Top 10 Red Flags in Transaction Screening for FinTechs in Cameroon and the CEMAC Region
By Banyong Fonyam Jonie Jr, Managing Partner, Fonyam and Partners Law Firm
In an increasingly digital and interconnected financial ecosystem, FinTech companies operating in Cameroon and the wider CEMAC (Economic and Monetary Community of Central Africa) region bear a critical responsibility. Transaction screening is not merely a best practice; it is a fundamental legal obligation and the first line of defense against financial crime. Failure to implement robust screening mechanisms can lead to severe regulatory sanctions, reputational damage, and breaches of national and regional laws.
The regulatory framework is anchored by key institutions: nationally, the COBAC (Commission Bancaire de l’Afrique Centrale) serves as the primary banking regulator for the CEMAC zone, while Cameroon’s National Agency for Financial Investigation (ANIF – Agence Nationale d’Investigation Financière) is the Financial Intelligence Unit (FIU) mandated to combat money laundering and terrorist financing. Compliance must be viewed through the prism of CEMAC Regulation N°01/03-CEMAC-UMAC-CM on the prevention and suppression of money laundering and terrorist financing.
Based on this legal framework and practical enforcement trends, here are the top 10 red flags that FinTech compliance officers and legal counsels in the region must vigilantly monitor:
1. Transactions Linked to Sanctioned Jurisdictions or Embargoed Countries: Payments originating from or destined for countries identified as high-risk by the CEMAC Banking Commission or subject to international sanctions (e.g., FATF grey-listed countries) require immediate enhanced due diligence. This aligns with the obligation to understand the source of funds and their destination.
2. Direct or Fuzzy Matches to Sanctions Lists: Screening must extend beyond simple name checks. “Fuzzy matches”—variations in the spelling of names of individuals or entities listed by UN, OFAC, EU, and, crucially, local sanctions lists maintained by CEMAC member states—are a common evasion tactic. Under CEMAC regulations, a match necessitates a freeze on the funds and an immediate report to the FIU.
3. Transactions for Dual-Use Goods or High-Risk Commodities: Payments related to goods that have both civilian and military applications (e.g., certain software, encryption technology, chemicals) or high-risk commodities like precious minerals and timber (particularly relevant given the region’s natural resources) are a significant red flag for potential proliferation financing.
4. Involvement of Opaque Corporate Structures: The use of shell companies, unknown intermediaries, or entities with non-transparent ownership structures is a classic hallmark of money laundering. FinTechs must pierce the corporate veil by verifying the Ultimate Beneficial Ownership (UBO) of counterparties, a core requirement of CEMAC’s customer due diligence (CDD) rules.
5. Counterparties with Links to Terrorism Financing (TF) or Proliferation Financing (PF): Any transaction, no matter how small, where a party is linked to TF/PF, must be blocked and reported. This is a non-discretionary obligation under Cameroon’s Law No. 2014/028 of December 23, 2014, on the suppression of terrorism.
6. Unusual and Opaque Payment Routing: Transactions that are unnecessarily routed through multiple jurisdictions, particularly high-risk banks or financial centers, with no clear economic purpose, indicate an attempt to obscure the origin of funds. This is a direct attempt to circumvent transaction monitoring systems.
7. Vague or Misleading Payment Purpose Descriptions: Descriptions such as “service fee,” “investment,” or “personal transfer” that are overly broad and do not correspond to the known business profile of the customer warrant investigation. The purpose of a transaction must be clear and consistent.
8. Patterns of Repeated Near-Misses or Alerts: A series of transactions that trigger “near-miss” alerts (e.g., slightly misspelled names of sanctioned entities) may indicate a deliberate testing of the FinTech’s screening systems. This pattern-seeking behavior is a sophisticated red flag that should lead to escalated scrutiny.
9. Links to Politically Exposed Persons (PEPs) or Adverse Media: Transactions involving individuals holding prominent public functions (PEPs) in the region or their close associates require mandatory enhanced due diligence. Furthermore, links to negative news regarding corruption, financial crime, or fraud, as identified through adverse media screening, are critical risk indicators.
10. Transactions with Debarred or Suspended Entities: Payments involving contractors or companies officially debarred by national or international bodies (e.g., the World Bank) for fraudulent or corrupt practices represent a severe compliance and reputational risk.
The Legal Distinction: Alert vs. Breach
It is a legal reality that not every alert constitutes a true violation. However, from a regulatory liability perspective, every red flag demands a documented investigation. The primary challenge for FinTechs is not just filtering alerts, but constructing a legally defensible audit trail that demonstrates diligent investigation and appropriate escalation to the ANIF where warranted. The absence of such a trail is, in itself, a regulatory breach.
The Most Underrated Red Flag in the CEMAC Context
In my legal opinion, the most underrated red flag is #4: Involvement of shell companies and non-transparent ownership. In a region where corporate registries are not always fully transparent, relying solely on official documents is insufficient. FinTechs must employ a risk-based approach that goes beyond the paperwork, questioning transactions that lack commercial logic and probing the economic substance of counterparties. Failure to do so is where many compliance programs falter, leading to inadvertent involvement in grand corruption or large-scale money laundering schemes.