Further to a press release on May 7, 2020, the Europen Union (EU) announced that it has added Ghana to its list of blacklisted countries for money laundering. Indicating that the measure is not yet in force, this decision follows a similar one on February 19, 2019, to blacklist Ghana. The major media networks in Ghana unsurprisingly reported this development. What was not clear in these reports, however, were the legal basis for the EU’s action and its implications for Ghana.
This article provides a brief background to EU law on money laundering and examines the implications for transactions involving Ghana. Though principally for mass educational purposes, the article also touches on whether there are double standards in how the EU enforces anti-money laundering and countering terrorism financing (AML/CTF) laws in relation to its Member States and Third Country jurisdictions, where Third Countries refer to jurisdictions outside the EU or the EEA.
What is money laundering?
Generally speaking, money laundering refers to the processes employed by persons to legalise illegally acquired money or proceeds of crime. There are three recognised processes involved in money laundering: placement, layering and integration. Self-explanatory, placement involves criminal persons putting illegally money acquired funds into the financial system including depositing into a bank account and purchasing valuable assets. Layering involves the deposited funds been used for complicated transactions such as the purchase of the real estate. The successful disguising of the funds or proceeds of crime is called integration.
Regulating money laundering is vital due to the trite need to ensure criminals do not benefit from the proceeds of criminal activities. Regulating money laundering is similarly important since it is strongly linked to terrorism. Terrorist activities have grave negative consequences including economic chaos, political instability and killing of innocent lives. The rational need to transnationally regulate money laundering and terrorism financing (AML/CTF) have been globally recognised. This is critical as ML/TF activities cut across international borders.
AML/CTF in the EU
As the largest trading block in the world, the EU has since 1991 been at the forefront of measures needed to combat money laundering through the issuance of directives. Under EU law, directives have direct effect, which means they are immediately enforceable whether or not the Member State has implemented it into its domestic legislation. The current law regulating money laundering in the EU are the 4th and 5th Money Laundering Directive the latter of which came into force on 9 July 2018. Together these Directives strengthened the criteria for money laundering regulation in the EU.
Further to Article 9.2 of the 4th Directive, the EU is required to regularly report on Third countries systems on money laundering and to ensure laundered money does not flood into the EU financial system. It was pursuant to this requirement that the EU has since 2016 produced a regular report on priority Third Country jurisdictions considered by the EU to amongst others have systemic impact on the integrity of the EU financial system and who have economic relevance and strong economic ties with the EU. The EU stresses that it is not driven solely by self-interest but it also seeks to assist third countries as well as global efforts in AML/CTF.
Money laundering-practical compliance and implications for blacklisted countries
The basic practical way Member States comply with EU money laundering laws involves putting in place the broad legislative frameworks and policies to combat money laundering including the establishment of institutions that would be at the forefront of such efforts. Compliance by private institutions on the other hand fundamentally requires businesses knowing their customers and clients (KYC) well and ensuring that they are not criminals seeking to disguise proceeds of crime.
There are two fundamental types of KYC-customer due diligence (CDD) and Enhanced Due Diligence (EDD). Whilst compliance to CDD involves establishing the customers’ identity through official documents and keeping records of same, EDD applies to complex transactions including those involving politically exposed persons (PEPs) and high-risk countries.
The implications for Ghana is that countries and businesses dealing with Ghana must go through greater hurdles by applying EDD principles. For instance, when Party A, established in the EU is dealing with Party B in Ghana, Party A must, amongst others, obtain additional information about Party B’s beneficial owners including the source of funds and wealth, intended nature of the business relationship and reasons for the transaction. Party A must also obtain senior management approval.
Moreover, businesses who engage in commercial relations with blacklisted countries stand the risk of facing sanctions should problems occur. Banks must be cautious in approving payments and transfers where they relate to blacklisted jurisdictions thus leading to additional costs. In short, there are bureaucratic hurdles, cost, reputational and serious legal implications should businesses deal with entities in blacklisted countries. For Ghana, the implications include damage to its reputation and reluctance by businesses to engage in commercial relations with Ghanaian businesses.
Since the EU is a major trading destination for Ghanaian businesses, Ghana is obliged to work with the EU to ensure that its money laundering regulations, systems and policies meet EU standards. Some may query, understandably, why the standards must be EU requirements. Ignoring for a moment the political dynamics of such an enquiry, the starting point in resolving the EU’s blacklisting of Ghana involves the latter knowing the reasons for the EU’s action.
