Financial Crime World

South Africa’s Weak Link in Fight Against Financial Crime Exposed

Introduction

South Africa has a robust legal framework to combat money laundering and terrorist financing, but the country’s ability to implement an effective system remains a major concern. A recent assessment by the International Monetary Fund (IMF) highlights significant shortcomings in the country’s efforts to pursue serious cases.

Assessment Findings

  • Risk of Money Laundering: South Africa is exposed to the laundering of domestic crime proceeds and foreign crime proceeds from the region, as well as terrorism financing risks associated with foreign terrorism, foreign terrorist fighters (FTFs), and potential domestic terrorism.
  • Weaknesses in Financial System: The country’s banks offer a diverse suite of products and serve as the main entry point to the financial system.

Concerns and Challenges

  • State Capture Corruption: South Africa needs to pursue money laundering and terrorist financing in line with its risk profile, including so-called “State Capture”, a corruption practice involving businesses and politicians conspiring to influence decision-making processes.
  • Recovery of Assets: Authorities have struggled to recover assets from “State Capture” and proceeds that moved to other countries.
  • Cash-Based Transactions: The widespread use of cash is a high risk for money laundering and terrorist financing, including across borders.

Recommendations

To address these concerns, South Africa must:

  • Improve Financial Intelligence: Make better use of financial intelligence
  • Enhance Beneficial Ownership Information: Improve the availability of beneficial ownership information
  • Apply Risk-Based Approach: Apply a risk-based approach by businesses and supervisors
  • Close Sectoral Gaps: Close gaps in sectoral coverage
  • International Cooperation: Proactively work with international partners to detect and seize illicit cash flows

Conclusion

The IMF assessment, jointly conducted with the Eastern and Southern Africa Anti-money Laundering Group (ESAAMLG) and adopted by the Financial Action Task Force (FATF), highlights the need for South Africa to address these concerns. The country’s response will be crucial in ensuring that it effectively combats financial crime and maintains its position as a regional financial hub for sub-Saharan Africa.