Money laundering report shows doors are wide open to crooks

The Financial Action Task Force (FATF) report on SA, which came before the cabinet in September, is important for several reasons. The FATF is an intergovernmental organisation founded by the Group of Seven (G7) in 1989 to combat money laundering. After 9/11, a mandate to prevent terrorism financing was added to its scope. It develops policies and carries out peer reviews of member countries’ abilities to combat money flows used by organised crime and terrorist groups.

The report puts back on the agenda the very important issue of the urgency of fixing the country’s investigative and prosecutorial institutions, which due to political machinations were devastated over the period of Jacob Zuma’s administration.

It also reminds us that while the Guptas’ and Zuma’s organised looting has come to an end, the doors still stand open to those who will try it themselves. The risk-adjusted mechanisms are not in place to detect suspicious money flows and the law enforcement institutions we have are not up to the task of prosecuting financial crimes.

Thirdly, the report is important because failure to put in place the necessary measures and to improve prosecutorial performance carries a sanction from the international community. Failure to do so will raise SA’s risk profile, especially of financial institutions, for which all of us will pay a price, the business community especially so.

If the FATF “greylists” SA for not improving in the areas that it has flagged, a question mark will be placed over regulatory bodies, and global banks and institutions with corresponding relationships may be less keen to keep them or will attach to them a higher risk premium.

The overarching critique of SA was that while the big banks do have the necessary regulation in place, the country as a whole does not follow a risk-assessment approach and is therefore unaware of many of the risks to which it is exposed. Nonfinancial institutions such as lawyers, estate agents and casinos were not sufficiently monitored. The government also lacked the ability to monitor the cash economy, which was large by international standards, and involved many cross-border transfers.

The ability to identify “politically exposed people” was weak, as was the lax approach to establishing and keeping records of beneficial ownership. Trusts are identified as a big problem area, because limited information about them is available and the beneficial ownership is easily hidden.

These we know are frequently used by politicians and other politically exposed persons to hide sweetheart deals where the state or state-managed money, such as that managed by the Public Investment Corporation, is involved.

The red flags raised on SA’s weak controls over money laundering and terrorism financing draw attention to the same issues that need urgent attention if SA is ever going to get on top of corruption. The Guptas ran an organised crime syndicate and while the banks did eventually draw the line on the family’s irregular financial activities, it took them much longer than it should have.

Over the past two decades, we have sailed close to the wind in meeting international standards. During the “state capture” era, SA came close to becoming a criminal state, infiltrated and run by gangsters. Apart from the Guptas’ brazen looting, SA has been a playground to mafioso characters from all over the world, who were able to operate for many years before even one landed in prison.

While the public was desperate to see prosecutions arising from the state capture era in which politicians and their cronies looted the government, it has taken so long that many have given up complaining. But in light of the report, we should renew our insistence that everything possible be done to rebuild SA’s capacity to investigate crimes, especially those of a financial nature.

RISK-ADJUSTED MECHANISMS ARE NOT IN PLACE TO DETECT SUSPICIOUS MONEY FLOWS