ANTI-MONEY LAUNDERING AND COUNTER FINANCING OF TERRORISM: PRACTICES AND CHALLENGES OF COMMERCIAL BANKS IN ETHIOPIA

Abstract

Money laundering and terrorist financing are considered as criminal phenomenon that can undermine national security and economic development goals of nations in addition to negatively affecting the integrity and stability of financial sectors which in turn can have a severely devastating consequences on the economic, financial and social wellbeing of countries (Lilley, 2006). To this end, the international community has made the fight against money laundering and the financing of terrorism a priority. Ethiopia recently endeavored to combat money laundering and terrorist financing by criminalizing money laundering and financing of terrorism through proclamation no. 780/2013. In this regard, banks play a leading role as the main objective of the law is to ensure the integrity of the Ethiopian financial system. Therefore, the purpose of this research is to assess the Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) practice and challenges of commercial banks in Ethiopia in accordance with international standards and applicable laws. To this end, 6 commercial banks were selected out of 17 commercial banks operating in Ethiopia through purposive sampling based on asset size and year of establishment alongside the leading body, Financial Intelligence Center of Ethiopia (FIC), for subsequent assessment. Thus, the study adopted descriptive research methods by utilizing survey approach which consist structured questionnaire and semi-structured interview to collect the relevant data from the concerned respondents of compliance/risk management staff of selected commercial banks and official of Financial Intelligence Center of Ethiopia (FIC.) Accordingly, it was revealed that, despite the significant progress registered, the AML/CFT practice of the banking sector is unsatisfactory as well as that of the FIC in terms of emphasis being given, level of awareness among senior management, technological advancement and cooperation among law enforcement agencies. Therefore, the banking sector in particular and the country in general are vulnerable to money laundering and terrorist financing risks unless adequate emphasis is given and collaborated effort is exerted towards instilling a robust AML/CFT regime in the banking sector and the country.