Universities should establish anti-money-laundering practices

Reports that the tuition fees of West African students at United Kingdom universities could be used for money-laundering purposes have put universities in Africa that receive cash on the alert, underscoring the significance of anti-money-laundering regulations.

More pressure is put on UK educational establishments to not accept tuition fees in cash and to file suspicious activity reports when they have concerns, according to Helena Wood, associate fellow at the UK-based Centre for Financial Crime and Security Studies of the Royal United Services Institute for Defence and Security Studies.

However, she told University World News that the nature of the threat should be investigated further before blanket regulation is considered.

Ehi Eric Esoimeme, an anti-money-laundering consultant based in Nigeria, told University World News that there is a risk that cash payments from students for university tuition and other service fees will be exploited by criminals to facilitate money laundering.

Universities as vessels for laundering money

Esoimeme said criminals could use private universities and cross-border foreign campuses across Africa as an investment and to integrate proceeds of crime into the legitimate economy. This happens when the ‘criminal’ pays the tuition fees of a student with illicit funds.

“Private universities and foreign campuses could also be used by criminals in trade-based money laundering,” he said. This happens when an amount larger than the tuition amount is paid to the university and an arrangement is made to have the balance paid as directed into different bank accounts of ‘money mules’.

The funds would later be transferred back into the criminal’s main account after deducting their commission, Esoimeme explained. “This can legitimise large amounts of illicit funds.”

Advocate Hannes Bezuidenhout of the Unit for Forensic Accounting in the department of auditing at the University of Pretoria, South Africa, said: “Since other industries are highly regulated, criminals may choose to follow the path of least resistance, including universities.”

Bezuidenhout said the proceeds of crime can be used to pay off study loans, or to pay fees. This does not necessarily mean it is money laundering, though.

“What they can do is to overpay on an account and request the university to refund the ‘overpayment’ to a third-party account such as the bank account of the supplier of drugs, [or a] bribed official,” he said.

The finance institution will not mark that as suspicious, since the transaction emanates from a well-known university.

“They [criminals] can also register (even fictitious) students, pay the tuition and other fees and then cancel the studies with a request to transfer funds to a third-party account,” Bezuidenhout pointed out.

He said there are other methods by which money can be laundered in the education system, such as “creating a private university that knowingly participates in money laundering ” as well as the financing of terrorism activities.

Universities as cash-intensive businesses

“A university that, due to the amount in tuition fees, has a high cash turnover should be considered a cash-intensive business,” Esoimeme suggested.

‘High value dealers’ refers to any business receiving or making cash payments of €10,000 (about US$13,000) or more in single or linked transactions in exchange for goods or services, according to the United Kingdom’s money laundering regulations.

“Universities must have a policy that prohibits the acceptance of cash or banknotes of at least €10,000 in total or its equivalent for tuition and other services fees. If the university decides to accept this amount in cash payments, they should report the transaction to the financial intelligence unit in the jurisdiction concerned,” Esoimeme emphasised.

“This will preserve legitimate cash transactions without compromising the measures that exist for combating money laundering, terrorist financing and other illicit transactions through the university system,” he said.

Some universities could be considered cash-intensive businesses as tuition and fees could be well over €10,000.

“Universities must adopt measures that balance continued progress against the illicit use of cash with the need to accommodate legitimate cash transactions,” Esoimeme said.

Additional measures

He emphasised: “Universities must also implement robust client due diligence procedures, suspicious and currency transaction reporting, and customer record-keeping requirements.”

Bezuidenhout added that one measure a university can take is to refund only to the account the funds originated from, or to repay in cash only, which will send the criminal back to square one.

Garry Clement, adjunct adviser to anti-money-laundering business THE amlSHOP in Canada, told University World News: “My advice to African universities would be to follow what is occurring elsewhere in the world.”

This means no cash payments, ‘know-your-customer’ for students and beneficiaries and, if reimbursement is requested, reroute it back to where it originated,” Clement emphasised.

Know-your-customer is part of the customer due diligence performed by regulated financial service providers that are required by law to verify the identity of all their clients, safeguarding against money laundering and terrorism financing.

“I work with a company that has created a university payment platform called Paymytuition to help safeguard universities from being used for money laundering,” Clement said.

The platform has an application programming interface that verifies each name against sanction lists such as anti-money laundering and requires ID which is verified through the university.

This stops kleptocrats from paying for their children and then requesting cancellation with directions for transferring the money, Clement said, adding, “We know universities in the UK are allegedly being used by Nigerian kleptocrats.”

Culture of compliance

“Universities must have a strong culture of compliance which will enable them to comply with anti-money laundering (AML) and combating the financing of terrorism (CFT) obligations,” Esoimeme said.

“Besides having adequate staffing for the proper monitoring of day-to-day compliance with the relevant anti-money-laundering laws and regulations, universities must have sufficient human and technological resources to meet their AML or CFT obligations,” Esoimeme emphasised.

Universities must have an independent compliance department with an established policy that discourages the university board of directors and management from interfering with the staff’s duty and responsibility of due diligence where large cash payments are concerned, he added.

“Universities should engage and retain an independent, external, qualified, and experienced external auditor (the ‘third-party reviewer’), not subject to any conflict of interest, to examine their compliance programme and to conduct risk-based independent testing of their AML programme.”

Esoimeme said independent testing should include programme governance, compliance structure and staffing; risk assessments; compliance with all record-keeping and reporting requirements, including currency transaction reporting, suspicious activity reporting, and know-your-customer policies, procedures and controls; and training and communications.