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David Hotte, Senior Consultant in Financial Crime at BLC Chambers, spoke to AfricaMoney on how financial crime affects the decision of an investor when contemplating investment in an African business. Our economic expert also noted that the financial sector needs to provide trainings to tackle financial crimes such as Ponzi schemes and internet fraud.

  • In your article on Financial Crime in Africa, you mentioned that “a single approach to combat money laundering will probably not work due to the unique nature of the African economies”. Could you please elaborate on this statement?

The idea here is very simple. In the whole of Africa, if you go by a single approach it will not work because that single approach would be unable to impact the entire economy. To explain further, reaching out to an African economy is not only about impacting the banking system or non-banking financial services like insurance, but also touching the informal sector. Then, if you go on site to work with only the formal sector, you are already fighting a losing battle as more than half the economy in Africa is actually in the informal sector and it means that you would not touch a majority of the African people. That is why a single approach will not work, because the single approach is the ‘regulated-sector only’ approach and it cannot work.

  • What, in your view, are the main causes of financial crime in African economies? 

The reasons, according to me, are first, pure greed – like everywhere else in the world – but then in the African context in particular, you have poverty playing a major part too, as the driving force of both money laundering and financial crime. If you are poor you want to get out of the poverty trap, and if you want to break the shackles of poverty there are only two ways out – either you work harder to get a job, or, unfortunately, you turn to the wrong path and suffer the consequences.

  • Any financial crimes that recently occurred on the African continent which you would like to highlight as cautionary instances?

In Africa there are two categories of financial crime that stand out in my eyes – Ponzi schemes and internet frauds. It is quite fashionable to discuss Ponzi schemes today but I am pretty sure that Ponzi schemes would be even more rampant tomorrow. Just think that, for instance, in the United States, which represents the high echelons of global finance, it was still possible to beat a highly regulated system and pull off a Ponzi scheme affecting billions, so I guess that in Africa, which is far more vulnerable to such frauds, Ponzi schemes will happen more and more.  This is definitely the time when people need to have rigorous training to detect such schemes.

The other issue I would like to discuss in detail is internet fraud. I expect that there would be more and more internet fraud schemes in the years to come, as ICT grows in Africa. If you just look at the statistics, it seems that there are a lot of internet frauds that are originating in Africa. I feel this is likely to be a growing trend as African people are very proactive and can adapt quickly to emerging technology. This is a blessing in one way, as ICT will boom in Africa, given that Africans are very proactive, think on their feet and move quickly. All in all, I think African people are ready for life on the information highway. But this is also why I think the African criminal would be very good in perpetrating internet frauds and evading easy detection.

[blockquote style=”2″]“It is useless for someone coming from the US or Europe going to Africa and explaining how it should work when the concerned expert has no local know-how of the continent.”[/blockquote]

  • What are the types of financial crime that are estimated to take place more often in Mauritius, and in Africa as a whole?

The very first financial crime that you would find in Africa is corruption. In French, we would say it is like “l’arbre qui cache la forêt”, literally: “the tree that hides the forest”. If you can tackle corruption then it is like burning down the root of all evil, but do not forget that when we talk about corruption in Africa we speak about a phenomenon that is all-pervasive and impacts billions of lives across Eastern, Central or Western Africa.Corruption is the biggest curse of Africa and from this curse comes the evil of money laundering because the people who steal the money have to first hide it somewhere and then to route it through the right channels so that they can use this money freely. Thus, from corruption to money laundering is an inevitable step.

Then, you have fraud. Fraud is crucial too because while it can be corporate fraud (against insurance companies, for instance), but it can be also be personal fraud (against people). For instance, we have what we call the Nigerian fraud 419, which typically involves promising the victim a significant share of a large sum of money, and then requesting a small up-front payment to the fraudster to obtain the promised sum of money. If the victim bites the bait and makes the payment, the fraudster either invents a series of further fees for the victim, or simply disappears.

This scam is all over the internet and is hitting various countries. For instance, if you just take Canadian victims of this internet fraud scheme, we are already speaking about dozens of millions of dollars which people are simply sending across in response to such fraudulent mails. Who among us have not received the kind of letter saying: ‘I am the daughter or the son of this president and I want to take my money out of my country, so please help me! Send me some money and I will return more than double once I am able to move my money out of my country.’ This is a typical example of how the Nigerian scam works.

  • In October 2013, the 7th Annual European Financial Crime Conference was held in London. Can you provide us an insight into the outcome of this conference in terms of any particular legislations, as applicable to Africa in particular?

During this conference, which incidentally was not focused on Africa to begin with, and neither was it focused on legislation affecting the continent in particular, what emerged is that there is much that needs to be done in Africa. Very few conferences are held in the form of training seminars on financial crime in Africa, and that is a big part of the problem. In Mauritius, you have trainings on financial crime but if you go deeper into the continent, you will find out that there is nothing much that has actually been set up.

Sometimes, there are a few scattered events in South Africa, but there is complete absence of a concerted effort to fight financial crime. And all such events are organised by international associations and are usually meant for civil servants or public institutions but rarely for private institutions. The conference in London highlighted the fact that there is a need to do something in Africa, which is meant for Africans and is led by Africans.

The African involvement is critical because it is useless for someone coming from the US or Europe going to Africa and explaining how it should work when the concerned expert has no local know-how of the continent.

[blockquote style=”2″]“Investors will look first at the reputation of the country, next if there is any corruption, and only then will they look further to see if there is a possibility to invest.”[/blockquote]

  • In what primary ways does the incidence of financial crime affect the decision of an investor when contemplating investment in an African business?

The problem here is quite fundamental: if an investor wants to invest somewhere and he knows that there is financial crime rampant in that area, he will not go there unless he is a criminal and he wants to be part of it. Actually, it slows down the economy of the country because investment will be less, criminals will flourish and then it can completely pull down a country’s image and finally its economy.

There are a few global examples where foreign investors were not coming to a country anymore but only overseas criminals were investing in that country: the case of Panama in the 80s, for instance. Foreign investment through white channels was not entering the country anymore but it was only attracting criminal investments. It was a very dangerous trend and ultimately, it really dampened investor enthusiasm.

All in all, investors will look first at the reputation of the country, next if there is any corruption, and only then will they look further to see if there is a possibility to invest and to get back their money in case there is a problem. This is how investors evaluate if a country is worth investing in.

  • Finally, as a Senior Consultant in Financial Crime, please provide your opinion on the best way to tackle financial crimes in Mauritius and in Africa.

In Mauritius, as in Africa, there are not many established ways to tackle financial crime. First, you need trainings to ensure that people will know what exactly happened (the category of crime) and how to tackle it (trace the criminal, apply the relevant criminal codes and bring justice to the victims). Then you need to have experts in countering financial crime, so you have to develop specialists against financial crime in the private sector as well, and not only from the ranks of the public sector. And finally, you simply must fight corruption because, in my view, corruption is the root of all evil.Once corruption is tackled, then there will be less and less money laundering and financial crimes, but if you still have corruption somewhere, then it is a major problem as related crimes will continue to flourish.

[Edited excerpts from an exclusive interview]

Image: Cecilia Samoisi

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