Rwanda's responses to money laundering

THE UNIVERSITY OF THE WESTERN CAPE

FACULTY OF LAW

Rwanda's Responses to Money Laundering

Research Paper submitted in partial fulfilment of the requirements for the
award of the LLM degree

Francis DUSABE

Student Number: 3469359

SUPERVISOR

Prof Lovell Fernandez

Date: 17 November 2014

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DECLARATION

I, Francis Dusabe, declare that Rwanda's Responses to Money Laundering is my own work, that it has not been submitted for any degree or examination in any other University, and that all the sources used or quoted have been indicated and acknowledged by complete references.

Signature:

Date:

Supervisor: Prof Lovell Fernandez

Signature:

Date:

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ABSTRACT

In 20 the years after the genocide that afflicted Rwanda, the country has made

considerable progress towards developing human resources in the public sector. It has kick-started its economy and improved sectors such as public health and education. There is still a need to attract direct foreign investment to boost the economy even further.

However, Rwanda needs to take precautionary measures to ensure that it does not fall prey to economic criminality which will impede its economic progress. The fact of the matter is that young transitional democracies are prone to attract economic delinquents who take advantage of loopholes in the law to advance their criminal goals. This is particularly so in a country such as Rwanda, where the government has to prioritise other pressing needs that must be addressed.

This paper assesses the extent to which Rwanda is prepared to deal with the menace of money laundering, a threat that may well stunt its ambitions to build a strong economy.

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ACKNOWLEDGEMENT

It is by the Grace and Love of God that today I can look back and say `I made it'. This research paper is a fruit of combined efforts by people whom I wish to acknowledge

My gratitude goes to DAAD for its financial support for my studies, both in Cape Town and Berlin.

To my Supervisor, Prof Lovell Fernandez, for his patience, valuable criticism and incisive guidance during the writing of this dissertation.

To other Lecturers namely: Prof Werle, Prof Koen and Dr Moritz. Their wisdom has contributed to making me a kind of person I have become today.

To Jean and Windell, for their time and constructive advice on my research paper.

To my family and friends, you are the reason why I strive to move forward.

To all the above named persons who touched my life in different ways and other persons whom I could not mention, God bless you.

Francis Dusabe

Cape Town, South Africa

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LIST OF ACRONYMS

AML: Anti-money laundering.

FT: Financing of Terrorism.

ML: Money laundering.

FSRB: FATF Style Regional Body.

ESAAMLG: Eastern and Southern Africa Anti-Money Laundering Group.

EAC: East African Community.

DRC: Democratic Republic of the Congo.

FATF: Financial Action Task Force.

UNGA: United Nations General Assembly.

Palermo Convention: United Nations Convention against Transnational Organised Crime.

UNCAC: United Nations Convention against Corruption.

FIU: Financial Investigation Unit

DNFBP: Designated Non-Financial Businesses and Professions

USD: United States Dollars

NPPA: National Public Prosecution Authority

RNP: Rwanda National Police.

PEP: Politically Exposed Person

NPO: Non-profit Organisation

Rwf: Rwandan Francs

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TABLE OF CONTENTS

DECLARATION ii

ABSTRACT iii

ACKNOWLEDGEMENT iv

LIST OF ACRONYMS v

KEY WORDS x

CHAPTER ONE

GENERAL INFORMATION ABOUT RWANDA AND THE EXTENT OF MONEY

LAUNDERING		1
1.1	Introduction	1
1.2	The State of Money Laundering in Rwanda	2
1.3	Country Facts	5
1.4	An Overview of the Rwandan Legal System	7
1.5	Rwanda in the Great Lakes	7
	1.5.1 Regional Security	7
	1.5.2 Who Benefits from the Minerals?	9
1.6	The Overall Crime Situation in Rwanda	10
1.7	Why Rwanda Needs Strong Anti-Money Laundering Laws	12
1.8	Structure of the Study	14

