Financial Crime World

SOUTH AFRICA’S MONEY LAUNDERING SYSTEM FALLS SHORT OF EXPECTATIONS

A recent International Monetary Fund (IMF) assessment has revealed that South Africa’s system for combating money laundering and terrorist financing is plagued by significant shortcomings, despite having a solid legal framework in place.

The IMF Assessment: Key Findings

  • The report highlights several areas of concern, including:
    • Failure to pursue serious cases of money laundering and terrorist financing
    • Vulnerability of banks as the main entry point to the financial system
    • Exposures to terrorism financing risks associated with foreign terrorism, foreign terrorist fighters (FTFs), and potential domestic terrorism
  • The assessment was adopted by the Financial Action Task Force (FATF) at its June 2021 Plenary meeting

The Challenges Facing South Africa’s Money Laundering Efforts

Corruption Practices: “State Capture”

  • The corruption practices known as “State Capture” have undermined key agencies responsible for combating money laundering
  • This has led to a significant number of corruption proceeds being generated and assets being moved to other countries, making it difficult for authorities to recover them

Limited Law Enforcement Capabilities

  • Law enforcement agencies lack the skills and resources to proactively investigate money laundering or terrorist financing
  • As a result, the proactive identification and investigation of laundering networks and professional enablers is not occurring

The Risks Associated with Cash Transactions

  • The widespread use of cash in South Africa poses a high risk for money laundering and terrorist financing
  • Detecting and recovering cash proceeds of crime remains challenging
  • Efforts to prevent false or undeclared cross-border currency movements need major improvement

Recommendations for Improvement

  • Make better use of financial intelligence to detect and investigate money laundering and terrorist financing
  • Work proactively with international partners to detect and seize illicit cash flows
  • Improve the availability of beneficial ownership information
  • Close gaps in sectoral coverage
  • Ensure that law enforcement agencies have the necessary skills and resources to investigate money laundering and terrorist financing effectively

Conclusion

South Africa’s success in combating money laundering and terrorist financing will depend on its ability to implement effective measures and address the significant shortcomings identified by the IMF assessment. If it fails to do so, the country risks undermining its reputation as a regional financial hub and exposing itself to increased risk of illicit activity.