Anti-Money Laundering Compliance and Financial Performance of Commercial Banks in South Sudan: A Survey of Literature on Internal Policies ()
1. Introduction
Money laundering poses a substantial threat to the stability and integrity of financial systems worldwide, necessitating rigorous anti-money laundering (AML) measures (Bashir & Seka, 2020) . The government of South Sudan has proactively invested in AML initiatives, channeling substantial resources towards bolstering the financial sector’s resilience against illicit financial activities (Government of South Sudan, 2021) . Despite these efforts, South Sudan continues to linger on the Financial Action Task Force (FATF) grey list, raising questions about the efficacy of the implemented AML strategies and their impact on the financial performance of key players, notably commercial banks (FATF, 2013a) .
The financial landscape of South Sudan is particularly vulnerable to the ramifications of being on the FATF grey list (FATF, 2013b) . This designation, indicative of inadequate AML compliance, can potentially hinder the financial performance of commercial banks operating within the country (FATF, 2020) . Consequently, an examination of the relationship between AML compliance and financial performance becomes imperative to unravel the intricacies of this dynamic and identify areas for improvement. One specific aspect under scrutiny in this study is the correlation between internal policies of commercial banks and their financial performance.
The significance of internal policies in shaping AML compliance within financial institutions cannot be overstated (Hamin & Omar, 2018) . These policies serve as a foundational framework guiding the day-to-day operations and decision-making processes of commercial banks (Helleiner, 2021) . A robust set of internal policies is expected to contribute positively to AML compliance, subsequently influencing the financial health of these institutions. This study employed a cross-sectional and mixed-method design to comprehensively explore the nuanced connections between AML compliance, internal policies, and financial performance.
To achieve these research objectives, a sample of 105 participants from four selected commercial banks in South Sudan was engaged. The participants provided both quantitative and qualitative data, offering a holistic understanding of the challenges and opportunities associated with AML compliance and internal policies in the context of financial performance. In this context, quantitative data analysis revealed a statistically significant relationship between internal policies and financial performance (r = 0.436, p = 0.000, n = 86). The subsequent sections of this article will delve into the implications of these findings and shed light on potential strategies for enhancing AML compliance and financial outcomes in South Sudan’s commercial banking sector.
As South Sudan strives to navigate the challenges posed by money laundering and its consequences on the global financial stage, a meticulous examination of the interplay between AML compliance, internal policies, and financial performance in commercial banks becomes instrumental. This research aims to contribute insights that can inform policy adjustments and strategic enhancements to fortify the financial resilience of commercial banks in South Sudan.
1.1. Background and Context
The financial landscape of South Sudan has witnessed a commendable commitment from the government in recent years to combat the escalating threat of money laundering (FATF, 2020) . Money laundering, a pervasive global issue, undermines the integrity of financial systems and has far-reaching consequences for economies. South Sudan’s placement on the Financial Action Task Force (FATF) grey list despite these efforts underscores the intricate challenges faced by the nation in achieving effective anti-money laundering (AML) compliance (FATF, 2020) . This designation not only signals potential deficiencies in existing AML frameworks but also prompts a critical examination of their impact on the financial performance of commercial banks, key players in the country’s economic landscape.
Within this context, the role of internal policies in shaping the AML landscape of South Sudan’s banking industry becomes a focal point of inquiry. Internal policies are the backbone of any financial institution’s efforts to combat money laundering, providing the guiding principles for daily operations and strategic decision-making (Johnson & Martinez, 2019) . The quality and effectiveness of these internal policies play a pivotal role in determining the level of AML compliance achieved by commercial banks. Despite the significant investments made by the government in AML initiatives, the lingering presence of South Sudan on the FATF grey list suggests potential gaps in the alignment and implementation of internal policies within the banking sector (Kegoro, 2019) .
