Informal economies play a central role in West Africa: they often account for more than half of employment and a major share of wealth creation. Urban markets, artisanal transport, small-scale cross-border trade, street currency exchange and non-bank money transfer systems (such as hawala) shape the daily lives of millions of people.
This importance makes the fight against money laundering particularly complex. The same channels that allow households to survive can also be used to conceal criminal flows: trafficking (drugs, weapons, gold, fuel, wildlife), corruption, embezzlement, financing of armed or jihadist groups. Curbing money laundering in these contexts therefore means shrinking the space for illegality without breaking the economic mechanisms that underpin social resilience.
Why money laundering thrives in the informal sector
Money laundering refers to all the processes used to give illicit funds the appearance of legality. In highly informal economies, several characteristics facilitate this process:
- The dominance of cash: cash transactions are difficult to trace, especially in environments where banking systems remain little used or hard to access.
- Few registered actors: a large proportion of traders, transporters, currency changers, artisans and financial intermediaries operate without formal status, structured accounts or reporting obligations.
- Porous borders and cross-border trade: flows of goods and people between neighbouring countries (the Sahel, the Gulf of Guinea, landlocked states) are intense, often poorly controlled, and mix legal, informal and illicit activities.
- The role of social and community networks: trust rests on family, ethnic, religious or village ties rather than on written contracts. This favours discreet transfer systems, sometimes running parallel to the banking system.
- Limited state capacity: under-resourced tax and customs administrations, irregular controls, limited territorial coverage, and corruption or collusion between some officials and criminal networks.
In this context, criminal or armed groups do not need to create sophisticated structures: they slip into pre-existing, already opaque channels, taking advantage of the difficulty of distinguishing between licit, informal and illicit flows.
A delicate balance: control without weakening
International recommendations (FATF, regional bodies such as GIABA in West Africa) emphasise the fight against money laundering and terrorist financing. However, strict application of standards designed for formalised economies can be counter-productive in contexts where the informal sector is vital.
Several tensions arise:
- Financial inclusion vs exclusion: overly burdensome customer identification requirements (Know Your Customer) can deter poor or rural populations from using banks or mobile money, pushing them towards even less traceable channels.
- Control of transfers vs regional mobility: an abrupt tightening of border controls can disrupt small-scale cross-border trade without necessarily reaching the best-organised networks, which circumvent or corrupt the controls.
- Enforcement vs social legitimacy: targeting some informal financial intermediaries (street money changers, transfer operators) without credible alternatives may be perceived as an attack on mechanisms of mutual aid and access to credit.
The aim is therefore not to “make the informal sector disappear”, but to reduce the margins of opacity that criminal actors can exploit, while supporting gradual formalisation adapted to local realities.
Approaches to curbing money laundering in the informal sector
Improving traceability without overburdening the most vulnerable
A first avenue is to improve the traceability of money flows, particularly where digital use is growing rapidly (mobile money, fintechs, transfer services). Several levers are emerging:
- Proportionate KYC rules: setting different levels of requirements according to the volume and frequency of transactions. Small, low-risk accounts can benefit from simplified procedures, while large volumes are more tightly regulated.
- Risk-based supervision: focusing supervisory efforts on the most exposed segments (international transfers, sensitive border areas, sectors with high volumes of cash), rather than imposing the same constraints on all users.
- Data interconnection: strengthening the ability of financial intelligence units (FIUs) to use banking, telecoms and customs data, while ensuring the protection of personal data.
The aim is to make using formal channels to launder large sums more costly and riskier, without cutting off people’s access to basic financial services.
Supporting the gradual formalisation of informal actors
Shrinking the space for money laundering also requires better knowledge of economic actors. Rather than demanding immediate and complete formalisation, gradual approaches can be favoured:
- Simplified registration schemes: light-touch statuses for small traders, transporters or artisans, with minimal obligations (identity, location, main activity) but concrete benefits (access to credit, public procurement, social protection).
