One of the risks facing Financial Institutions is that of Financial Crimes.

Countries are required

to have in place appropriate legal regulatory and Institutional arrangements to fight financial
crimes. Thus, the main purpose of this paper is, in the context of Zambia, to enumerate these
arrangements. The paper begins with a definition of the terms financial institutions and financial
crime and then move on to enumerate the legal arrangements in Zambia.
Financial institutions are organisations that act as a channel between savers and borrowers of
funds (Stulz, Rene and Carey, 2006). It can be a private organisation (shareholder-owned) or
public organisation (government-owned). In a Zambian context, Financial Institution is any
legal entity registered by the Patents and Company Registration Agency (PACRA) and licensed
and regulated by the Pensions and Insurance Authority and, for Commercial Banks, by the
Central Bank of Zambia -BOZ
Financial crime is any non-violent offense that is committed by or against an individual or
corporation and results in a financial loss. Financial crimes are crimes against property,
involving the unlawful conversion of the ownership of property to one's own personal use and
benefit.
David (2007) asserts that it is possible to divide financial crime into two essentially different,
although closely related, types of conduct. On one hand, there are those activities that
dishonestly generate wealth for those engaged in the conduct in question. For example, the
exploitation of insider information or the acquisition of another persons property by deceit will
invariably be done with the intention of securing a material benefit. Alternatively, a person may
engage in deceit to secure material benefit for another. On the other hand, there are also financial
crimes that do not involve the dishonest taking of a benefit, but that protect a benefit that has
already been obtained or to facilitate the taking of such benefit. An example of such conduct is
where someone attempts to launder criminal proceeds of another offence in order to place the
proceeds beyond the reach of the law.
Financial crimes may involve fraud (cheque fraud, credit card fraud, mortgage fraud, medical
fraud, corporate fraud, securities fraud (including insider trading), bank fraud, payment (point of
sale) fraud, health care fraud); theft; scams or confidence tricks; tax evasion; bribery;
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embezzlement; identity theft; money laundering; and forgery and counterfeiting, including the
production of Counterfeit money and consumer goods (Stulz, Rene and Carey, 2006).
In the Zambian context, financial institutions are guided by The Banking and Financial Services
Act under Section 8. The Act stipulates what a bank operating in Zambia can do. Thus, the
financial institutions are mandated to conduct one or more of the following activities or
operations on behalf of customers; Accept deposit of funds, lending, leasing, transfer of money
or value, issue and manage means of payment (credit and debit cards, checks, IMOs, drafts,
guarantees, money and currency changing, safe keeping and administration of cash and trading
in money markets instruments, checks, bonds, treasury bills and Forex. All these activities entail
handling of cash by the employees and other stakeholders in these financial institutions.
The conduction of these activities by the financial institutions enables them to handle a lot of
money on a daily basis. This puts these institutions at high risk of financial crimes from different
people. The people that can engage in financial crimes may be the employees of these financial
institutions, organised criminals, including terrorist groups, are increasingly perpetrating largescale frauds to fund their operations, corrupt heads of state may use their position and powers to
loot the coffers of their (often impoverished) countries, business leaders or senior executives
manipulate or misreport financial data in order to misrepresent a companys true financial
position and from outside the company, fraud can be perpetrated by a customer, supplier,
contractor or by a person with no connection to the organisation. Thus, financial institutions face
a lot of challenges in running the business (Carey and Stulz, 2006).
In light of all these challenges, the Zambian government and regulatory agencies have instigated
laws and rules to help financial institutions to fight these challenges. On top of these regulations,
financial institutions have in place mechanisms that help them fight financial crimes both from
within and from outside the institution.
Within the institutional, financial institutions adhere to all local laws and regulations set up by
regulatory agencies and government for their survival against financial crimes. Employees of
financial institutions undertake serious commitments to compliance and ensure that they hold
steady fast to these regulations. Employees undergo certain trainings to familiarize themselves
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with laws and rules with regard to financial crimes. Thus, the board and senior management
demonstrate great ability to identify measure, monitor and control risk in the different functions
of the financial institutions (Stulz, Rene and Carey, 2006). Thus, financial institutions have a
fully dedicated compliance department or function whose role is to ensure regulatory
compliance, conduct compliance monitoring activities on a regular basis, as well as provide
compliance functions to all other departments and staff. Financial institutions, thus, do not
compromise compliance issues in their greater pursuit for more customers and company revenue
by growing the balance books.
Some of the regulatory laws and rules that financial institutions in Zambia adhere to, if they are
to manage risks effectively, are the Anti-Money Laundering (AML), Financial Crime Risk (FCR)
and Counter Terrorist Financing (CTF).
In Zambia, financial institutions are not only regulated by banking regulators, but also by
specialized regulators such as Central Bank of Zambia (BOZ), the AML Authority/ AML
Investigations Unit (AMLIU) currently under the patronage of the Drug Enforcement
Commission (DEC). Also the Anti-Corruption Commission (ACC) and Zambia Police Service
(ZPS) feature prominently. Another regulatory agency added by the Zambian Government is the
Financial Intelligence Centre (FIC).
In order to further strengthening the AML regulatory framework, Zambian Parliament passed a
law known as the Prohibition and Prevention of Money Laundering Act no. 14 of 2001. In that
Act, Part V Section 12, under the Duties of the Supervisory Authority, Subsection 4 states that
A supervisory Authority shall issue such directives as may be approved by the Anti-Money
Laundering Unit which may be necessary for the regulated institutions to prevent and detect
money laundering. It should be noted that the Supervisory Authority for all banks in Zambia lie
with the BOZ.
In Section 13, Duties of Regulated Institutions, Section 1 (c) states that a regulated institution
shall comply with any directives issued to it by the supervisory authority with respect to money
laundering activities; all commercial banks in Zambia therefore are designated regulated
institutions.
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In exercise of the powers contained in Section 12(4) of the Prohibition and Prevention of Money
Laundering Act number 14 of 2001, BOZ issued the Bank of Zambia Anti- Money Laundering
Directives in 2004 (BOZ AML Directives 2004). Part III of the BOZ AML Directives pertains
to Customer Due Diligence (CDD) and other obligations relating to customer identification and
verification.
Directors from bank supervision at BOZ have on several occasions clarified and confirmed that
identification of directors, beneficial owners and management of corporate entities is a
requirement under section 8(1) and (2) of the said BOZ directives. This further clarifies that in
terms of management, the banks will acquaint themselves with all key management decision
makers in the company.
Financial Intelligence Centre Act (FICA) No. 46 of 2010 was enacted to establish additional
regulations to create a stronger environment of compliance in Zambia. FIC became operational
on April 1, 2011 via a Statutory Instrument (S.I.) Number 22 of 2011. Through FICA, the
Government of the Republic of Zambia (GRZ) hopes to prevent the misuse of public funds, the
abuse of the financial system, and emphasize enhanced transparency and protection of the
integrity of the financial system. GRZ is attaching critical importance to placing a strong
oversight mechanism and developing a comprehensive and integrated approach to combat
Money Laundering, Terrorist Financing and serious Financial Crime Risks.
Thus, FIC is the sole designated agency for the receipt, requesting, analyzing and disseminating
of Suspicious Transaction Reports to relevant Law Enforcement Agencies and other regulators.
Now all STRs will have to be submitted to the FIC instead of AMLIU at DEC as was the case
under the Prohibition and Prevention of money Laundering Act of 2001 (PPMLA). FIC includes
not only banks but also other financial institutions, real estate agents, lawyers, accountants and
casinos.
Thus, to effectively, fight financial crimes, institutions need to know and comply with the law. A
good compliance relationship with all global and local regulators is fundamental to any banks
success. It is crucial that all banks in Zambia are adequately equipped to fight these risks.