The specific challenges faced by South Sudan’s banking industry in achieving robust AML compliance are multifaceted. The nation’s geopolitical and economic conditions, marked by periods of instability, present unique challenges for implementing and enforcing stringent AML measures (Global Financial Integrity, 2020) . Additionally, the evolving nature of money laundering tactics necessitates constant adaptation and enhancement of internal policies within commercial banks (Mburu, 2016) . The effectiveness of AML initiatives is contingent upon the alignment of internal policies with international standards, a factor that significantly influences South Sudan’s standing within the global financial community.
1.1.1. Money Laundering in South Sudan: A Global Perspective
In South Sudan, the government’s proactive measures, as highlighted by the National Strategy for Combating Money Laundering and Terrorism Financing (Government of South Sudan, 2021) , reflect the nation’s commitment to addressing international concerns. Research indicates that countries on the FATF grey list face challenges in accessing international financial markets and experiencing reputational damage (Njagi, 2020) . Understanding the global implications of money laundering helps contextualize South Sudan’s position and underscores the urgency of effective AML measures.
1.1.2. Internal Policies: The Cornerstone of AML Compliance
The government’s National Strategy for Combating Money Laundering and Terrorism Financing, established in 2021, serves as a pivotal reference point for studies delving into the intricacies of AML practices within the nation (Government of South Sudan, 2021) . A meticulously crafted internal policy framework is indispensable for South Sudanese banks to proficiently identify, prevent, and report suspicious transactions (Ricardo, 2021) . Within South Sudan’s financial landscape, these internal policies act as guiding principles, shaping the daily operations and strategic decision-making processes of commercial banks. An effective framework ensures that institutions are well-equipped to navigate the dynamic challenges posed by money laundering activities (Strauss, 2021) .
1.1.3. Challenges and Opportunities in AML Compliance
Periods of political and economic instability emerge as prominent obstacles, capable of impeding the seamless implementation of AML measures (Trochim, 2018) . Despite these challenges, a closer inspection reveals a dual dynamic wherein adaptive strategies present unique opportunities for financial institutions operating within South Sudan (Global Financial Integrity, 2020) . In the face of instability, financial entities have strategically leveraged adaptive measures to navigate these challenges and reinforce AML compliance. Such opportunities arose from the necessity for flexibility and innovation in the implementation of AML protocols, aligning them with the ever-evolving circumstances in South Sudan (Usman, 2021) .
1.1.4. Global Standards and Local Realities: A Balancing Act
The country, in its pursuit of international financial integrity, grapples with aligning internal policies with stringent global AML benchmarks. The challenge in South Sudan lies in finding equilibrium between meeting global expectations and addressing the specific challenges ingrained in the country’s banking sector. Studies highlight that the adoption of international AML standards is imperative for South Sudan’s financial institutions to foster credibility and trust on the global stage (Yeandle, 2021) . This alignment contributes to the nation’s economic relationships, trade partnerships, and access to international financial markets. However, the realities are that South Sudan faces challenges in balancing these global standards with its unique circumstances. Geopolitical instability, economic fluctuations, and resource constraints add layers of complexity to the implementation of AML measures.
1.1.5. The Evolving Nature of Money Laundering Tactics
Amidst the intricate financial environment, South Sudan’s banking sector grapples with the practical challenge of not merely responding to, but staying ahead of, emerging threats. The evolving nature of money laundering tactics is a central concern in the realm of financial compliance globally. Scholarly works highlight the use of technology as a key driver in the evolution of money laundering tactics (Raweh & Erbao, 2021) . Cryptocurrencies, online platforms, and digital transactions have opened new avenues for illicit financial activities, challenging traditional detection methods. The literature emphasizes the need for financial institutions in South Sudan to stay abreast of these technological advancements and adapt their AML strategies accordingly. Furthermore, the literature review explores the role of international cooperation and information-sharing mechanisms in addressing the transnational nature of modern money laundering (Naylor, 2019) . Collaboration between countries, regulatory bodies, and financial institutions becomes paramount in countering these evolving tactics.
