To fight financial crimes, we must give people bank accounts

Dr Alfred Hannig is Chief Executive Officer of the Alliance for Financial Inclusion, a network of 90 central banks and financial regulatory institutions. Elisa de Anda Madrazo is President of the Financial Action Task Force, the global watchdog on money laundering, terrorist financing and the financing of the proliferation of weapons of mass destruction.

After fleeing violence in Somalia, Dahir set up a mini-market in Uganda, where he is rebuilding his life and growing a successful business. Dahir is one of hundreds of thousands of refugees in Uganda with a bank account, thanks to a central bank initiative that promotes financial inclusion for all segments of the population. This enabled him to secure essentials, like water and electricity, to keep his business afloat. 

Bank of Uganda, a member of the Alliance for Financial Inclusion (AFI), recognises that the purpose of financial inclusion goes far beyond development - it plays a key role in supporting monetary and financial stability, and in strengthening financial sector soundness.

And financial inclusion is vital in the fight against illicit finance.

With Africa losing almost $90 billion a year in illicit financial flows – more than it receives in development aid – the urgency of this fight cannot be underestimated.

Through financial inclusion, countries can help combat underlying crime by providing safe, cost-effective, and reliable financial services to customers who would otherwise be forced to resort to cash or unregulated financial services.

Financial inclusion provides more visibility to spot unusual and suspicious transactions, while unregulated services increase people’s vulnerability to fraud, theft, and other forms of criminal exploitation, such as human trafficking.

For small-scale Cambodian farmers, financial inclusion means not having to borrow money from illegal lenders, which can require putting land titles as collateral, with the risk of land being illegally repossessed.

New guidance and practical examples

A 2022 AFI study found that defences against illicit finance were strengthened after improvements to financial inclusion in Sri Lanka, Mongolia and Paraguay.

But with an estimated 1.4 billion people around the world lacking a transaction account, we need more countries and financial institutions to recognise that financial inclusion and measures to counter money laundering, terrorism financing and proliferation financing – altogether known as AML/CFT/CPF – are mutually reinforcing policy objectives.

That’s why the Financial Action Task Force (FATF) in February updated the international requirements on a risk-based approach to better promote financial inclusion. It has also published new guidance to equip the public and private sectors with practical examples of how they can do this.

These guidelines encourage policymakers to develop regulations that adopt a fully risk-based approach, and design financial inclusion and AML/CFT/CPF strategies that intersect with each other.

They encourage supervisors to guide the implementation of a risk-based approach by ensuring financial institutions focus scarce resources on high-risk areas. The guidelines also encourage financial institutions to use simplified due diligence for people with lower AML/CFT/CPF risks and adopt innovative approaches to ensure that people from typically unserved and underserved groups can access and use quality formal financial services.

For example, El Salvador has incorporated rules for opening “simplified savings accounts” into its legal framework. These rules enable customer onboarding through electronic channels, or agents of banks, savings and credit societies.

These accounts are subject to some restrictions – such as balance and transactional limits - to compensate for the simplified regime. By June 2024, 160,000 men and 140,000 previously unbanked women had opened accounts, helping to address gender inequalities that are often exacerbated by financial exclusion.

AFI collaborates with its network of central banks and financial regulators to implement policies that enhance digital financial literacy for women, youth, and the forcibly displaced, while the FATF supports countries around the world to develop their risk-based approach and holds countries to account through the mutual evaluation process.

Ultimately, boosting financial inclusion is a win-win. It supports sustainable economic growth and development, while helping to close the loopholes that criminals exploit to fuel crime. Countries must use these new tools to harness this opportunity, without delay.