An exploration of the current regulatory aspects of money laundering in South Africa

Abstract

Purpose Money laundering activities were allegedly rampant and poorly regulated in the South African financial markets and financial institutions prior to 1998. In other words, prior to the enactment of the Prevention of Organised Crime Act 121 of 1998 as amended (POCA), there was no statute that expressly and adequately provided for the regulation of money laundering in South Africa. Consequently, the POCA was enacted to curb organised criminal activities such as money laundering in South Africa. Thereafter, the Financial Intelligence Centre Act 38 of 2001 as amended (FICA) was enacted in a bid to, inter alia, enhance financial regulation and the combating of money laundering in the South African financial institutions and financial markets. Design/methodology/approach The paper provides an overview analysis of the current legislation regulating money laundering in South Africa. In this regard, prohibited offences and measures that are used to curb money laundering under each relevant statute are discussed. The paper further discusses the regulation and use of customer due diligence measures to combat money laundering activities in South Africa. Accordingly, the regulation of customer due diligence under the FICA and the Banks Act 94 of 1990 as amended (Banks Act) is provided. Findings It is hoped that policymakers and other relevant persons will use the recommendations provided in the paper to enhance the curbing of money laundering in South Africa. Research limitations/implications The paper does not provide empirical research. Practical implications The paper is useful to all policymakers, lawyers, law students, regulatory bodies, especially, in South Africa. Social implications The paper seeks to curb money laundering in the economy and society at large, especially in the South African financial markets. Originality/value The paper is original research on the South African anti-money laundering regime.

Historical aspects of customer due diligence and related anti-money laundering measures in South Africa

“…Various statutes such as the Proceeds of Crime Act 1996, the POCA, the POCDATARA and the FICA were enacted in a bid to effectively regulate and control money laundering and related activities such as terrorist financing and drug trafficking (Chitimira, 2020, pp. 30–33; Chitimira, 2021, pp. 795–798).…”

“…Moreover, the FICA stipulates that accountable institutions and other financial institutions that have legal persons, trusts and partnerships customers should comply with the risk management and compliance programme to establish the nature of their customers’ business and the ownership and control structure of such business to discourage and combat money laundering activities that are perpetrated by high-risk customers through juristic persons [s 21B(2)–(5) of the FICA]. In other words, the FICA requires accountable institutions and financial institutions to obtain adequate additional information from all the existing and current customers to acquire sufficient knowledge of their accounts and transactions to effectively detect and combat money laundering and related terrorist activities in South Africa (Chitimira, 2021, pp. 795–798).…”

“…This entails that financial institutions should carefully recognise all types of risks posed by money laundering and terrorist financing and assess them well so as to adopt robust control strategies to mitigate and monitor the identified risks (Chitimira, 2020, pp. 30–33; Chitimira, 2021, pp. 795–798).…”

“…Ongoing due diligence measures empower banks and other financial institutions to conduct additional, constant and continuous monitoring procedures on all financial customers to monitor their transactions to timeously detect money laundering and the financing of terrorist activities (s 21C of the FICA; Chitimira, 2020, pp. 30–33; Chitimira, 2021, pp. 795–798).…”

“…Currently, the FICA provides for the use of comprehensive due diligence measures to detect and combat money laundering in South Africa. Banks and other financial institutions are obliged to adopt and enforce comprehensive customer due diligence measures to detect, prevent and combat money laundering activities that are conducted by high-risk customers in South Africa (Chitimira, 2021, pp. 795–798).…”