Namibia at a Crossroads: Unmasking Trade-Based Money Laundering in the SADC Shadow Economy

When Namibia was greylisted by the Financial Action Task Force (FATF) in early 2024, much national attention focused on the financial sectors (banking and non-banking), regulatory bodies, and legal frameworks.

However, as these developments unfold, it’s worth considering a potentially overlooked but equally serious risk: trade-based money laundering (TBML).

While the greylisting process didn’t explicitly mention it, TBML poses a significant threat, not just in Africa but globally.

For Namibia, positioned as a trade and transit hub in the region, this risk is too substantial to ignore.

TBML’s danger lies in its inconspicuous nature. Unlike stereotypical cash smuggling, TBML often mimics legitimate business through fake invoices, mispriced goods, shell companies, and fictitious trade routes.

Criminals use these tools to launder illicit funds via legitimate import and export systems, involving customs, freight companies, and clearing agents, all masked by seemingly compliant paperwork.

This is the concerning aspect.

Namibia’s crucial role in the regional trade network, with its ports, the Walvis Bay Corridor, and connections to Botswana, Zambia, Angola, and South Africa, make it a natural transit point for cross-border commerce – typically a source of pride.

However, this also creates vulnerability. Insufficient oversight of both physical goods and the associated financial flows risks transforming Namibia into a laundering zone for illicit funds from across Southern Africa.

While TBML wasn’t the reason for Namibia’s greylisting, this event should serve as a stark reminder of the broader risks inherent in a globalised economy and increasingly sophisticated financial crime.

Traditional anti-money laundering (AML) controls like customer due diligence, suspicious transaction reporting, and bank-level monitoring are not easily applicable to trade.

OPERATING IN SILOS

The operational separation between customs and financial systems creates a vulnerability that TBML exploits.

This issue is particularly complex within the Southern African Development Community (SADC). Despite the benefits of regional trade integration, differing customs and AML enforcement across member states create weaknesses.

Criminals can exploit lax controls in one country to move money or goods into another with stricter systems, all disguised as normal trade. Currently, the necessary regional coordination and real-time data sharing to prevent this are lacking.

Consider a practical scenario: a Zambian company seeking to move illicit funds might over-invoice machinery from a Namibian supplier, wiring the inflated payment under the guise of a legitimate business transaction.

Alternatively, an Angolan diamond trader might under-declare a shipment’s value routed through Walvis Bay, moving money out of the system unnoticed. These are not hypothetical; such schemes likely occur undetected in places like Namibia.

To be fair, Namibia has taken important legislative steps, including the recent prohibition of Structured Market Access (SMA) trading.

This mechanism, allowing indirect offshore investments, was increasingly seen as a loophole for illicit financial flows and ownership opacity.

While not directly trade-related, dismantling the SMA model demonstrates a growing awareness of potentially abusive financial structures.

This change, though disruptive to parts of the capital market, was necessary for long-term financial oversight and transparency in ownership, investment, and money movement.

Furthermore, the private sector’s role is crucial.

Freight forwarders, customs brokers, and warehousing companies are uniquely positioned to identify red flags before regulators.

However, their awareness, training, and legal obligation to report suspicious activity are often insufficient and require attention.

Increased investment in technology is also essential. Other nations are using advanced analytics, artificial intelligence, and blockchain to track trade flows, verify invoices, and detect unusual patterns. Namibia doesn’t need to innovate from scratch but must modernise.

Integrating these tools within the Namibia Revenue Agency (Namra), the Financial Intelligence Centre (FIC), and other relevant bodies would significantly enhance TBML detection capabilities before it escalates into a national risk.

Ultimately, trade-based money laundering is not solely a financial crime; it’s an economic and governance issue. It erodes tax revenue, distorts market prices, facilitates corruption, and threatens legitimate businesses.

Inaction risks not only financial isolation but also undermines the very trade systems Namibia has worked to build.

Therefore, while not a cause for panic, this issue demands proactive preparation.

The greylisting may not have explicitly mentioned TBML, but ignoring the warning signs would be imprudent.

Namibia is at a critical juncture, needing to address not only the flagged issues but also these hidden vulnerabilities before they become prominent scandals.

• Karischa Schmidt is the group compliance officer of group corporate governance at Old Mutual Namibia.

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