SA failing to combat money laundering, terrorist financing
Country lacks capacity, expertise and structures to contain, if not eradicate phenomenon
ON OCTOBER 7, NatWest Bank, which is 55% owned by the taxpayer, pleaded guilty at the Westminster Magistrate's Court in London to money laundering.
The charges were brought by the Financial Conduct Authority under new anti-money laundering (AML) measures in the UK.
NatWest failed to monitor and report suspicious activity by a client, who deposited £264 million (R5.26 billion) in cash over a three-year period.
On the same day, Paris-based Financial Action Task Force (FATF), the independent inter-governmental gatekeeper that “protects” the global financial system against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction, issued a damning evaluation of South Africa's current anti-money laundering and counter-terrorist financing policies.
FATF recommendations are recognised as the global anti-money laundering and counter-terrorist financing standard.
Money laundering is the process by which proceeds of crime are "washed" through the financial system.
By cleaning the money, its origin is given the appearance of legitimacy. Terrorist financing is providing, collecting, or receiving funds used to support terrorist acts or organisations.
The objective of money laundering is to conceal the origins of proceeds of criminal conduct; and, of terrorist financing, to conceal the intended use or destination of funds.
Money laundering and terrorist financing are universal phenomena. Despite massive advantages in resources and technology, institutions in the developed economies, including the US and Europe, continue to feature prominently in regular anti-money laundering and counter-terrorist financing violations.
Massive fines, running into billions of dollars, seem to be little deterrent.
The assessment of South Africa was done by International Monetary Fund staff, based on country visits.
It confirms yet another metric of shame on the country's international reputation not only as the continent's financial gateway, but also as its money laundering hub.
While progress has been made to combat money laundering and terrorist financing since FATF's last assessment on South Africa, in 2009, this is fragmented and superficial.
Corruption and bribery are systemic, and the country still lacks capacity and the requisite expertise and structures to contain if not eradicate the phenomenon.
For President Cyril Ramaphosa, this assessment is not even a wake-up call.
He is in the middle of his own anti-corruption drive, which has touched the very core of the ANC and even officials in his presidential office.
The perception is that his approach is piecemeal and selective – tough in some places, but tepid when it is nearer to home.
“South Africa,” says FATF, “has yet to develop co-ordinated and holistic national anti-money laundering and counter-terrorist financing policies informed by money laundering and terrorist financing risks, though some existing policies or measures mitigate some of the risks.
“Significant money-laundering risks remain largely unaddressed for beneficial owners of legal persons and trusts, cross-border movement of cash, and criminal justice efforts are not yet directed towards effectively combating higher risks such as money launderingrelated to corruption, narcotics and tax offences.”
The country “has a high volume and intensity of crime and more than half of reported crimes fall into categories that generate proceeds.
“The main domestic proceeds-generating crimes are tax crimes, corruption and bribery, fraud, trafficking in illicit drugs, digital banking frauds and environmental-type crimes.
“As a large economy and a regional financial hub for sub-Saharan Africa, South Africa has a notable exposure to the threat of foreign proceeds of crime that are generated in the region being laundered in or through the country.”
Incidents of corruption and bribery are widespread, across state-owned, provincial, and municipal entities, particularly irregularities in procurement involving the private sector.
Governance weaknesses, including in supply chain management, performance reporting and inadequate oversight coupled with a lack of consequences for transgressors, increase the scope for bribery and corruption.
South Africa also “has suffered from a sustained period of “state capture”, (during the Zuma kleptocracy), which helped to generate substantial corruption proceeds and undermined key agencies with roles to combat such activity, albeit government initiatives from 2019 were starting to address the situation by replacing key staff and increasing resources for enforcement agencies.
Pretoria has achieved some good results, pro-actively pursuing confiscation of criminal proceeds, particularly using civil forfeiture powers, spearheaded by the Financial Intelligence Centre (FIC); its public-private partnership between the banking sector and regulatory authorities, SAMLIT; and its multi-agency collaborative anti-financial crime Fusion Centre.
The banking sector is by far the largest target and conduit for money launderers.
It is not surprising that in the 2020/21 financial year, the sector reported 4.3 million instances where the cash threshold was surpassed, and there were more than 260 000 suspicious transactions.
The FIC assisted in the recovery of R3.3bn in proceeds of crime and froze R613.2m as suspected proceeds of crime.
The Covid-19 pandemic provided a convenient cover for procurement profiteering. The Fusion Centre handled 276 criminal and fraud investigations relating to pandemic relief efforts, which led to the recovery of R659m.
These figures pale in comparison to the real cost of corruption and scale of fraud and money laundering.
Pretoria alleges that more than R500bn was captured from the state by the Gupta sibling troika during the Zuma years. Other estimates put the total figure at more than R2 trillion.
FATF's in-depth evaluation reveals how far Pretoria needs to improve its surveillance and enforcement measures to combat a phenomenon that is costing the taxpayer a fortune.
According to FATF, the number of money laundering and terrorist financing convictions is only partly consistent with South Africa's risk profile.
These pertain to low-risk, self-laundering crimes as opposed to high-risk crimes. Money laundering cases relating to “state capture” have not been sufficiently pursued.
The proactive identification and investigation of money laundering and terrorist financing networks, professional enablers and "beneficial owners" of companies, funds and assets are not really occurring.
Only one person had been convicted of terrorist financing since the last evaluation.
Pretoria is in the middle of concluding its first national assessment of money-laundering risks.
Its preliminary findings merely confirm FATF's evaluation of the country's cornucopia of money laundering and terrorist financing risks, vulnerabilities and shortcomings.