South Africa kissing R182 billion goodbye

South Africa down

South Africa loses R182 billion ($10 billion) annually to illicit financial flows, most of which can be attributed to money laundering. These flows threaten to destabilise the country’s financial system. 

This was revealed by Global Financial Integrity, a US-based thinktank tracking illicit financial flows worldwide. 

Its ranking also showed that South Africa ranked seventh among the worst-offending countries for anti-money laundering events in the last decade. 

Money laundering is the process through which criminals conceal the origins of their wealth, assets, and cash. 

Global Financial Integrity said criminals’ methods are becoming increasingly sophisticated and threaten to overwhelm local law enforcement agencies. 

Common tactics used in South Africa include trade-based laundering, where trade transactions are manipulated to disguise the movement of money. 

Layering, where illicit funds are concealed through complex layers of financial transactions, and the misuse of digital currencies, a recent trend that capitalises on the anonymity of these platforms.

It also said that combatting money laundering is hampered by widespread corruption in the country’s civil service and the involvement of private businesses in corrupt practices. 

This suggests a significant prevalence of financial crime amongst some of the institutions meant to combat this illegal activity. 

While money laundering results in significant losses for the country through lost tax revenue and reduced trade, it also has major implications for South Africa’s financial system. 

The World Bank has warned that these activities could even lead to a country’s financial crisis if left unchecked. 

Perhaps most significantly, widespread money laundering can deter foreign investment and destroy the reputation of South Africa’s sophisticated financial institutions. 

The impact is felt in South Africa and across the continent, as these institutions are the gateway through which investment flows into other African countries and are significant players in the global financial system. 

Greylisting starting to bite

Money laundering is one of the major reasons South Africa remains on the Financial Action Task Force’s greylist. This makes it harder for money to flow in and out of the country and for local businesses to operate outside of the country. 

In February 2023, South Africa was placed on the list of “jurisdictions under increased monitoring” due to its failure to comply with FATF’s anti-money laundering and terrorist financing standards. 

The country has made good progress in addressing the 40 recommendations given by FATF but has still failed to adequately address money laundering and potential financing of terrorist organisations. 

In particular, the government must ensure that policymakers, financial intelligence analysts, law enforcement officials, and other relevant authorities can cooperate, coordinate their efforts, and exchange information.

The updated report’s feedback shows that South Africa still lacks coordination and implementation of adequate legislation among the relevant and responsible parties. 

Furthermore, the country lacks adequate controls regarding how it manages, monitors and restricts cash coming into and out of South Africa. 

Simply put, it has to address the notion that South Africa has become a convenient hub for criminals and their various networks and syndicates to funnel their proceeds through.

The Reserve Bank warned that a prolonged stay on the greylist would negatively affect the country’s risk premium, market depth, and liquidity due to outflows from foreign investors. 

The longer the country stays on the greylist, the more severe its impact will be, with some South African companies already flagging its negative effects. 

South Africa’s largest food processor, Tiger Brands, noted last year that the company has experienced substantial delays in receiving export payments due to increased scrutiny from global financial institutions. 

The company produces its products throughout Southern Africa and exports them to 25 countries on the continent. 

While customers make their payments on time, they take much longer to reflect on Tiger Brands’ books due to more paperwork being required before money is transferred into South Africa. 

NC = non-compliant, PC = partially compliant, LC = largely compliant, C = compliant

Government crackdown

Financial regulators and law enforcement agencies, particularly the Financial Intelligence Centre (FIC), have begun cracking down on illicit money flows in South Africa. 

The FIC has focused its pressure on South African law firms and real estate brokers to comply with disclosure requirements. 

The two industries have been identified as posing a high risk to the country’s efforts to fight flows of illicit funds and combat terror financing and are being subjected to greater oversight. 

The FIC is mandated to assist in identifying the proceeds of crime and combating money laundering, terrorism financing and the proliferation of weapons of mass destruction.

So far, only 52% of the country’s 16,000 legal practitioner offices and 42% of the 9,000 estate agencies have complied with FIC’s requirements.

Those that fail to do so will now be fined, and penalties could amount to millions of rand depending on the infraction, the FIC warned. 


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