MONEY LAUNDERING AND IMPLICATIONS IN THE GHANAIAN PENSIONS SPACE

 Money laundering as I understand is basically an activity that “washes” by way of disguise, concealment, conversion through techniques of placement and layering “dirty” money acquired through criminal activities and integration it into the economic system as “clean” legitimate money.

 

Financial institutions are mostly the conduit for such activities and this does not exclude pensions under the Pensions Act 2008, (Act 766), especially the activities of the Corporate Trustees. I intend to look at a couple of ways in which pension can be used to launder money and how the new Anti-Money Laundering Act, 2020 (Act 1044) covers the business of pensions as well as the role of the regulator, National Pensions Regulatory Authority in the fight against money laundering.

 

THE ANTI-MONEY LAUNDERING ACT, 2020 (ACT 1044)

The first schedule list of Accountable Institutions includes an entity that conducts a business by way of investing, administering or managing funds or money on behalf of other persons and a trust acting as, or arranging for another person to act as a trustee of an express trust. This from my understanding makes Corporate Trustees subject to Act 1044 and must put in place anti-money laundering controls and customer due diligence so as not to be used as a conduit to launder money especially through personal pension plans under their tier 3 schemes.

Though from the list of Accountable Institutions, pension business is covered by Act 1044, it seems the framers of the Act did not avert their minds to the fact that money can be laundered through pensions hence did not under section 63 of Act 1044 have the National Pensions Regulatory Authority (NPRA) as either a Competent Authority” or a “Supervisory Body” in the interpretation though the other three financial services regulators were mentioned. The Bank of Ghana that supervises the business of banking, the National Insurance Commission that supervises the business of insurance as well as the Securities and Exchange Commissions that supervises the securities market are all listed. Why is NPRA omitted?

MONEY LAUNDERING THROUGH PENSIONS

Pensions basically involves the receipt and investment of money on behalf of beneficiaries to mature upon retirement. As long as it involves money like the business of banking it is prone to money laundering activities. I intend to touch on two ways, using fake companies and personal pensions plans, in which this is possible and why the pensions industry must be wary of this.

·       Fake Companies

Persons wanting to convert, conceal or disguise money acquired through illegal activity may decide to open a fake company. Fake in the sense that, it has no underlying business product or service to offer. They then pay themselves huge sums of money as salary and have non existing employees as well. This may include family members who are unemployed. From this they pay their tier 1 and tier 2 contributions totaling 18.5% of their basic salary.  The company also sets up a provident fund with the staff contributing 16.5% of their basic salary to take advantage of the full 35% tax exemption under the pensions law. The company as a staff retention policy can then decide to make a contribution of twice the contribution of the employees into the provident fund which though might seem suspicious cannot be questioned if that is their policy; but how many companies do that. Is money being laundered through placement in pensions to be enjoyed upon retirement? of course yes, and this should be of concern to the pensions industry.

The RED FLAG is when there is an early encashment at age 55 years for the tier 1 and 2, with the beneficiaries willing also to do an early withdrawal on the provident fund or personal pension subject to the 15% penalty. This is a small price to pay for them using the money laundering technique of placement. This can further be complicated by taking pension linked mortgages as allowed under the law, rent those houses out through the technique of integration. Dirty money has now been “washed”.

·       Private Personal Pensions Plans

Individuals also in an attempt to want to convert, conceal or disguise money acquired through illegal activity may decide to contribute towards private personal pensions plans as allowed under tier 3 of the National Pensions Act, 2008 (Act 766). They enroll into a tier 3 scheme and make huge payments with no underlying regular income from a known employment source. This would include large one off payments, periodic payments during the same month all to different Corporate Trustees schemes. Such individuals will be having multiple personal pension plans using the technique of placement and layering of illegal funds through the pensions industry.

Such multiple transactions unfortunately can only be detected by the regulator who must have a “bird’s eye” view of transactions in the industry and for this matter must insist on the use of the national identification card as the ONLY form of identification for private pension plans. This would ensure a common “identity key” to be able to pull all such accounts together from prudential returns even if from different Corporate Trustees.

ROLE OF NATIONAL PENSIONS REGULATORY AUTHORITY (NPRA) 

NPRA falls under section 52 of Act 1044 with supervisory powers and under section 29 of Act 1044, each supervisory body is supposed to furnish the Financial Intelligence Centre (FIC) with a list of accountable institutions registered with the supervisory body for the FIC to allocate to each registered institution an identification number. NPRA must then put in place anti-money laundering training for all its Corporate Trustees especially their compliance officers to appreciate, understand how money can be laundered in the business of pensions. The detection and guidelines for reporting suspicious transactions must be made clear to protect the industry.

The regulator must take steps to make sure it is included in Act 1044 as both a Competent Authority” and a “Supervisory Body” for avoidance of doubt. This is to insulate itself from any legal dispute that they are not mandated to deal with anti-money laundering controls and supervision of their licensed trustees. The law as they say is the law as it is written though I am of the opinion that the courts will look at the “spirit” of Act 1044 to include NPRA.

For a holistic approach to fighting money laundering, all the financial services industry regulators may need to come together under one umbrella as a Financial Services Authority where a common AML system and database can be used by them. This will make it easy for a person’s total financial transactions across insurance, banking, investments and pensions to be known from a single source to check placement and layering across the different sectors using a common customer “identity key” of the national identification card number.

CONCLUSION

The NPRA must provide AML guidelines and training for the Corporate Trustees in order to protect the industry as the Corporate Trustees avert their minds to the possibility of their schemes especially tier 3, being used to launder money acquired through criminal activities.