Selected challenges associated with the reliance on customer due diligence measures to curb money laundering in South African banks and related financial institutions

Abstract

Customer due diligence is a means of ensuring that financial institutions know their customers well through know-your-customer (KYC) tools and related measures. Notably, customer due diligence measures include the identification and verification of customer identity, keeping records of transactions concluded between a customer and the financial institution, ongoing monitoring of customer account activities, reporting unusual and suspicious transactions, and risk assessment programmes. Accordingly, financial institutions should ensure that their customers are risk assessed before concluding any transactions with them. The regulation of money laundering is crucial to the economic growth of many countries, including South Africa. However, there are still numerous challenges affecting the banks and other role players’ reliance on customer due diligence measures to combat money laundering in South Africa. Therefore, a qualitative research methodology is employed in this article to unpack such challenges. The challenges include the failure to meet the identification and verification requirements by some South African citizens, onerous documentation requirements giving rise to other persons being denied access to the formal financial sector, and the lack of express provisions to regulate the informal financial sector in South Africa. Given this background, the article discusses the challenges associated with the regulation and implementation of customer due diligence measures to enhance the combating of money laundering in South African banks and related financial institutions. It is hoped that the recommendations provided in this article will be utilised by the relevant authorities to enhance customer due diligence and effectively combat money laundering activities in South African banks and related financial institutions.

The adequacy of the legal framework for combating money laundering and terrorist financing in Nigeria

“…Thus, notwithstanding the cost implication of AML/CFT laws, these laws are crucially important for the combating of money laundering and terrorist financial crimes in Nigeria and several other countries. We authors concur with de Koker ( 2006) and Chitimira and Munedzi (2021) on the importance of customer due diligence to curb money laundering and terrorist financing activities in the global financial markets and financial institutions [3].…”

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

“…Sadly, these scandals were not timeously detected by the FIC, banks and other regulatory authorities. This could have been caused by the POCA’s flawed provisions which do not provide for the use of customer due diligence measures to curb money laundering in South Africa (Chitimira, 2020, pp. 34–35).…”

“…Moreover, the FIC, banks and other financial institutions should effectively and consistently apply the risk-based approach in addition to customer due diligence measures to detect and combat money laundering activities in South Africa. Put differently, the risk-based approach empowers the FIC, banks and other financial institutions to distinguish between high- and low-risk customers by carefully enforcing the applicable customer due diligence measures to such customers in South Africa (Chitimira, 2020, pp. 30–33; Chitimira, 2021, pp.…”

“…Nonetheless, the POCDATARA does not expressly provide for customer due diligence and other related measures to detect, monitor, assess and combat money laundering activities in the South African financial institutions and financial markets. Consequently, the POCDATATA is not usually used to curb money laundering activities in South Africa (Chitimira, 2020, pp. 36–37).…”

“…Ongoing due diligence measures enable banks and other related financial institutions to use customer due diligence measures to collect relevant documents, data and/or information that must be kept up-to-date, accurate and correct by conducting constant reviews of existing records, especially in respect of high-risk financial customers (s 21C of the FICA). 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.…”