Money laundering and pensions

Digitalization with respect to private pensions is the reorganization of pension business and service delivery using Information and Communication Technologies to create digital relationships between the Trustee and the Contributor/Client (T2C);
Kofi Anokye OWUSU-DARKO (Dr)

Money laundering, as I understand, is basically an activity that ‘washes’ by way of disguise, concealment, conversion through techniques of placement and layering ‘dirty’ money acquired through criminal activities, and integrating it into the economic system as ‘clean’ legitimate money.

Financial institutions are mostly the conduit for such activities, and this does not exclude pensions under the Pensions Act 2008, (Act 766) – especially activities of the Corporate Trustees. I intend to look at a couple of ways in which pensions can be used to launder money and how the new Anti-Money Laundering Act, 2020 (Act 1044) covers the business of pensions as well as role of the regulator, National Pensions Regulatory Authority, in the fight against money laundering.

The Anti-Money Laundering Act, 2020 (Act 1044)

The first schedule list of Accountable Institutions includes an entity that conducts a business by way of investing, administering or managing funds or money on behalf of other persons; and a trust acting as, or arranging for another person to act as, a trustee of an express trust. This, from my understanding, makes Corporate Trustees subject to Act 1044 – and they must put in place anti-money laundering controls and customer due diligence so as not to be used as a conduit to launder money, especially through personal pension plans under their tier-3 schemes.

Though from the list of Accountable Institutions, pension business is covered by Act 1044, it seems framers of the Act did not avail their minds to the fact that money can be laundered through pensions; and hence did not under section 63 of Act 1044 have the National Pensions Regulatory Authority (NPRA) as either a ‘Competent Authority’ or a ‘Supervisory Body’ in the interpretation, though the other three financial services regulators were mentioned – The Bank of Ghana, which supervises the business of banking; the National Insurance Commission that supervises the business of insurance; and the Securities and Exchange Commission that supervises the securities market are all listed. Why is the NPRA omitted?

Money Laundering Through Pensions

Pensions basically involve the receipt and investment of money on behalf of beneficiaries that matures upon retirement. As long as it involves money, like the business of banking, it is prone to money laundering activities. I intend to touch on two ways – using fake companies and personal pension plans – in which this is possible, and why the pensions industry must be wary of this.

  • Fake Companies

Persons wanting to convert, conceal or disguise money acquired through illegal activity may decide to open a fake company. Fake in the sense that it has no underlying business product or service to offer. They then pay themselves huge sums of money as salary and have non-existing employees as well. These may include family members who are unemployed. From this, they pay their tier-1 and tier-2 contributions – totalling 18.5% of their basic salary.  The company also sets up a provident fund, with the staff contributing 16.5% of their basic salary to take advantage of the full 35% tax exemption under the pension law. The company, as a staff retention policy, can then decide to make a contribution of twice the contribution of employees into the provident fund – which though it might seem suspicious cannot be questioned if that is their policy. But how many companies do that? Is money being laundered through placement in pensions to be enjoyed upon retirement? Of course, yes – and this should be of concern to the pensions industry.

The red flag is when there is an early encashment at age 55 years for the tier-1 and 2, with the beneficiaries willing also to do an early withdrawal on the provident fund or personal pension subject to the 15% penalty. This is a small price to pay for them using the money laundering technique of placement. This can further be complicated by taking pension linked mortgages, as allowed under the law, renting out those houses through the technique of integration. Dirty money has now been ‘washed’.

  • Private Personal Pensions Plans

Individuals, in an attempt to convert, conceal or disguise money acquired through illegal activity, may also decide to contribute toward private personal pension plans, as allowed under tier-3 of the National Pensions Act, 2008 (Act 766). They enrol into a tier-3 scheme and make huge payments with no underlying regular income from a known employment source. These include large one-off payments and periodic payments during the same month – all to different Corporate Trustee schemes. Such individuals will have multiple personal pension plans using the technique of placement and layering illegal funds through the pensions industry.

Such multiple transactions, unfortunately, can only be detected by the regulator, who must have a ‘bird’s eye’ view of transactions in the industry – and for this matter must insist on use of the national identification card as the only form of identification for private pension plans. This will ensure a common ‘identity key’ that’s able to pull all such accounts together from prudential returns, even if from different Corporate Trustees.

Role of the National Pensions Regulatory Authority (NPRA) 

The NPRA falls under section 52 of Act 1044 with supervisory powers, and under section 29 of Act 1044 each supervisory body is supposed to furnish the Financial Intelligence Centre (FIC) with a list of accountable institutions registered with the supervisory body for the FIC to allocate to each registered institution an identification number. The NPRA must then put in place anti-money laundering training for all its Corporate Trustees, especially their compliance officers, to appreciate/understand how money can be laundered in the business of pensions. The detection and guidelines for reporting suspicious transactions must be made clear to protect the industry.

The regulator must take steps to make sure it is included in Act 1044 as both a ‘Competent Authority’ and a ‘Supervisory Body’ for avoidance of doubt. This is to insulate itself from any legal dispute that it’s not mandated to deal with anti-money laundering controls and supervision of their licenced trustees. The law, as they say, is the law as it is written: though I am of the opinion that the courts will look at the ‘spirit’ of Act 1044 to include the NPRA.

For a holistic approach to fighting money laundering, all the financial services industry regulators may need to come together under one umbrella as a Financial Services Authority, where a common AML system and database can be used by them. This will make it easy for a person’s total financial transactions across insurance, banking, investments and pensions to be known from a single source, in order to check placement and layering across the different sectors using the common customer ‘identity key’ of a national identification card number.


The NPRA must provide AML guidelines and training for the Corporate Trustees in order to protect the industry, as the Corporate Trustees avail their minds to the possibility of their schemes, especially tier-3, being used to launder money acquired through criminal activities.

The author, Dr. Kofi Anokye Owusu-Darko, was formerly CEO of The National Pensions Regulatory Authority (NPRA), holds an LLB and is a Chartered Banker and licenced management consultant. (Email: [email protected])

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