2. Methodology
This study employed a mixed-methods approach to comprehensively investigate the relationship between anti-money laundering (AML) compliance and financial performance in South Sudan’s commercial banks. Quantitative and qualitative methods were strategically combined to ensure a thorough analysis of the collected data, incorporating triangulation procedures for increased reliability (Fade, 2003) .
To ensure representativeness, a combination of stratified and convenient sampling techniques was employed. The targeted population included employees from different levels and roles within Cooperative Bank, Equity Bank, Horizon Bank, and National Bank of Egypt. Stratified sampling was applied for each bank, categorizing participants based on their roles. This method allowed for a diverse representation of perspectives, with participants selected from senior management, compliance officers, regulatory departments, and customers.
A structured survey questionnaire, specially developed by the researchers for the purpose of this study, served as a primary tool for gathering quantitative data related to the study objectives. The questionnaire was distributed among participants from various roles, including compliance officers, risk managers, regulatory departments, and customers. Additionally, face-to-face interviews were conducted to delve into the participants’ backgrounds and experiences, providing a deeper understanding of qualitative aspects. The interview process adhered to crafted guidelines whereby each interview session commenced with a brief introduction outlining the objectives of the study and the nature of the interview process. Participants were assured of confidentiality and informed consent was obtained prior to commencement. Throughout the interviews, probing questions were posed to encourage participants to reflect on their experiences, challenges, and perceptions related to anti-money laundering compliance and its impact on financial performance within the South Sudanese banking sector.
The survey questionnaire, recognized for its effectiveness in collecting comprehensive data (Amin, 2005) , facilitated the systematic gathering of responses. Participants recorded their answers within specified options, allowing for quantitative analysis. This method was versatile, enabling data collection from different subjects and ensuring a holistic approach.
Quantitative data analysis was conducted using IBM SPSS version 25, employing descriptive statistics to measure central tendency, frequency, standard deviation, and percentage. For qualitative data, the thematic analysis approach proposed by Corbin and Strauss (2014) was applied. This method, integrated throughout the research process, involved recording data in field notes, supporting it with audio recordings, verbatim transcription, and cross-referencing for accuracy.
3. Discussion of Results
Response rate
In Table 1, result show that out of the 90 questionnaires distributed, only 86 filled questionnaires were returned while 15 interviews were planned however, only 11 were conducted. The overall response rate was 92.3%.
Background information of respondents
Most respondents were female forming 59.0%. The remaining 41.0% were male. The average age of the respondents was 41.1 years. In terms of level of education, the highest number of respondents had master’s level forming 40.2%, whereas 30.9% had bachelors’ degree, 11.5% had other education levels particularly professional body courses such as ACCA, Financial Intelligence while 12.3% had certificates.
In line with the descriptive statistics in Table 2, the qualitative data submissions about adherence to internal policies and procedures related to the Financial Intelligence Unit (FIU) were that;
“The meticulous adherence to these policies not only ensures regulatory compliance but also enhances the overall credibility and trustworthiness of the banking sector of South Sudan in the eyes of stakeholders and regulatory bodies.”
When asked about the adaptation to evolving Anti-Money Laundering (AML) regulations, one respondent was of the view that;
“The proactive approach of banks in South Sudan in staying abreast of AML regulations is crucial for maintaining the integrity of financial systems, and while challenges exist, continuous adaptation is imperative for ensuring the sector’s resilience against financial crimes.”
In terms of signaling a positive perception of the effectiveness of senior management in supporting internal policies, a respondent stated that;
“Senior management’s commitment plays a pivotal role in ensuring that internal policies are not just implemented but are embedded in the bank’s culture, fostering a strong foundation for compliance and risk management.”
Regression Analysis
Regression analysis was used to evaluate whether internal policies have a significant influence on financial performance in selected commercial banks in South Sudan. The coefficient of determination (R Square) under regression analysis is presented in Table 2.
Source: Primary data, 2024.