The particular reasons why the EU blacklisted Ghana do not seem to have been made public yet. Basic informal enquiries with banking professionals in Ghana confirm this curious position. The EU states generally that it takes account, amongst others, of ‘the work of the Financial Action Task Force (FATF), the international standard-setter in this field’ in deciding to blacklist any country. Reference therefore to the FATF’s money laundering report on Ghana might logically assist in appreciating the reasons for the EU’s action.
Money laundering law and the role of the FATF
Money laundering laws, like corporate governance and banking laws, are heavily influenced by international standards. Established in 1989 by the G7 Paris Summit, the FATF has been very influential in establishing principles that influence money laundering laws across the world. Influenced amongst others by UN treaties, there are presently 40 FATF recommendations for regulating money laundering in jurisdictions across the world.
Ghana subscribes to the FATF standards, pursuant to which it enacted the Anti Money Laundering Act 2008 (As amended), the main statute which sets the general framework for AML/CTF. There are other plethora of legislations, guidelines and various institutions which work towards fighting ML/TF such as the Bank of Ghana (BOG) and the Financial Intelligence Centre (FIC). Where ML/TF feeds into broad economic crime or financial crime there are institutions such as the Economic and Organised Crime Office (EOCO) which is required to prosecute offences. The broad framework is thus not dissimilar to the EU money laundering directives as they all spring from the FATF recommendations.
Although Ghana has implemented the FATF principles, FATF reported on 21 February 2020 that Ghana is presently under monitoring. This was after the government in October 2018 made a commitment to the Inter-Governmental Action Group Against Money Laundering in West Africa (GIABA) to strengthen its AML/CFT regime. GIABA was established by ECOWAS in 2000 to strengthen its fight against Money Laundering. Required under AML/CTF regulations, the Ghana National Risk Assessment (NRA) report of 2016 to which reference was made by the FATF, identify that fraud, drug trafficking, corruption, tax evasion and cybercrime are rampant. Ghana is however not blacklisted by the FATF so why has the EU?
EU Methodology for assessing third country jurisdictions
The crucial point to note is that the EU has stated that it has made its requirements for assessing Third Countries stricter. It appears to place greater emphasis now on prompt access to data on beneficial ownership in its ‘revised methodology’. Ironically, the EU maintains its position made clear in the previous methodology that its ‘… the methodology does not apply to an assessment of the AML/CFT regime of EU Member States.’ Indeed even when the FATF has blacklisted an EU Member State, the EU would still refuse to put such Member State in its blacklist.
Buried in a footnote, the EU has stated that ‘as a consequence, should an EU Member State be considered by the FATF as presenting strategic deficiencies it could not be included in the EU list of high-risk countries. In the event that an EU Member State presents such deficiencies, the Commission acting as Guardian of the Treaties will use the specific procedures provided directly by the Treaties (such as infringements).’ This is curious.
Some may question, reasonably, this difference in how the EU treats its Member States from how it treats Third Countries. Further, if the EU is going beyond the standards of the FATF by adopting its own requirements, then critics may further question whether it is not an indirect way of imposing its laws on seemingly vulnerable Third Countries. Indeed one of the major disputes in the Brexit negotiations is the UK’s allegation that the EU seeks to make the agreement subject, not to international standards, but to the latter’s laws and governance structures.
Objectively assessed, Ghana’s AML/CTF regime needs strengthening. Ghana’s NRA in 2016 identified some weaknesses and vulnerabilities including ‘very low enforcement activity’, relaxed oversight by domestic competent authorities, inadequate record-keeping amongst others. Some may contend, and perhaps validly, that this report may be outdated. It may be contended in response that the FATF also in February 2020 highlighted some weaknesses including the need to improve risk-based supervision, ‘ensuing timely access to adequate, and accurate and current basic and beneficial ownership information’ and ‘applying a risk-based approach to monitoring non-profit organisations’. Nevertheless, the FATF has recognised that ‘Ghana has taken steps towards improving its AML/CTF regime’ and should continue to do so.
Concluding thoughts and recommendations
It is regrettable that the EU has taken this action against Ghana at this time. Ghana generally takes its international reputation seriously. Its commitment to global standards in all fields of endeavour is commendable. It is the present author’s submission that due to the negative impacts on the economic undertakings of countries, particularly developing ones, where a country has demonstrated high level political and identifiable practical efforts to strengthen its AML/CTF regime unless, in exceptional circumstances, such countries should not be blacklisted. The Ghana government made such high-level political commitment to GIABA in 2018.