- Targeted programmes for high-risk sectors: artisanal gold mining, road transport, street currency exchange, and the livestock or fuel trade are often at the heart of laundering flows. Specific arrangements (professional cards, local registers, agreements with professional associations) can reduce anonymity there.
- Incentives rather than immediate sanctions: temporary exemptions, simpler procedures and administrative support can encourage gradual regularisation.
This partial formalisation improves the visibility of flows without initially requiring full compliance with the standards applied to large companies.
Working with local intermediaries rather than against them
In many West African countries, currency changers, brokers, market leaders, transporters and community leaders play a central role in the circulation of money. They can be both vectors of risk and potential allies.
Several approaches are possible:
- Regulated recognition of informal transfer systems: rather than a blanket ban, some states are experimenting with forms of licensing or approval for informal operators, with minimal obligations to keep records and cooperate with the authorities.
- Targeted awareness-raising: information campaigns on the legal and security risks of money laundering, training for professional associations in detecting suspicious behaviour, and secure reporting channels.
- Cooperation with local authorities: mayors, customary chiefs or religious leaders can help legitimise control arrangements, provided they are involved from the outset and see a benefit for their communities.
This “co-regulation” approach rests on the idea that informal actors have detailed information on flows and networks that the authorities cannot obtain on their own.
Acting on value chains and major trafficking flows
A large share of money laundering in informal economies is linked to specific value chains: artisanal gold, smuggled fuel, livestock, timber, agricultural products, and drugs transiting through Gulf of Guinea ports towards Europe or Asia. The associated financial flows often use hybrid channels on the boundary between formal and informal.
Curbing money laundering requires a better understanding of these value chains:
- Mapping flows: identifying key transit points (markets, warehouses, border posts, ports), dominant intermediaries and areas where cash is concentrated.
- Targeted controls on high-value links: rather than multiplying checks on small retailers, focusing efforts on wholesalers, exporters, long-distance transporters or shell companies.
- Regional cooperation: financial flows linked to trafficking cross national borders. Mechanisms for sharing information between financial intelligence units and regional judicial authorities are decisive.
This sectoral approach makes it possible to shrink the space for money laundering where the financial stakes are highest, while limiting the impact on small actors living at subsistence level.
Strengthening institutional capacity and governance
Even the most sophisticated arrangements remain ineffective if the institutions responsible for applying them are fragile. In several countries in the region, financial intelligence units, banking supervisors, customs and public prosecutors lack staff, technical resources or independence.
Curbing money laundering in the informal sector involves:
- Targeted capacity building: expertise in financial analysis, IT tools, access to databases, cooperation with international partners.
- Reducing incentives for corruption: staff rotation in sensitive posts, internal control mechanisms, credible sanctions in cases of collusion with criminal networks.
- Inter-agency coordination: information sharing between police, gendarmerie, customs, tax authorities, central banks and telecoms regulators, with clarified mandates to avoid institutional rivalries.
Without better governance, efforts on formalisation or traceability risk being diverted or applied selectively, undermining the overall credibility of the system.
Outlook and limitations
Experience in West Africa shows that combating money laundering in the informal sector is a long-term process. Results are often gradual and fragmented, and vary greatly between sectors and territories. Several limitations should be kept in mind:
- The adaptability of criminal networks: with each new control mechanism, new workarounds appear, sometimes by combining formal and informal channels further.
- The security and political context: in areas affected by armed conflict, coups or a reduced state presence, there is less room for manoeuvre and priorities may lie elsewhere.
- Social issues: any policy of tighter controls must be calibrated so as not to worsen the precarity of already vulnerable populations or fuel resentment that violent actors could exploit.
Curbing money laundering in informal economies is therefore not a matter of a single solution, but of a set of gradual measures adapted to local realities, combining regulation, incentives, cooperation with actors on the ground and stronger public governance. The effectiveness of these approaches will depend as much on the quality of the technical arrangements as on trust between authorities, economic actors and communities.