The biggest banks in SA are at high risk of money laundering and terror funding.
The South African Reserve Bank (SARB) has warned that South Africa’s biggest banks are at “high risk” of being used for money laundering and terrorism funding.
The latest Banking Sector Risk Assessment Report from SARB’s Prudential Authority contains a warning that the big five banks—Standard Bank, FirstRand (FNB), Absa Bank, Nedbank, and Investec—must enhance their ability to detect and report illegal cash flows and crimes as well as prosecute financial crimes by October of this year.
The alternative would be for South Africa, which is a member of the Financial Action Task Force (FATF), a global organization that monitors money laundering, to be added to a list of nations that threaten the global financial system.
The FATF’s greylisting would have detrimental economic effects on international trade and business dealings.
The five large banks, which account for 89 percent of the banking industry’s assets, are reported to be highly exposed to the risk of money laundering and terrorism funding.
This is due to their large clientele, significant exposure to the risk of doing business in other countries, usage of non-face-to-face delivery channels that promote anonymity, significant exposure to cash, and inclination for the illicit flow of funds.
The study, which omits names, claimed that one of the major banks reported a total of 8388 people with uncertain citizenship, creating a significant danger for the industry.
Additionally, it mentioned that a sizable bank had reported a total of 1 782 clients whose place of incorporation was unclear.
The report said: “The sub-sector is still targeted by criminals, as clients use cash extensively, and can use non-face to-face methods such as automated teller machines (ATMs) to deposit cash, while the source of funds and details of depositors are largely unknown.”
It said that because big banks worked with clients who had intricate corporate structures, it was possible to conceal who owned the money.
Fraud, bribery, and corruption as well as unlawful investment scams were among the common dangers to the banking industry listed in the report.
The report said: “Corruption affects the banking sector as banks may inadvertently process the bank accounts of government and salaried employees that are credited outside of the normally expected salary scope, and may involve the proceeds of crime.”
In a statement issued in response to questions by the Cape Argus, Absa Bank said it supported the implementation of the recommended FATF reforms.
“There are serious adverse consequences to South Africa being greylisted, including, but not limited to, increasing the country’s risk profile, and therefore, raising the cost of doing business,” the bank said.
Absa stated that it was aggressively addressing issues that fell under its purview and taking part in industry-wide initiatives coordinated by the Banking Association of South Africa (Basa).
According to Basa, the government wouldn’t be able to afford for the FATF to greylist it because that would further impede investment and global financial transactions.
Basa urged the Treasury and Parliament to “act timeously” to avoid being placed on a grey list. It stated that South Africa’s ability to address the basic needs of its population would become significantly more difficult if it lacked simple, affordable access to international financial markets via the international financial system.
“South Africa’s reputation will also be battered, as we’d be known as a money-laundering destination and, given our reputation for corruption, that will drive investors to look elsewhere.”