Financial Crimes Survey Report 2013 Where is the exposure?

Robert Nyamu Director, Deloitte Forensic Services East Africa

Contents Overview Prevalence, modes and impacts of financial crimes Financial crime prevention and detection mechanisms AML regulatory frameworks across East Africa

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Overview

Respondents by Sector
The spread of respondents per sector was as follows: Banking sector 69% Insurance 25% Real Estate 3% and Capital Markets 3%

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Asset Base of Respondents

63% of the respondents have an asset base of over US$ 3.5M 10% have an asset base of between US$ 1.2M and 3.5M

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Domicile of respondents
The spread of respondents in the region was as follows: 38% are based in Kenya. 22% are based in Uganda 22% have a Regional Presence 9% are based in Tanzania 9% have a Global presence

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Prevalence, modes and impacts of financial crimes

Prevalent forms of financial crime

The top three most prevalent forms of financial crime across East Africa are: Cash theft at 72% in Kenya, 67% in Uganda and 71% in Tanzania. Cheque fraud at 44% in Kenya, 50% in Uganda and 14% in Tanzania. Asset misappropriation at 33% in Kenya, 25% in Uganda and 29% in Tanzania.
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Common ways of perpetrating financial crimes

Across East Africa, perpetration of financial crimes commonly involves a combination of internal and external parties.

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Most likely to perpetrate internal financial crimes

Across the region, most respondents indicated that non-management personnel were most likely to perpetrate financial crimes in the organisation. It is interesting to note that it is only in Kenya where senior management is considered likely to perpetrate financial crimes within the organisation

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Likely causes of prevalence of financial crimes

In Kenya, 57% of the respondents feel that the most likely cause of financial crimes is the abundant liquidity in the industry which makes it attractive to fraudsters. In Uganda, 50% of the respondents feel that the most likely causes of financial crimes are: Abundant liquidity in the industry which makes it attractive to fraudsters; Weak or inadequate financial crimes controls; and Manipulation of data and circumvention of IT controls. In Tanzania, 50% of the respondents feel that the most likely causes of financial crimes are: Weak or inadequate financial crimes controls; and Diversity of products which are not matched with robust controls mechanisms.
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Prevalence, modes and impacts of financial crimes

Extent of threat posed by financial crimes
When asked if financial crimes are posing a serious threat to the growth and expansion of the industry, most of the respondents in the region stated that it was a threat, but only to a small extent

Perceived extent of annual losses through financial crimes

36% of respondents in Kenya and 25% of respondents in Tanzania stated that the industry is losing more than ten million US dollars as a result of financial crimes annually. In Uganda, 29% of the respondents stated that the industry is losing between one million and ten million US dollars as a result of financial crimes annually

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Perceived extent of annual losses in key sectors

19% of the respondents in the banking sector feel that annual losses are likely to be above ten million dollars.
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In the insurance sector, 25% of the respondents feel that annual losses are likely to be above ten million dollars
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Impact of financial crimes

Across the region, 100% of the respondents feel that the greatest impact of financial crimes is reputational damage. In Kenya, this is followed by actual financial loss at 71%, in Uganda by regulatory & legal risks and actual financial loss both at 50%. In Tanzania, 100% of the respondents also feel that actual financial loss has a great impact on their organizations.
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Financial crime prevention and detection mechanisms

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Financial crimes prevention mechanisms

In all three countries, the majority of the respondents stated that they have implemented segregation of duties & job rotation as mechanisms to mitigate financial crimes. In Kenya, the second most commonly used mechanism to mitigate financial crimes is conducting of background checks on employees prior to recruitment.
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Financial crimes detection mechanisms

Across East Africa, most respondents conduct risk based internal audits: 100% in Kenya; 83% in Uganda; and 100% in Tanzania.

Most organizations also conduct risk based transaction monitoring on an ongoing basis: 71% in Kenya; 67% in Uganda; and 50% in Tanzania

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Effectiveness of financial crimes prevention and detection mechanisms

Prevention Majority of the respondents stated that the financial crimes prevention mechanisms were effective in their organizations. However, a small minority in Kenya who feel that the mechanisms in place were not effective.

Detection Majority of respondents stated that financial crimes detection mechanisms are effective in their organizations. 17% of the respondents in Uganda and 21% of the respondents in Kenya stated that the financial crimes detection mechanisms in place are very effective in their organizations

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Financial crime prevention and detection mechanisms

Transaction monitoring systems
Across the region, 67% of banks do not have automated systems to facilitate monitoring and reporting of suspicious and cash transactions, while 5% have a semi automated system. None of the insurance companies have an automated system to facilitate monitoring and reporting of suspicious and cash transactions. Some of the insurance sector players stated that they have virtually no cash transactions

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Remediation measures
Across the region, 86% of the banks stated that they have a retrospective remediation program to fill in gaps in customer due diligence information for existing customers, while 88% of insurance companies stated that they do not have such measures in place.

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Responsibility for dealing with financial crimes in the organization

The majority of the respondents in Kenya and Tanzania stated that the internal audit team and senior management are responsible for dealing with financial crimes in their organizations. The majority of the respondents in Uganda stated that it is the responsibility of the risk and compliance team as well as senior management to deal with financial crimes in their organizations

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AML regulatory frameworks across East Africa

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Perceived effectiveness of AML regulatory framework

A majority of the respondents in Kenya and Tanzania feel that the AML regulatory framework is effective in combating financial crimes. However, 83% of the respondents in Uganda feel that the framework is not effective in combating these vices, which should be due to the lack of the necessary legislation.

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Perceived effectiveness of AML regulatory framework for key sectors

67% of the respondents from the banking sector and 50% of the respondents from the insurance sector stated that the AML regulatory framework is effective in combating financial crimes.

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Existence of AML compliance frameworks for key sectors

Across the region, the majority of the organizations stated that they have AML compliance frameworks in place.

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Components of AML compliance frameworks for key sectors

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