). Amongst the functions of the BITC is to promote investment and sustainable business opportunities in the country through special tax arrangements with the Government primarily for employment creation and economic growth. Investors (mainly from the region) may invest in any sector of the economy (mining, manufacturing and services industries) but must first be licensed as an IFSC-entity by the BITC, and thereafter obtain a business license from the responsible competent authority. In the financial 1 Paragraph 39, page 19 of the Report Anti-money laundering and counter –terrorist financing measures in Botswana - 2017 9