17 Dec 2021

IFFs and money laundering / Drugs, real estate and money laundering in Senegal

Will bold action with the Financial Action Task Force help Senegal get off the grey list and strengthen the country's economy?

In February 2021, the Financial Action Task Force (FATF) put Senegal on its grey list of countries. This list indicates that the country does not fully comply with the FATF international standards on combating money laundering and the financing of terrorism and proliferation. It also indicates that Senegal has committed to working with the task force to address deficiencies to combat money laundering and the financing of extremist organisations, within agreed time frames and subject to extra checks.

Senegal has strengthened its legal and institutional framework to fight money laundering in recent years

Senegal is currently ranked eighth in the world for money laundering and terrorist financing risks. According to the money laundering National Risk Assessment, one of the major risks for money laundering in Senegal is drug trafficking, an illegal economy that generates nearly US$360 million (CFA 200 billion) every year. Drug traffickers in Senegal launder their money through different operations to recycle the money generated from their illicit activities. Real estate and construction seem to be the preferred methods.

The flexibility of the real estate sector, which may conceal the financial origins of the investment and the owner's identity, facilitates money laundering and makes this sector attractive to those needing to move funds into the legitimate economy.

As far back as 2011, the Observatoire français des drogues et des toxicomanies (OFDT) highlighted that the easy acquisition of houses and buildings in Senegal was being exploited by drug traffickers based in Europe to launder money. For the OFDT, this type of acquisition is hardly detectable due to the absence of any central data or registry and investors registering property under fake names.

In 2013 it was estimated that out of US$480 million invested in the real estate sector, a massive US$460 million came from dubious origins. According to the Groupe d’action financière sur le blanchiment de capitaux (GAFI), 30% of confiscated criminal goods between 2011 and 2013 were properties in the real estate sector. And in 2019 an estimated 120 real estate agencies had been established by drug traffickers in Dakar over the previous decade, giving the traffickers a channel to launder proceeds of their drug trade.

Cash from the drug trade has reportedly also boosted construction across the country and in the coastal cities of Dakar, Saly and Mbour. Large construction projects are often suspected of being financed by money from illicit trade – as is the case with Akon City, a mega-project financed by American-Senegalese singer Akon, due for completion in 2029. Many in Senegal fear that this project will only facilitate money laundering. Likewise, a French drug trafficker wanted by Europol has heavily invested in the real estate sector, buying lands and building shopping malls and offices.

Senegal's public policy indirectly nurtures these illicit financial flows

Senegal has strengthened its legal and institutional framework to fight money laundering in recent years. However some of the provisions of the laws have yet to be fully implemented. Despite Senegal's pledge to collaborate with the Groupe Intergouvernemental d'Action Contre le Blanchiment d'Argent en Afrique de l'Ouest (GIABA) and GAFI to reinforce its means of tackling money laundering, its presence on the FATF's grey list indicates that tangible results are going to be hard to achieve.

In addition, the lack of technical means to, for example, train employees from financial businesses who have a limited understanding of money laundering (such as bureau de change and money transfer services) further limits the state's response. As a result, the number of people prosecuted for financial crimes compared to the number of infractions committed remains low.

Currently, it appears that Senegal's financial public policy may indirectly nurture these illicit financial flows. For GIABA, some of the drivers of money laundering in Senegal are the widespread use of cash, the importance of the informal sector, and a judicial system that doesn't allow law enforcement to obtain information on the suspected beneficiaries of money laundering.

Aggravating this, the local currency – the Communauté Financière Africaine (CFA) is tied to the Euro. As such Senegal and the countries of the West African Economic and Monetary Union (WAEMU) zone do not have control of the flow of their own CFA franc currency printed in France.

Banking loans for construction should be more accessible to individuals and companies

Muazu Umar, policy and research director at GIABA, told ENACT that the Senegalese authorities are caught in a vicious cycle because of this lack of control over the flow of currencies within and across its territory. Senegal's banking system therefore indirectly (and helplessly) relies on the flow of foreign currencies obtained and moved through informal or illegal channels.

Umar also points out that the ‘lack of sufficient foreign currencies to meet legitimate demand is a major enabler and facilitator of illegal foreign exchange markets across West Africa. The restrictions in the official foreign currency exchange window, coupled with the cost of exchange and slowness of transfer to meet overseas transaction obligations, means that monetary and state authorities are left with very little option in their quest to control financial flows.’

The consequence of this lack of liquidity in the banking system to finance the construction sector may then be linked to encouraging money laundering. Nearly 40% of Senegalese firms face difficulties obtaining loans from banks, compared with 14% elsewhere in the world. This lack of liquidity pushes many Senegalese to seek financial alternatives through illegal channels.

To counter money laundering in the real estate and construction sectors and establish an environment that encourages legitimate business practice, urgent measures to de-link the CFA from the Euro are being advocated.

The independence of the CFA would mean greater flexibility and macro-economic options for Senegal, especially in terms of fiscal and monetary policies. Such fiscal independence would give more leeway to the Senegalese banks to provide loans to individuals and companies more easily. While this is unlikely to be a complete solution to ending money laundering, it is likely to shift the current pattern of dependence on ill-gotten gains.

Abdelkader Abderrahmane, Senior Researcher, ENACT, West Africa Regional Organised Crime Observatory, ISS


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