Hardware stores warned against dagga cash
MANZINI – “As much as dagga is making the economy thrive and most building hardwares benefit from it, it remains illegal,” says Registrar of Companies Msebe Malinga.
Malinga was speaking during the Anti-Money Laundering (AML)/ Combating Financial Terrorism (CFT) training for hardware dealers at The George Hotel, Manzini.
The registrar of companies emphasised on this, as hardware professionals from different shops were being empowered about the need to have a threshold for reporting cash transactions and ensuring that they were not conduits for money laundering.
He said inasmuch as some hardware shops and other businesses were benefitting from the dagga trade, it remained illegal and it upset the functioning of the economy.
This was emphasised by Eswatini Financial Intelligent Unit (EFIU) Senior Compliance Officer Bongani Mdluli, who explained that people had stopped using banks and were taking advantage of the laxity of regulations in building hardwares.
Mdluli, advised the personnel in the retail of hardware material to always seek clarity on the source of funds. He said due to this, Eswatini had designated hardware dealers as accountable institutions under the Money Laundering and Terrorism Financing (Prevention) Act, 2011.
Mdluli, along with the EFIU Head of Compliance and Prevention, Calvin Dlamini, informed the attendees that hardware dealerships would be given forms, which shall make it mandatory for any customer in their establishments to share their personal details.
The proposed know-your-customer (KYC) form shall entail personal details of the client being serviced, such as their national identity number, residential address and also their source of income. However, some of the building hardware dealership personnel said they had, in some instances, tried to profile their clients whenever they came with large sums of money; but their queries were met with resistance.
One of the attendees asked the EFIU officers what would protect them from the clients who brought large sums of money, as it could result in retaliation, threats and or loss of business. To this, Dlamini said the resistance was expected, as it had happened even when same was introduced in the mainstream banking sector; however, it was essential that the hardware stores standardised their profiling, so that every customer had to share their details.
Also, during the training session, it emerged that hardware stores did not collect any information on their cash customers and as such, were prone to being used as conduits for money laundering and or financing of terrorism. As such, he said the threshold for any cash-customer to be reported to the EFIU was E15 000 and the amount shall be increased to E25 000 from the beginning of April 2024. “Any person buying with an amount equal to the threshold should be reported to us, so that their information could be shared with the relevant institutions,” he said.
Reported
Dlamini explained that electronic financial transfers (EFTs) need not be reported, as they were in the formal baking sector and his entity was accessible to them. During the training, it was highlighted that some of the vulnerabilities of the hardware stores was that customers who were also account holders may deposit funds derived from illegal activities (referred to as ‘proceeds of crime’) to legitimise the funds.
Dlamini further said it had come to their attention that there were no limits to the money that could be deposited and customer source of fund was not collected. “There is also no limit to the maximum funds that the account can hold at a given time and customers may deposit proceeds of crime in the business by using false identity documents or through a third party, such as a relative or an unwilling participant recruited by the criminal organisation as a ‘money mule’,” Dlamini said.
He said customers may also request refunds from deposited monies at any time and these refunds could be transferred into clients’ bank accounts, which then did not account for the source of income as the money would then be in the banking system; yet it could be proceeds of crime.
Dlamini also said their assessment uncovered that hardware dealers received high value cash purchases from customers, which were different from EFTs and cash deposits. These high value cash purchases further heighten the money laundering risk exposure of the sector.
He said, as a result of the vulnerability assessment against this sector, they had established that there was a need to ensure that all the obligations emanating from the Act, ranging from customer due diligence, record keeping, suspicious transaction reporting, cash threshold reporting and various other preventatives and mitigating measures are applied by this sector in conducting its operations.
“Dlamini emphasised the need for customer due diligence, as required by the Act, as he said there was evidence of large sums of monies accepted from customers holding hardware accounts with the hardwares, without applying the minimum standards of customer due diligence as required by the Act, such as requesting the source of funds.
He also said there was also evidence of the lack of limit of money one could deposit into the account held with neither the business nor a requirement by management to use deposited funds within a prescribed period. These, he said, were some of the gaps criminals exploited to launder funds.
It is for this reason, Dlamini said, that after conducting the hardware sector money laundering vulnerability assessment, the country took a decision to designate hardware dealers as accountable institutions under the Money Laundering and Prevention of Terrorist Financing Act, 2011, which was the principal Act enacted by Parliament to combat money laundering and terrorist financing in Eswatini. Section 2 of the Act defines accountable institutions under the Act and Schedule 3 of the Act further lists accountable institutions under the Act.
Threats
Under the Act, accountable institutions include banks and non-banking financial institutions and designated non-financial businesses and professions (DNFBPs) which are categorised as such, listed in Schedule 3 of the Act.
The DNFBPs are professions and businesses which have been designated as such, because of the risks and threats they pose to the financial system of the country. These sectors include legal practitioners, real estate agencies, gaming sector (including casinos), dealers in precious metals and stones, accountants, building hardware dealers, accountants and dealers in motor vehicles.
On the other hand, he reiterated that some money launders avoided banks and started using hardware stores so that they could clean their money by targeting people who were procuring items in bulk. He said the ‘launders’ would approach the person and offer to pay for the items using his building hardware store account in exchange of having the innocent customer transferring money into his/her account.