A risk-based approach requires institutions to have systems and controls that are commensurate
with the specific risks of money laundering, terrorist financing and financial crime. Higher
money laundering risks demand stronger controls than warranted by individuals or countries
deemed to be of lower risk. However, all categories of risk, whether low, medium or high, must
be mitigated by the application of controls, such as verification of customer identification
(passports, National Registration Cards (NRCs), Know Your Customer (KYC) policies, and so
on.
In conclusion, the paper has enumerated the appropriate legal regulatory and Institutional
arrangements to fight financial crimes in Zambia. In the Zambian context, there are legal
regulatory and institutional arrangements that have been put in place. These arrangements
comply with the required international standards. The fight against financial crimes is important
to protect the citizens and to ensure the integrity of financial institutions and national security.
The use of legal regulatory and institutional arrangements to fight financial crimes promotes
financial integrity by making difficult to conceal illegal activities.

REFERENCES
Carey and Stulz (2006). Introduction to the Risks of Financial Institutions, University of
Chicago press: Chicago.
David J. Hand (2007). The Risks of Financial Institutions edited by Mark Carey, Rene M.
Stulz," International Statistical Review, International Statistical Institute, vol. 75(2), pages 266267, 08.
GOVERNMENT OF ZAMBIA STATUTORY INSTRUMENT NO. 3 OF 2006 The Banking
and Financial Services Act (Laws, Volume 21, Cap. 387)
Stulz, Rene and Mark Carey (eds.) (2006). The Risks of Financial Institutions. University of
Chicago Press: Chicago.
The Banking and Financial Services (Microfinance) Regulations, 2006