With a staggering 2% to 5% of global GDP, equivalent to around R20 billion in South African terms, being laundered annually, the imperative for robust anti-money laundering and counter terrorist/proliferation financing controls measures cannot be overstated, particularly in the wake of the country’s greylisting.

Since its inception in 2001, the Financial Intelligence Centre Act (FICA) has been synonymous with compliance challenges and seemingly endless documentation. Many Accountable Institutions (AIs) fulfil the FICA requirements with reluctance, if at all, while their customers find the frequent need to verify their identity burdensome.

However, the rationale behind the existence of FICA is compelling. FICA plays a crucial role in identifying the proceeds of money laundering, terrorist funding and tax evasion, as well as the people behind these activities. South Africa’s greylisting by the Financial Action Task Force in 2023 proves that we still don’t have a proper handle on financial crime.

The government cannot solely be blamed for South Africa’s deficiencies. While resources in our regulators, law enforcement and prosecuting authorities are stretched, the private sector must also be held accountable. Companies serve as the front-line defence against South Africa being seen as a hotspot for financial crime.

Due Diligence and Compliance Challenges

FICA aims to ensure that AIs have sufficient and accurate knowledge of their clients’ true identities and motivations, empowering them to alert authorities about any suspicious activities or transactions. Without information from the people who are confronted with criminals’ attempts to clean dirty money, authorities have nothing to base their investigations on.

For FICA to be more effective, AIs need to take compliance more seriously. FICA places an obligation on AIs, such as credit providers, high value goods dealers, and financial intermediaries to put various controls in place to identify and report suspicious activity.

Yet for many industries, compliance remains a tremendous challenge. Legal practitioners and real estate agents are two categories of AIs that have been consistently declared non-compliant. According to the Financial Intelligence Centre (FIC), approximately 80% of law firms fail to adhere to FICA requirements. Non-compliance carries significant consequences, including reprimands and fines of up to R50 million for organisations.

Industries Most at Risk

Authorities have identified many industries as vulnerable to exploitation by money launderers, terrorists, and proliferation financiers. These industries encompass a wide spectrum, including financial intermediaries, credit providers, legal practitioners, real estate agents, and dealers of high-value goods.

These industries are at a higher risk simply because of the products and services they offer. Whether they are moving money through bank accounts, changing currency, sending money offshore or selling luxury cars, jewellery or properties. Several companies fail to recognise their potential involvement in illegal schemes. For example, instances such as gold smugglers in Zimbabwe bribing SA bank officials to launder money demonstrate how easily criminals can conceal their illicit activities and coerce others.

Besides banks, high-value goods dealers are also at risk of receiving illicit funds for goods they sell. They are a recent addition to FICA’s list of AIs, but there is still much to do to educate them about how to implement appropriate, risk-based controls.

FICA mandates AIs to thoroughly examine their clients using enhanced due diligence in situations where there is potentially higher risk, such as requesting documentary proof of the information that has been provided. The vast majority of clients will be run of the mill, but it’s important to always bear in mind not only the reputational risk if you’re caught up in a money-laundering scheme but the potential fine associated with non-compliance.

Given the persistent threat of financial crime, organisations cannot afford to lower their guard. As technology advances and new markets are created, money launderers, terrorists, and proliferation financiers are finding increasingly innovative ways to use these systems, tools, and markets to evade detection. In order to counter the ever-changing face of money laundering and legislation, the companies at risk of being misused must also adapt.

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