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CHAPTER TWO

UNDERSTANDING MONEY LAUNDERING: CONCEPT AND LEGAL FRAMEWORKS 15

2.1 Introduction 15

2.2 Understanding Money Laundering 16

2.3 International Instruments Meant to Fight Money Laundering 18

2.4 The Rwandan Anti-Money Laundering Legal Regime 22

2.5 Conclusion 25

CHAPTER THREE

ASSESSING THE EFFECTIVENESS OF ML RESPONSES IN RWANDA 26

3.1 Introduction 26

3.2 The Legal Responses 26

3.2.1 Scope of Criminalisation 26

3.2.2 Elements of the Crime of Money Laundering in Rwanda 28

3.2.3 Extra-Territorial Application of the AML Laws 29

3.2.4 Dealing with Criminal Proceeds 31

3.2.5 Identification and Protection of Property Subject to Provisional Measures 34

3.2.6 The Fate of the Confiscated Property and the Protection of Third Party Interests34

3.2.7 Cross Border Movement of Cash 35

3.2.8 Aligning Rwanda's Legal System to FATF Standards 36

3.3 Anti-Money Laundering Coordination and Institutional Framework 38

3.3.1 The Financial Investigation Unit (FIU) 38

3.3.2 National Public Prosecutor Authority (NPPA) 40

3.3.3 Rwanda National Police (RNP): Economic and Financial Unit 40

3.3.4 The Office of the Ombudsman 41

3.3.5 Revenue Service: Investigation Department 41

3.4 Preventive Measures 42

3.4.1 Preventive Measures in Financial institutions 42

3.4.2 Preventive Measures in Designated Non-Financial Businesses and Professions 45

3.5 Customer Due Diligence (CDD) 48

3.6 Cooperation 49

3.6.1 Domestic Cooperation 49

3.6.2 International Cooperation 50

3.6.3 Mutual Legal Assistance 51

3.6.4 Membership in International and Regional Bodies 52

3.7 Impediments to Prosecution of Money Laundering In Rwanda 52

3.7.1 Overview 52

3.7.2 Stated Challenges in Prosecuting Money Laundering 53

3.7.3 Observed Challenges of Prosecuting Money laundering 54

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3.8 General Observations on the Effectiveness of ML Responses in Rwanda 57

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CHAPTER FOUR

GENERAL CONCLUSION AND RECOMMENDATIONS. 60

4.1 General Conclusion 60

4.2 General Recommendations 61

4.2.1 Confronting the Enforcement Deficit 62

4.2.2 Restructuring the Leadership and Functioning of FIU 64

4.2.3 Refining Public Awareness and Cooperation in AMLMatters 65

BIBLIOGRAPHY 67

KEY WORDS

x

Money Laundering

Compliance

Cooperation

Due diligence

Rwanda

Criminalisation

FIU

Prosecution

Enforcement deficit

FATF 40 Recommendations

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CHAPTER ONE

GENERAL INFORMATION ABOUT RWANDA AND THE EXTENT OF MONEY LAUNDERING

1.1 Introduction

Throughout the world crime is an important social and economic issue.¹ For criminals, it is a source of their livelihood. Criminals prefer to ply their trade in emerging economies, which are mainly found in developing countries. Such young, burgeoning economies need foreign investment, regardless of the source of the foreign capital.

However, the competition amongst developing democracies for investments from abroad has also resulted in turning them into platforms where the proceeds of economic crimes are laundered and then integrated lawfully in the country of origin.

Countries undergoing political transition are favoured by money launderers because of their proneness to corruption, fragile institutions of governance, and manipulable economies.² It is assumed that at least between two and five percent of the global GDP is laundered every year.³

1 See David L & McCrary J Crime, Punishment, and Myopia (2005), available at

http://www.nber.org/papers/w11491.pdf (accessed on 16 June 2015).

2 Santha V `Factors affecting money laundering: lesson for developing countries'(2007) 10 (3) Journal of
Money Laundering Control 358.

3 See KPMG Global Anti-Money Laundering Survey (2014) 6, available at

https://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/global-anti-money-laundering-survey/Documents/global-anti-money-laundering-survey-v3.pdf (accessed on 17 June 2014).

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This chapter focuses on the facts and dimensions of money laundering (ML) in Rwanda, this small country in the African Great Lakes region, and explains why Rwanda requires strict anti-money laundering laws.

1.2 The State of Money Laundering in Rwanda

In Rwanda, money laundering constitutes one of the least investigated risk areas. The dearth of research and literature on this crime makes it hard to determine its extent in Rwanda. Every year persons are prosecuted and punished for corruption, mismanagement of public funds and embezzlement. What remains untouched are the proceeds emanating from these crimes.

