In a move geared towards strengthening its defences against financial crime, the Kingdom of Lesotho has, in 2024, taken meaningful steps to align its corporate and financial regulatory regime with international standards, particularly those set by the Financial Action Task Force (“FATF”). This reform follows sobering findings from the Anti-Money Laundering and Counter-Terrorist Financing Measures – Lesotho Mutual Evaluation Report of September 2023, which raised serious concerns regarding the vulnerabilities in both the legal and real estate sectors.
Lawyers: Gatekeepers Without Guards
Significantly, in paragraph 87 of the Report it is noted that lawyers in Lesotho engage in a range of high-risk financial activities on behalf of clients, including the creation of legal persons and trusts, property transactions, and the management of funds and financial accounts. However, and perhaps most unfortunately, despite the inherent money laundering (“ML”) risks in such services, the report found that lawyers were not verifying the source of client funds nor implementing any meaningful anti-money laundering/counter-terrorist financing (“AML/CFT”) measures.
Compounding this vulnerability is the apparent failure of the Law Society of Lesotho (“LSL”), the designated AML/CFT supervisor, to exercise its supervisory mandate. The Report noted further that, as at the time of the on-site evaluation, no AML/CFT supervision was in effect. This combination of high exposure and weak oversight resulted in lawyers being “heavily weighted” in the risk assessment, signalling that the sector poses a significant threat to the integrity of Lesotho’s financial system.
Real Estate Agents: Unregulated Channels for Criminal Wealth
Unsurprisingly, the real estate sector was found to be exposed to high ML risk. As noted in paragraph 88 of the report, real estate agents in Lesotho operate with minimal regulatory oversight, and entry into the market is virtually unregulated—limited only to business registration requirements from the Ministry of Trade and Industry.
With 146 registered real estate agents and no official figures provided for transaction volumes, the opacity of the sector has created a fertile ground for the laundering of illicit funds. The use of cash and the acquisition of property via opaque legal structures such as corporate vehicles and trusts allows criminals to veil their true identities. As with the legal sector, no AML/CFT obligations are currently implemented, nor have designated supervisors begun any form of monitoring or enforcement.
2024 Reform: A Turning Point in Lesotho’s AML/CFT Framework
Against this backdrop of vulnerability, the enactment of the Beneficial Ownership Regulations in 2024 marks a significant turning point in Lesotho’s corporate governance and AML/CFT strategy. The regulations are designed to bring greater transparency, accountability, and alignment with FATF standards.
Transparency and Traceability
The regulations now require all companies to disclose and maintain accurate records of their beneficial owners—the natural persons who ultimately own or control the company. This initiative directly addresses the long-standing issue of financial secrecy and seeks to close the loopholes that previously allowed for the misuse of legal persons and arrangements in laundering the proceeds of crime.
Alignment with Global Standards
By adopting these regulations, Lesotho strengthens its position within the global financial system, demonstrating a commitment to the FATF’s recommendations. This alignment reduces the risk of international sanctions or greylisting, which would have adverse consequences for foreign investment, the nation’s financial credibility and lagging economy.
Compliance Challenges and Enforcement Strength
Notwithstanding the positive developments, the regulations introduce a significantly increased compliance burden. Companies—particularly small and medium-sized enterprises (SMEs) and those with foreign or complex ownership structures—must now collect, verify, update, and submit beneficial ownership information. For some, this may prove not only to be resource-intensive but also function as an unlikely investment deterrent.
To ensure adherence, the Registrar of Companies has been vested with strengthened enforcement powers, including the ability to impose administrative fines, strike off non-compliant entities, and disqualify delinquent directors. To its credit, the Registry has, in light of this new regime, made attempts to engage with and provide much-needed assistance to relevant stakeholders regarding how these changes will be implemented and what they will mean going forward. This enhanced regulatory arsenal is a marked departure from the previous era of passive oversight and signals a move towards real accountability within Lesotho’s corporate space.
Support for National AML/CFT Objectives
The regulations are explicitly framed to support the national AML/CFT agenda. By facilitating timely access to ownership data for competent authorities, Lesotho has increased its capacity to trace criminal financial flows, identify perpetrators, and prosecute offences related to money laundering, terrorist financing, and public sector corruption.
Conclusion
The findings of the 2023 Mutual Evaluation Report served as a clarion call to action for Lesotho’s policymakers. The legal and real estate sectors—both previously regarded as peripheral in the AML/CFT discourse—have been identified as key vectors for illicit financial activity. The 2024 Beneficial Ownership Regulations, therefore, represent not merely a compliance measure but a fundamental shift in the way Lesotho perceives and safeguards the integrity of its financial system. Going forward, sustained political will, adequate resourcing of regulators, and effective private sector engagement will be critical to ensuring these reforms achieve their intended impact.
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