Tanzania loses correspondent bank on weak anti-money laundering laws
Saturday December 23 2023
IMF notes that while Tanzania is taking steps to align their legal framework with the FATF standards and improve the effectiveness of the AML/CFT framework, the progress has been however limited. PHOTO | SHUTTERSTOCK
Tanzanian financial sector has lost correspondent banking over weak anti-money laundering legislation, dealing a blow to Dodoma’s integration with the global payment system.
The International Monetary Fund (IMF) disclosed through its Country report for Tanzania No 23/425 that the “loss of correspondent banking related to deficiencies in the anti-money laundering and combating the financing of terrorism (AML/CFT) framework remain key vulnerabilities.”
A correspondent bank is a financial institution that provides services to another one and usually in another country.
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It acts as an intermediary or agent by facilitating wire transfers, conducting business transactions, accepting deposits, and gathering documents on behalf of another bank.
However, the fund says the banking sector is well-capitalised, profitable and liquid, rapid credit growth, high credit concentration and financial dollarisation.
The Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog, maintained Tanzania together with Uganda, South Sudan and the Democratic Republic of Congo on its list of jurisdictions under “increased monitoring” noting glaring weaknesses in their measures to combat money laundering, terrorist financing and proliferation financing.
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The IMF notes that while the Tanzanian authorities are taking steps to align their legal framework with the FATF standards and improve the effectiveness of the AML/CFT framework, the progress has been, however, limited “and effective coordination among responsible government institutions is needed to address remaining gaps.”
“In consultation with the Fund, the authorities (Tanzanian) are establishing an AML/CFT risk-based supervisory approach that assigns a supervisor for each sector (financial institutions and designated non-financial businesses and professions), details a template sectoral money-laundering terrorist financing risk assessment methodology, establishes a template onsite and offsite supervisory manual, and a supervisory plan for the highest risk sectors,” says IMF.
Tanzanian economy is projected to pick up, albeit at a slower pace, reaching a growth rate of five percent and 5.5 percent in 2023 and 2024, respectively, supported by improvements in the business environment and subsiding global commodity prices.
However, intensification of regional conflicts, increased commodity price volatility, an abrupt global slowdown or recession, natural disasters related to climate change, failure to arrest emerging forex market imbalances, and poorly executed scale-up of public investment projects could weigh negatively on the economy’s near-term outlook.
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“Risks to the medium-term outlook include complacency in reform implementation and spillovers from deepening geo-economic fragmentation,” says IMF.
Last week, the World Bank approved loans worth $1.14 billion to Tanzania to support its private sector, develop its commercial capital and fight effects of climate change.