Morocco’s Difficult Task of Combating Money Laundering

Article from The North Africa Journal

Morocco will need a major commitment to law enforcement if it really means to make a dent in stopping money laundering and financial crimes. Forced to upgrade its practices in accordance to international law, Morocco is implement a bold new legislation that incorporates harsher prison terms and higher fines for white-collar criminals.

After tightening its anti-terrorism legal arsenal, the Moroccan government is working to establish a much more severe anti-money laundering law. In its current draft, the law seeks to correct the perception foreign observers have on Morocco related to its stance on financial crime and dirty money. Its authors are working to line up the country’s laws with international standards. In fact, the draft law largely comes from recommendations made by the OECD's Financial Action Task Force (FATF).

The FATF is an inter-governmental body whose purpose is the development and promotion of policies, both at national and international levels, to combat money laundering and terrorist financing. The Task Force is a policy-making body created in 1989 that works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas. The FATF has published “40 + 9” recommendations to combat money laundering and the financing of terrorism, which Morocco is considering to adopt.

The Moroccan law considers the involvement of a much larger number of institutions, from the traditional role of the finance ministry as the main government entity, to the treasury, banks, currency exchange office, lawyers, real estate agents, financial analysts, the stock exchange and others. The authors of the law are attempting to incorporate all institutions that could be used by money traffickers and enlisted them as future enforcers of the law, or at least make them more responsible. All of these players will have to use what is called a "suspicion declaration," meaning that any time they have doubts over the origins of the funds, they are required to report them to the proper authorities.

Removing the Deeply-Rooted Professional Secrecy:

But in this push for more transparency, the Moroccan professionals will be required to make major changes in the way they conduct business vis-à-vis their own clients. The biggest change is the requirement to eliminate the so-called "professional secrecy." Secrecy has long been used as a means to avoid disclosure and protect financial crooks. But the Moroccan law protects professional secrecy. It is prominently present in the national legislation, in particular in the penal code and the banking law of 1999, and so its removal will not be easy.

While maintaining some level of professional secrecy, the draft law does not shield professionals when providing information for intelligence gathering purposes. The coordination on information gathering will be the responsibility of an organization to be named "Unité." This unit will be based in the treasury department after the issue of its location was subject of a feud between the finance ministry and the interior ministry.

The Unité will have vast investigative and enforcement powers with its own police force. The law involves also the Royal Prosecutor. Article 17 says when the intelligence shows evidence of wrongdoing; the Royal Prosecutor would issue the proper investigation authorizations. With the permission of a judge, the prosecutor can issue an order to freeze or confiscate assets of a suspicious individual or company. The suspected individuals and companies can either be based in Morocco or abroad and their alleged crimes may not have to be committed in Morocco proper.

Skepticism Over Enforcement:

These proposed changes have received positive feedback from FATF in particular following the creation of a regional FATF-equivalent for Middle East North Africa call MENAFATF. But many observers remain skeptical as to the real impact such a law would have. This is because the weight of the informal sector in Morocco is so significant that authorities are likely to face major hurdles in implementation. The challenges are indeed monumental. Many specific regions in Morocco are known to generate a great deal of revenue from the informal sector, where dirty money rules. Regions such as Tangiers and the northern provinces closest to Spain and Nador are essentially considered the biggest sources of illegal financial activities since they are home of cannabis production and the illegal immigration business. Revenues from these two activities alone are estimated to be in the dozens of billions of dirhams and largely fuel the local economy and generate jobs. Indeed this money is recycled into the local and national economies, and often moves beyond the borders. There are entire sectors that are victims of trafficking and money laundering, including but not limited to agriculture, real estate, arts trade, jewelry, gambling, and even postal stamp trading. Because the informal sector accounts for a substantial share of many of these sectors, trafficking makes a major impact on them. As most businesses are cash-based transactions with no invoicing or paper trail, identifying illegal activities can be tricky to impossible, with the biggest winner being the criminal networks and the biggest loser being the state with uncollected taxes.

But for the optimists, in particular in the legal community, there has to be a time when traffickers need to recycle their money into the formal and official markets to sustain their investments, hence it is only a matter of time before they are caught. This position, although optimistic, eventually suggests that for the time being the implementation of the new law will have limited to no impact, at least in the medium term. Despite this assessment about a sector that uses informal channels, the fact is that money launderers and traffickers manage to use today the banking sector. This is the reason why the law added a list of requirements for banks to follow to identify wrongdoers, including basic reporting requirements that identify the source of the money and the identity of the clients.

Attempting to stay ahead of the curve, the Moroccan central bank Bank Al-Maghrib already issued an order in January 2004 relative to the issue of accounts and account holder monitoring. The aim of the order was to reassure skeptical international financial institutions that Morocco was on the right path prior to enacting a new legislation. The new law provides additional clarifications on specific points such as allowing individual banks to determine at their discretion the criteria that makes a depositor suspicious and worth reporting to authorities. These criteria will be in addition to a certain minimum for deposits and transactions that the authorities will determine. In other words, banks could alert authorities if the amount involved is even lower than what was determined by the authorities as a point of suspicion.

A Shock to the Banks and the Court System:

Not only banks but also lawyers, real estate firms and financial experts will be required to submit a written report to the "Unité" of suspicious transactions. The concerned individuals or companies will have to wait for the court decision that must be made within 48 hours. While this looks like a fast process, observers fear the Moroccan court system is not ready to react that quickly. For the past five years, the Moroccan court system has been going through an important transition with the introduction of information technology (IT), computing and databases. Five years into the process and the effort has not yet yielded the expected outcome. Courts continue to function the old-fashion way with the massive paper trail and lengthy bureaucratic proceedings. Only a solid IT platform could help take a bite out of criminal organizations, while streamlining and speeding up the decision making process.

Banks are also not ready and will have to adjust to compliance issues very soon. A few banks have begun to make changes in their processes to introduce compliance as part of their systems. BMCE Bank has established a fully dedicated anti-money laundering unit within the General Control and Compliance division. The bank is acquiring special software that is capable of filtering and analyzing accounts and transactions behaviors to identify specific risk profiles. The software will reportedly be operational this year. But BMCE is one bank among many and not all appear to be taking the issue seriously. And there are not just the banks in the anti-money laundering ecology. Some 38 professions and sectors are on the hook to contribute to this clean up operation. Not all of them are ready to endorse the move given the added cost and troubles for them.

But before getting there, the draft law will have to undergo a multi-step process, the most important of which is the coming debate in parliament. Some lawmakers fear that the amount of pressure they are facing from lobbyists could lead them to diminish the content of the law to a point where it could become irrelevant.

Tags: Morocco, Fes, Maghreb, news