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Table 2. Descriptive statistics of internal policies.
Source: Primary data, 2024.
Table 3 shows that the Pearson’s correlation coefficient (R = 0.436), the Coefficient of determination or R Square of 0.190 and Adjusted R Square of 0.180. An adjusted R Square of 0.180 means that internal policies account for only 18.0% of the variance in financial performance in commercial banks in South Sudan. This means that apart from internal policies there are other factors that contribute to financial performance in commercial banks in South Sudan.
The results in Table 4 present results aimed at establishing whether internal policies are a predictor of financial performance in commercial banks in South Sudan and determine the magnitude to which internal policies influence financial performance in commercial banks in South Sudan, Standardized Beta and t Coefficients were generated. For the magnitude to be significant the decision rule is that the t value must not be close to 0 and the p-value must be less than or equal to 0.05. Since the t-value of 4.360 is not close to 0 and p-value < 0.05 (=0.000), the study confirmed that internal policies are a significant predictor of financial performance in commercial banks in South Sudan. A standardized Beta coefficient of 0.436 means; every 1-unit increase in internal policies will lead to an increase of 0.436 units of financial performance in commercial banks in South Sudan.
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Table 3. Model Summary forinternal policies and financial performance.
a. Predictors: (Constant), Internal policies.
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Table 4. Coefficientsa forinternal policies and financial performance.
a. Dependent Variable: Financial performance.
4. Conclusion
In summary, this study sheds light on the pivotal role played by internal policies in shaping the financial performance of commercial banks in South Sudan. The identified weak positive relationship between internal policies and financial performance underscores the significant influence of robust policy frameworks on the economic outcomes of these banks. The statistical significance at a 95% confidence level attests to the reliability of this association, affirming a consistent pattern within the studied banks. The findings imply that improvements in internal policies correlate with enhanced financial outcomes, while a decline in policy standards may lead to a deterioration in financial performance.
The study’s contribution is underscored by the adjusted R Square of 0.180, indicating that internal policies collectively account for 18.0% of the observed variance in financial performance among South Sudanese commercial banks. While this percentage may appear modest, it signifies a meaningful contribution to the multifaceted nature of financial success. These findings have substantial implications for the banking sector in South Sudan, emphasizing the need for continuous investment in refining and strengthening internal policies. Aligning these policies with industry best practices and regulatory standards emerges as a strategic imperative for fostering resilience and adaptability within the operational framework, responding effectively to dynamic market conditions and regulatory changes.
The study’s results advocate for proactive measures within the banking sector, urging institutions to recognize the potential positive impact of aligning internal policies with global standards. This alignment is proposed as a strategic approach for enhancing financial performance, ensuring a robust response to the ever-evolving landscape of the banking industry. Continuous investment in policy refinement, coupled with adherence to best practices, emerges as a key prescription for sustained financial success in South Sudan’s commercial banking sector.
While this study illuminates the current landscape, future research endeavors could explore additional factors contributing to financial performance, providing a more comprehensive understanding. Longitudinal studies and investigations into the impact of external factors on the identified relationship could further enrich the literature on the dynamics between internal policies and financial outcomes in South Sudanese commercial banks. This study serves as a foundational step, encouraging ongoing inquiry into the nuanced interplay between internal policies and financial success in this evolving financial landscape.
5. Recommendations
5.1. Board of Directors and Policy Committee
Direct the Board of Directors and Policy Committee to oversee the continuous enhancement of internal policies related to AML compliance. Regular reviews and updates should be a priority to ensure alignment with evolving regulatory requirements and industry best practices.
5.2. Human Resources and Training Department
Empower the Human Resources and Training Department to invest in comprehensive training programs. Ensure that all staff members, from frontline employees to management, receive regular training to enhance their awareness and understanding of AML policies and procedures.
5.3. IT Department
Task the IT Department with leveraging advanced technologies for transaction monitoring and reporting. Implement robust technological solutions to enhance the efficiency and accuracy of AML compliance processes, reducing the risk of financial irregularities.