According the Rwandan law, money laundering (ML) is an offence constituted by one or several acts⁴ aimed at disguising or concealing wealth originating from crime. Rwanda has adopted an all crimes approach, which means that any crime committed may give rise to money laundering.⁵

In the Rwandan context, not all money that is laundered is aimed at financing terrorism. Most of the money laundering cases involve people who want to make their dirty money appear lawful. In principle, launderers do not have to exceed a monetary threshold determined by the Financial Investigation Unit (FIU) to be liable for ML,⁶ for small amounts of money may be laundered and produce effects which may even be more harmful to the economy than the few

4 Article 2 of the Law N°47/2008 of 09/09/2008 on Prevention and Suppression of Money Laundering and

Financing of Terrorism (herein AML Law).

5 See Louis K `Identifying and Managing Low Money Laundering Risk: Perspectives on FATF Risk Based
Guidance' (2009) 16 338.

6 Article 5 of the AML Law.

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cases of rich people who launder large sums of money. However, what happens in practice is another story, as discussed in chapter 3 of this paper.

The risk of money laundering is high in the area of investment where the government does what it is needed to attract foreign investors. Under this facilitation package, the registration process is simplified and expedited, and investors are given unrestricted rights to conduct profitable business without being subjected to any bureaucratic hindrances. Investors are further lured through tax exemptions and immigration incentives.⁷ The areas most at risk of attracting money launderers include the financial institutions, the real estate sector, the hospitality industry and non-profit organizations.

Undeniably, such government initiatives are commendable for their positive results. For example, the facilitation of capital inflow through the various incentives has increased foreign private investment by 4.1 percent from 2010 to 2011.⁸ However, given the vulnerability of its financial and legal institutions, Rwanda stands the risk of being hit by financial criminals who consider it a safe haven for their illegally acquired money. For example, the ease of company incorporation is an attraction for those who want to use companies as money laundering vehicles.⁹

7 This assumption is based on the dictates of article 42 of the Constitution of the Republic of Rwanda which

states that: «Every foreigner legally residing in the Republic of Rwanda shall enjoy all rights save those reserved for nationals as determined under this Constitution and other laws».

8 See the foreign private investments in Rwanda 2011, available at

http://www.rdb.rw/uploads/tx_sbdownloader/FOREIGN_PRIVATE_INVESTMENT_IN_RWANDA_2011.pdf (accessed on 23 February 2014).

9 See Brett F The Art and Science of Money Laundering: Inside the Commerce of Narcotic Traffickers (1998)
47.

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More risky is the widespread use of internet and mobile banking, which have been privatised and is run by local agents. The people running these businesses are profit-motivated lay people with little regard for laws requiring them to conduct due diligence when engaging in financial transactions.¹⁰

Of concern is the fact that Rwanda's urge to liberalise and expand its financial sector exceeds its capacity to ensure proper oversight of businesses. This poses a great risk in that criminals around the world perceive it as an opportunity to launder their money. This risk is associated with other unresolved legal and policy issues regarding the criminalisation and prosecution of money laundering cases.

In addition, Rwanda does not have a detailed anti-money laundering (AML) implementation strategy. The directives issued to combat ML come not from the government, but from the Financial Investigation Unit (FIU), which has been put in charge of fighting money laundering and the financing of terrorism.

Rwanda is also not yet a member of any Financial Action Task Force-styled regional body (FSRB).¹¹ Currently, it enjoys mere observer status in the Eastern and Southern Africa Anti-Money Laundering Group. For this reason, it has never undergone a mutual evaluation on the implementation of the international AML standards. This paper is a snapshot of a current state of affairs relating to AML in Rwanda.

10 Mobile money services are provided by private individuals, overridden by the urge to benefit, whose

ability to assess to risks of money laundering is reduced.

11 See the Transparency International Corruption Perceptions Index 2013, available at
http://www.knowyourcountry.com/rwanda1111.html (accessed on 24 February 2014).

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Given the loopholes sketched above, it is essential to establish whether Rwanda's AML law and regulations are effective at all, especially when compared to the international AML benchmarks.