Moreover, formalisation of Ghana’s economy is being vigorously pursued, with biometric identification required as pre-condition for most services, including even state services. It is submitted that this requirement is stricter than those that exist in some jurisdictions in the EU. UK nationals, for instance, have flatly rejected biometric identification. Ghana has however made significant strides in ensuring it captures biometric data on every Ghanaian. Ghana is also advanced in formalised and digitised financial systems including prevalent mobile money transactions which are not even available in some Western countries.
While it is admitted that vulnerabilities exist in Ghana’s AML/CTF regime, there are recognisable efforts from stakeholders in addressing these weaknesses. In the real estate sector to prevent fraud and economic crime, the Vice President of Ghana has made it a personal mission to ensure the completion of the digitization of land records which would greatly assist in dealing with informal real estate transactions. Indeed he has sought to elicit international support from both the UK and the US in achieving this objective. The need to regulate charities or non-profit organisations is long overdue and a possible balanced workable model has been proposed by Gilbert Crentsil in another titled ‘A model for regulating religious charities in Ghana”
In light of the above, Ghana has rightly challenged the EU’s decision to put her on its AML blacklist. Describing the EU methodology euphemistically as ‘unfortunate,’ the Finance Ministry in Ghana cited substantive reasons why the EU’s decision is wrong. Ghana might wish to consider gleaning strategies from the failure of the EU Blacklist in March 2019 when its own Member States unanimously rejected it. Diplomatic pressures were also brought to bear on the EU by Saudi Arabia which was among the list when it threatened to cancel lucrative contracts with EU countries. It is not clear whether Ghana has such clout.
Moreover, prompt rejection by the affected countries pointing to other countries left off the list but with similar circumstances is according to Julia C Morse of the University of California at Santa Barbara, a strong case to make. Reference in this respect could be made to countries in the EU and across Europe in general (https://www.riskscreen.com/kyc360/news/why-the-eu-anti-money-laundering-list-is-so-short/). It would be expected that Ghana would join forces with other countries in this quest.
The EU’s Methodology for assessing Third Countries and moral authority
The EU as an institution is unapologetic that it exists for the fundamental benefits of its Member States. It is hard to say same for most regional bodies in the African continent. The EU sets standards for its Member States to which they must comply. If however, the EU has decided to extend its reach to assessing Third Countries, then it must ensure that as an institution that preaches fairness as one of its principal legal principles, it has the moral authority to do so. Whilst it is within the EU’s right to set its own AML/CTF methodologies, it is valid to enquire whether such regional approaches would not undermine the work of international bodies such as the FATF. Despite the EU’s stated intention to strengthen the activities of international bodies in the AML/CTF fight, the EU’s setting of its own standards and its decision not to recognise the FATF’s sanction of blacklisting any EU Member State in the EU’s blacklist register, raise questions about whether it is not undermining the work of the FATF.
Furthermore, it is valid to enquire into the inherent fairness of the EU applying stricter EU requirements to assessing the AML/CTF regimes of Third Countries including applying penal sanctions, and yet exclude the EU Member States from the draconian sanction of blacklisting.
The present author must stress that none of these questions excuse the need for Ghana to work hard to implement and enforce strong AML/CTF regimes.
This article has dealt briefly with the reasons why the EU has blacklisted Ghana. Post establishing the legal basis, the article discussed the implications for Ghana and queried the fairness in how the EU treats its Member States from how it approaches Third Counties to whom it applies stricter requirements further to its ‘unfortunate’ methodology. The present author agrees with Ghana’s decision to challenge the EU decision to blacklist her principally on the basis of the significant efforts Ghana has put into addressing weaknesses in its AML/CTF fight so far. The article further indicated that Ghana must continue its AML/CTF fight and deal with vulnerabilities as identified by international bodies such as GIABA, FATF further to Ghana’s NRA. Finally, in light of the legitimate questions from various sources about the credibility of the EU’s methodology for assessing Third Countries’ AML/CTF frameworks, it should be expected that it would consider the future destination for its methodology.
Gilbert Crentsil BA (Ghana) LLM (Northumbria) (PhD) (London) is a practising solicitor in England and Wales. Gilbert’s research expertise is in financial services regulation including fraud and consumer protection.
He also practices in property law and is interested in AML/CTF in the real estate sector.
A specialist in UK immigration law and compliance, Gilbert is also interested in how countries’ immigration laws affect vulnerable migrants.
The views of the present author expressed in this article are his own and in no way reflect that of any respective organisation with which he is associated.
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