One of South Africa’s 5 largest banks doesn’t know the citizenship standing of over 8 000 of its clients, placing it at a excessive danger of being utilised for terrorism funding and cash laundering, in accordance with a report by the SA Reserve Bank’s Prudential Authority (PA).
The nation’s 5 massive banks – ABSA, Standard Bank, Rand Merchant Bank, Nedbank and Investec maintain 89% of the whole belongings for the banking sector and provide a variety of advanced, high-volume services and quick banking transactions.
The PA surveyed 34 banks working within the nation – from the large 5, to medium to small-sized domestically managed banks, overseas banks and mutual banks – to evaluate crime dangers within the nation’s banking sector.
According to the report released this week, clients that offered an elevated danger to the sector included these rated “very high” danger, akin to well-liked and influential individuals and overseas outstanding public officers, native and overseas clients, and new clientele.
“Four banks banked probably the most high-risk purchasers, of which three had been massive banks and one was a smaller domestically managed South African financial institution. About 60% of all high-risk purchasers had been positioned inside the domestically managed banks and about 40% inside the massive banks.
“The banking sector risk assessment focused mainly on the inherent risk. The overall inherent money laundering/terrorism financing risk within the banking sector in South Africa is assessed to be high,” learn the report.
South Africa has a banking footprint and clients in neighbouring nations akin to Mozambique, Nigeria, Malawi and Kenya. The former is consistently on excessive alert from terrorist insurgency that began to extend in 2019.
The report asserts that the presence of banking operations in these nations and their proximity to South Africa posed a excessive danger of getting used as a channel to cover terrorist actions.
The nation’s banking sector reported 43 terrorist financing exercise stories (TFARs) and 9 terrorist financing transaction stories (TFTRs) to the Financial Intelligence Center by way of the FICA (Financial Intelligence Act) between 1 October 2018 and 31 December 2021.
All 9 terrorist financing stories had been reported by the large banks.
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Non-profit organisations purple flagged
The report additionally flagged banked non-profit organisations akin to social golf equipment, foundations, physique corporates, drug rehabilitation centres, and even orphanages as medium to excessive danger.
Extremist proper wing organisations, characterised by marginalisation, lack of alternatives and grievances with authorities, had been additionally famous as being registered as NPOs, with their representatives touring to different nations such because the USA and Canada to foyer for assist and lift funds.
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Banked NPOs within the nation totalled 94 436, and the large banks have over 58 000 of them as purchasers. The majority of those NPOs on the prime banks had been unregistered and there was seemingly no oversight on the NPO clientele.
The relaxation had been banked by medium to small domestically managed banks, branches of overseas banks within the nation, and mutual banks.
“The impression of such a excessive quantity of NPOs being banked, particularly the variety of unregistered NPOs, leads one to query the due diligence measures employed by such entities and the need for stronger authorized frameworks to deal with unregistered NPOs.
“NPOs have traditionally always been viewed as being susceptible to abuse for money laundering and terror financing. It is thus important to ensure that the activities of NPOs are well understood, including their size, activities, destinations involved, and potential funders and beneficiaries,” the report said.
One of the most important banks had 94.3% of the NPOs as clients.
Furthermore, banks reported the motion of bodily money, digital cash transfers, and digital belongings akin to bitcoin, as actions seemingly used to finance terrorism between 2018 and 2020.
Criminals reap the benefits of the numerous banking merchandise by means of the in depth use of money at automated teller machines (ATMs) to deposit money, with the supply of funds and particulars of depositors largely unknown.
“The large banks are exposed to all high-risk client types. One of the large banks indicated a total of 8 388 clients with unknown citizenship, which poses a high risk within the sector. A large bank indicated a total of 1 782 clients with the country of incorporation unknown.”
“Large banks are widely exposed to a high level of inherent money laundering/terrorism financing risk. This is as a result of their high numbers of clients, substantial exposure to foreign country risk, use of non-face-to-face delivery channels which increases anonymity, very high exposure to cash, and the propensity for the illicit flow of funds.”
Abnormal money transactions
Section 28 of the FICA requires monetary establishments to report money transactions above the worth of R24 999.99 inside two enterprise days.
For banks that fail to report transactions, the FIC has processes the place the monetary watchdog is allowed to have interaction it on any reporting failures.
“The FIC-issued Directive 03/2014 also provided information on banks that notified the FIC in terms of this directive. Missing information, such as the client’s identity number or passport, and incorrect or non-completion of the required information were the most common causes of these rejections.”
During the Covid-19 lockdown interval in 2020/2021, the FIC reported that almost all money transactions had been of people depositing the money above the edge into their accounts, and entities withdrawing money above the prescribed threshold.
Various uncommon money transactions throughout that interval had been recognized and referred for additional evaluation and potential referral to legislation enforcement.
Some of the primary suspicious banking actions recognized had been:
- Potential corruption linked to tenders
- Large money transactions utilized by influential political individuals (native and home)
- Individuals utilizing their private accounts for enterprise functions (potential tax evasion)
- Businesses prohibited from buying and selling underneath Covid-19 lockdown rules had been nonetheless shifting cash
- NPO transactions recognized as potential terror financing actions
- Indications of cash mules used to maneuver money in a foreign country, specifically to Middle Eastern nations, the place the supply of funds couldn’t be decided
The report discovered that using money within the banking sector offered cash laundering and terrorism financing dangers, as many banks provide merchandise used to acquire money, and the audit path is diminished as soon as the proceeds of crime are transformed into money and withdrawn.
“Mule accounts are also created to enable the proceeds of crime to be withdrawn as cash and create a second layer of anonymity between the criminal and these proceeds.”
Mule financial institution accounts are established utilizing largely stolen identities.
The report additional identified that the favored money sending strategies that don’t require the recipient to have a checking account however solely a cellphone, had been turning into problematic.
One of the massive banks that provides the service noticed funds totalling billions of Rands being transferred and withdrawn as money.
“The anonymity with this product is also a potential avenue for criminal abuse,” the report said.
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