South Africa Urged to Improve Financial Crime Reporting Amid Gaps in Implementation

Introduction

A recent assessment by the International Monetary Fund staff-led evaluation has highlighted significant shortcomings in South Africa’s efforts to combat money laundering and terrorist financing. Despite having a solid legal framework in place, the country is failing to pursue serious cases, with law enforcement agencies lacking the skills and resources to proactively investigate these crimes.

The Risks of Financial Crime

South Africa, a G20 economy and regional financial hub for sub-Saharan Africa, is exposed to the laundering of domestic crime proceeds and foreign crime proceeds from the region. This includes so-called “State Capture”, corruption practices involving businesses and politicians that have generated substantial corruption proceeds and undermined key agencies.

Challenges in Implementation

The Financial Intelligence Centre has been effective in producing operational financial intelligence, but law enforcement agencies struggle to utilize this information for proactive investigations. While some successful money laundering investigations have been carried out, the identification and investigation of laundering networks and professional enablers remains a challenge.

• Cash Cross-Border Transactions: The use of cash across borders poses a high risk for money laundering and terrorist financing.
• Detection and Recovery of Cash Proceeds: Efforts to detect and recover cash proceeds of crime remain challenging.
• False or Undeclared Cross-Border Currency Movements: South Africa must improve its ability to prevent false or undeclared cross-border currency movements.

Recommendations for Improvement

To address these shortcomings, the country is advised to:

• Make Better Use of Financial Intelligence: Proactively work with international partners to detect and seize illicit cash flows.
• Improve Beneficial Ownership Information: Close gaps in sectoral coverage by improving the availability of beneficial ownership information.
• Apply a Risk-Based Approach: Businesses and supervisors must apply a risk-based approach to anti-money laundering measures.

Conclusion

The assessment was conducted jointly with the Eastern and Southern Africa Anti-money Laundering Group (ESAAMLG) and adopted by the Financial Action Task Force (FATF) at its June 2021 Plenary meeting. South Africa has been urged to take these recommendations seriously and address the gaps in its implementation of anti-money laundering and terrorist financing measures.