CATF Reports Aug. 23, 2016, 3:33pm


The possibility of eliminating cash as a way to target terror-financing and money laundering has been a hot discussion topic amongst economists and policy makers in recent years. West Africa, a region with a large informal cash-based economy, is among the latest to chime in on the debate. In a conference in Dakar, the Inter-Governmental Action Group against Money Laundering in West Africa (GIABA), the region’s anti-graft body made up of 15 member states, indicated its desire to limit the transfer of cash money and more closely monitor private organizations. As a specialized regional economic institution responsible for implementing Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT) initiatives, GIABA issued the statement in support of capping currency transactions on August 17th at the conclusion of a two day regional Stakeholder Forum on emerging AML and CFT issues for member states. The aim of the forum was to discuss issues specific to West Africa that have made it susceptible to terror financing and money laundering, and ways to combat it, including increasing border security and aligning its compliance and regulation measures to international financial standards at both state and regional levels.

As of earlier this year, this type of cash transaction limitation has been enforced in many Western countries, and aims to restrict black money circulation in the domestic economy by creating paper trails for high value transactions. In his August 16 publication titled “The Curse of Cash”, economist and Harvard University professor Kenneth Rogoff discussed possibility of phasing out paper currency from the global economy. Rogoff claims that the costs associated with a cash economy outweigh the benefits, the most prominent of these reasons being anonymity. Currently, there is 1.4 trillion U.S. dollars in cash circulating outside of banks. Breaking it down to the family level, this would mean that every American family keeps $13,600 in $100 bills in their homes, a highly improbable scenario. What is more likely is that this currency is being used for illicit financial activities. However, the total loss of anonymity in a cashless society remains highly problematic. Some have offered the solution of decreasing cash use to smaller values of currency by eliminating larger bills, so as not to use cash payments for larger transactions that should be kept traceable.

The recent rise in the number of terrorist attacks in West African countries has resulted in damaging effects to the region’s security and economic stability. For example, groups such as Al-Qaeda in the Islamic Maghreb (AQIM), who has launched attacks in Mali, Burkina Faso, and Ivory Coast in the last year, and Boko Haram, garnering the reputation as one of the world’s deadliest terrorist groups for its killing of over 20,000 and displacement of 2 million people since 2009, have not only created safety issues in the region, but have also driven down tourism and government revenue. The source of funding for these terrorist activities is primarily underpinned by the large informal cash economies present in the region. Hence, terrorist groups tend to take advantage of this dominant informal cash environment to finance their terrorist activities through an illicit flow of cash that is difficult to trace and identify.

Additionally, terrorists in the region notoriously exploit the weak security measures at the borders to smuggle cash into West African states. In the 2013 Terrorist Financing in West Africa Report from the Financial Action Task Force (FATF), an international money laundering and terrorist financing watchdog, a number of cases were listed as evidence. Burkina Faso’s small banking sector and lack of human and informational technology and resources has made cash and other informal value systems susceptible to terrorist abuse especially through the smuggling of cash using cash couriers. Niger was also listed in several case studies for the smuggling of bulk cash and munitions to support Nigerian terrorist activities. In Nigeria, Boko Haram is known to use women as cash couriers, since Muslim security personnel at check points do not make physical contact with women.

Countries without a central banking system or international transfer agency systems such as Western Union are especially prone to terror financing through informal networks known as “hawalas” that are used to deliver money in remittances. Hawalas have been referred to as the “terrorist’s ATM”, and were even used in the past for the 9/11 terrorist attacks. Terrorists privilege these extremely unregulated networks because of their minimal costs in relation to traditional banking rates and the un-traceability of the funds flowing through this informal payment system in their efforts to avoid financial authorities. In a country such as Mali, which relies on cash for nearly all of its day to day transactions, there is no capacity in place to trace the amount of money coming into the country from abroad and used to fund terrorism. These threats have already encouraged some countries to strengthen their AML and CTF laws. For example, the Central Bank of Nigeria has already implemented policies that move it in the direction of a cashless economy by taking measures to reduce the amount of physical cash circulating in the economy. For example, Nigerian authorities have reduced the amount permitted for daily cash withdrawals, the equivalent of $1515 for individuals and $9085 for corporate bodies. Additionally, in 2012 Nigerian banks were prohibited from offering cash in transit lodgment services and from cashing checks over $450 for their clients over the counter.

The call to move towards a cashless economy in West Africa may not actually come as a surprise. If implemented, limiting the amount of cash transfers in these economies is a step in the right direction, and allows closer monitoring and regulation abilities of growing terrorist networks in the region.

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