5.4. Cross-Departmental Team
Establish a Cross-Departmental Collaboration Team responsible for fostering collaboration between different departments within the bank. This team should facilitate effective communication and information-sharing mechanisms to identify and mitigate potential risks collectively.
5.5. Internal Finance and Audit Department
Direct the Internal Audit Department to conduct regular internal audits to assess the effectiveness of AML policies. Internal reviews should be systematic, identifying areas of improvement, addressing vulnerabilities, and ensuring ongoing compliance.
5.6. External Finance and Audit Department
Task the External Audit Engagement Team with periodically engaging external auditors specializing in AML compliance. External audits bring an unbiased perspective, providing valuable insights into the effectiveness of internal policies and offering recommendations for improvement.
5.7. Compliance Department
Establish an International Compliance and Standards Unit responsible for ensuring that internal policies align with international AML standards. This unit should work to enhance the bank’s reputation on a global scale and demonstrate a commitment to maintaining the highest standards of financial integrity.
5.8. Management
Create a Whistle-blower Oversight Committee tasked with establishing and overseeing a whistle-blower mechanism. This committee should encourage a culture of transparency and ensure that employees can report suspected AML violations confidentially.
Acknowledgements
First and foremost, I would like to thank God of Major 1 for the opportunity of pursuing PhD studies, thanks to my spiritual parents (Dr. Shepherd Bushiri and Dr. Mary Bushiri), thanks to my beautiful wife (Mrs. Mylinda Justin), thanks to my late parents (Nicknora Nyol Ajok and Anyiic Micah Bol Cienggan), thanks to my President H.E. Salva Kiir, thanks to my nephew Cde. Santo Malek Anai, my boss Gen. Akol Koor Kuc, my uncle, Napoleon Adok Gai, my uncle Deng Makuak Barec, my uncle Chol Ajok Barec, my nephews, Hon. Manyang Luke Lueth, Garang Mabor Achiek, Magok Luke Lueth, Mayor Luke Lueth, my brothers Barec Nicknora Nyol, Mayen Nicknora Nyol, Bol Nicknora Nyol, Matei Nicknora, Maker Nicknora Nyol, Ajok Nicknora Nyol, Makur Nicknora Nyol, my sisters Agum Nicknora Nyol, Nyanawuut Nicknora Nyol, Anyieth Nicknora Nyol, Nyanagaar Nicknora, Jennifer Nicknora Nyol, Nyadit Nicknora Nyol, special thanks to Hon. Dr. Addis Ababa Othow, Hon. Ocum, my uncle Amou Anyieth Reec, my uncle Aghok Ater Reec, special to Hon. Joseph Lual Acuil, my aunties Hon. Ayen Mayor Makuei, Ayen Manyuon Telar, Titi Manyuon Telar, my uncle Bol BolCienggan and his wife FatnaBaracka Adam, nephew Majak Luke Lueth, My brother Jonathan Mubiru and his wife, my Supervisor Dr. Salvatore, Apostle Wani John, my brothers Alor Aguek Arop, Angelo Kuot Garang, Jackson Garang Ajou, Cde. Genge Genge, Gen. John Daniel Kipa, Deng Tong Kenjok, Dr. Benjamin Machar, thanks to University of Victoria Melbourne, Deakin University and Monash University and Selinus University, special to Australian Government and government of South Sudan, Special thanks to Gen. Rin TuenyMabor, special thanks to my brothers Nichola Lomoro, David Kumuri, Benjamin Maniin, Peter Gol, Joseph Boyoi, Professor Atek Lual Acuil.
Special to uncle Awan Banyjok, Arop Nyuon, Thon Mayor Adut, Malual Gordon, Nephew Chol Deng Mayom and his wife Ayor.
Special thanks to all my brother’s wives and my in-laws Cde. Justin.
Thanks to all family and friends not mentioned here. Appreciate your support all. Thanks.