Speedier cross-border payments risk financial crimes

The African cross-border payment system is built for speed and trade – but it could accelerate financial crime, writes Raoul Sumo Tayo in ISS Today. Sending money from N’Djamena to Nairobi has long meant routing it through banks in Europe or the US, converting it twice, and waiting weeks for it to arrive, states Tayo, a senior researcher in the Central Africa Observatory at the Institute for Security Studies (ISS). A new African payment system promises to do it in seconds, he notes in an analysis in News24. ‘However, speed brings opportunities not only for trade but also for financial crime. On 9 July, the Bank of Central African States (BEAC) joined the Pan-African Payment and Settlement System (PAPSS), launched in 2022. The system activates the African Continental Free Trade Area (AfCFTA) by connecting the continent’s various financial systems, including 41 currencies. The benefits for trade are clear, but can the immediacy of payments be aligned with effective controls to prevent PAPSS from becoming a conduit for crime?’ Tayo says Economic and Monetary Community of Central Africa (CEMAC) countries already have a common currency and a shared payment infrastructure that connects banks, financial institutions and mobile money operators in the region. ‘But PAPSS offers an innovative opportunity for trade with the rest of Africa by enabling instant cross-border payments in local currency. In 2026, PAPSS transaction volumes increased by 1 000%, with transaction values rising by 120%. With Central Africa now included, the system covers 30 African countries and 200 banks and fintechs.’

Tayo feels that PAPSS could reduce the risk of international correspondent banks withdrawing from CEMAC. ‘It also provides a fast, inexpensive and traceable alternative to cross-border currency transport and informal hawala-type remittances. PAPSS also facilitates imports and exports and private transfers by reducing payment costs. The speed of the system is, however, its main risk. PAPSS delivers instant, irrevocable credit and subsequent clearing, whereas CEMAC foreign exchange regulations vary according to the nature of the operation. These regulations may require supporting documentation, domiciliation, declaration, authorisation, repatriation commitments and compliance with deadlines.’ The problem, Tayo states, is not that PAPSS and CEMAC rules conflict, but that PAPSS finalises payments in seconds, while CEMAC requires the paperwork to be filed first. ‘The risk is that by the time a fraudulent transfer is detected, funds may already have been withdrawn or transferred, reducing the ability to intervene after settlement. Central African countries already struggle to contain financial crime. CEMAC’s regulations on preventing and suppressing money laundering, terrorist financing and the proliferation of weapons of mass destruction align with Financial Action Task Force (FATF) standards, but implementation is uneven.’ He says in the News24 analysis that Cameroon, the region’s economic leader, has remained under enhanced FATF surveillance since June 2023. Another challenge is that the region’s financial risk profile warrants consideration of small transactions that may escape traditional supervisory mechanisms. False or over-invoicing, splitting transactions (‘smurfing’), transit (‘mule’) accounts, shell companies and capital flight pose risks. Concealment of the ultimate beneficiary, use of insufficiently controlled payment providers, or rapid movement of funds between several jurisdictions also require attention.’

Another issue, Tayo feels, is that fewer than 13% of adults in Central Africa have access to and use formal financial services, such as bank accounts, mobile money accounts or credit. ‘Cash collected through informal networks is deposited in banks or fintechs without appropriate "know-your-customer” processes. Transactions of dubious origin could benefit from the legitimacy attached to a formal payment infrastructure like PAPSS. Without robust identification, monitoring and inter-authority cooperation mechanisms, PAPSS could become a vector for the rapid movement of criminal funds across multiple jurisdictions.’ Tayo notes in the News24 analysis that the system needs to interface with anti-money laundering and counter-terrorist-financing institutions to optimise controls. ‘A payment could be identified, executed and traced even though it constitutes a fictitious commercial transaction with false invoices that conceal the money’s real origin or destination. Compliance control will be key to processing larger volumes of cross-border transactions. Supervisory and financial intelligence capacities within PAPSS should be bolstered to strengthen upstream detection and enhance the authorities’ ability to quickly exploit transaction data.’