An exploration of the current regulatory aspects of money laundering in South Africa
| DOI | https://doi.org/10.1108/JMLC-10-2020-0120 |
| Published date | 08 February 2021 |
| Date | 08 February 2021 |
| Pages | 789-805 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial compliance/regulation,Financial crime |
| Author | Howard Chitimira |
An exploration of the current
regulatory aspects of money
laundering in South Africa
Howard Chitimira
Faculty of Law, North West University, Potchefstroom, South Africa
Abstract
Purpose –Money laundering activities were allegedly rampant and poorly regulated in the South African
financial markets and financialinstitutions prior to 1998. In other words, prior to the enactment of the Prevention
of Organised Crime Act 121 of 1998 as amended (POCA), there was no statute that expressly and adequately
provided for the regulation of money laundering in South Africa.Consequently, the POCA was enacted to curb
organised criminal activities such as money laundering in South Africa. Thereafter, the Financial Intelligence
Centre Act 38 of 2001 as amended (FICA) was enacted ina bid to, inter alia, enhance financial regulatio n and the
combatingofmoneylaunderingintheSouthAfricanfinancial institutionsand financial markets.
Design/methodology/approach –The paper provides an overview analysis of the current legislation
regulating money launderingin South Africa. In this regard, prohibited offencesand measures that are used
to curb money laundering under each relevant statute are discussed. The paper further discusses the
regulationand use of customer due diligence measures to combatmoney laundering activities in South Africa.
Accordingly, the regulation of customer due diligence under the FICA and the Banks Act 94 of 1990 as
amended (BanksAct) is provided.
Findings –It is hoped thatpolicymakers and other relevant persons will use therecommendations provided
in the paper to enhance the curbingof money laundering in South Africa.
Research limitations/implications –The paper doesnot provide empirical research.
Practical implications –The paper is useful to all policymakers, lawyers, law students, regulatory
bodies, especially,in South Africa.
Social implications –The paper seeks to curb money laundering in the economyand society at large,
especiallyin the South African financial markets.
Originality/value –The paper is original researchon the South African anti-moneylaundering regime.
Keywords Money laundering, Customer due diligence, High-risk customers, Risk-based approach,
Ongoing due diligence
Paper type Research paper
1. Introductory remarks
Money laundering activities were allegedly rampant and poorly regulated in the South African
financial markets and financial institutions prior to 1998 (De Koker, 2002)[1]. In other words,
prior to the enactment of the Prevention of Organised Crime Act 121 of 1998 as amended
This article was supported in part by the National Research Foundation of South Africa (NRF), Grant
Number: 112115. In this regard, the author wishes to acknowledge and thank the NRF for its valuable
support. Moreover, the author is also grateful to Ms Sharon Munedzi for her insightful comments
during preliminary drafting of this article. For related comments and information see Ms Munedzi’s
Master of Laws (LLM) dissertation entitled: The Reliance on Customer Due Diligence to Enhance the
Combating of Money Laundering under the Financial Intelligence Centre Amendment Act 1 of 2017,
North West University, 2018, pp. 30-42.
Money
laundering in
South Africa
789
Journalof Money Laundering
Control
Vol.24 No. 4, 2021
pp. 789-805
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-10-2020-0120
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1368-5201.htm
(POCA), there was no statute that expressly and adequately provided for the regulation of
money laundering in South Africa. Money laundering includes any practice, conduct or activity
that has or is likely to have the effect of concealing or disguising the nature, source, location,
disposition or movement of the proceeds of unlawful activities or any interest that anyone has
in such proceeds and/or any activity that constitutes an offence relating to certain transactions
that are conducted to avoid reporting duties as stipulated under Section 64 of the Financial
Intelligence Centre Act 38 of 2001 as recently amended by the Financial Intelligence Centre
Amendment Act 1 of 2017 (FICA) or an offence relating to money laundering under Section 4,
or an offence relating to assisting another person to benefit from the proceeds of crime under
Section 5, or an offence relating to acquisition, possession or use of proceeds of unlawful
activities as stipulated in Section 6 of the POCA [2]. Money laundering was mainly outlawed
and prosecuted under common law in South Africa prior to 1998 [3]. From a statutory point of
view, money laundering was narrowly prohibited in relation to drug trafficking activities under
the Drugs and Drug TraffickingAct140of1992(DrugTrafficking Act) [4]. For instance, the
Drug Trafficking Act indirectly prohibited money laundering in respect of the proceeds of
specific drug-related offences. In this regard, all relevant persons were obliged to report any
suspicious transactions involving the proceeds of drug-related offences to the police.
Thereafter, the Proceeds of Crime Act 76 of 1996 (Proceeds of Crime Act) was en acted in a bid
to extend the scope of the statutory prohibition on money laundering to all types of illicit
trading activities and offences in South Africa [5]. Nonetheless, these anti-money laundering
efforts were somewhat flawed and inadequate for the purposes of combating money
laundering in South Africa. As a result, the Proceeds of Crime Act and the anti-money
laundering provisions of the Drug Trafficking Act were repealed by the POCA in 1999 [6].
Consequently, the POCA was enacted to curb organised criminal activities such as money
laundering in South Africa [7]. In addition, the FICA [8] was enacted in a bid to, inter alia,
enhance financial regulation and the combating of money laundering in the South African
financial institutions and financial markets (Lawack, 2013;Reuter and Truman, 2004). The
article provides an overview analysis of the current anti-money laundering legislation in South
Africa [9]. In this regard, prohibited offences and measures that are employed to curb money
laundering under each relevant statute are discussed [10]. The article further discusses the
regulation and use of customer due diligence measures to combat money laundering activities
in South Africa [11]. To this end, comprehensive due diligence measures, simplified customer
due diligence measures, risk-based customer due diligence measures and ongoing due diligence
measures are scrutinised in this article. Accordingly, the regulation of customer due diligence
under the FICA and the Banks Act 94 of 1990 as amended (Banks Act) is provided [12].
2. Regulation of money laundering under the Prevention of Organised Crime
Act
The POCA came into force on 21 January 1999, in an attempt to effectively combat money
laundering activities in South Africa [13]. It is more direct in its application, scope and the
combating of money laundering activities in South Africa than related legislation such as
the FICA and the Protection of Constitutional Democracy Against Terrorist and Related
Activities Act [14]. For instance, the POCDATARA does not directly prohibit money
laundering. This act is mainly focused on the combating of terroristand related activities in
South Africa in line with the international best practices [15]. The POCDATARA was
enacted to comply with the internationalinstruments that outlaw terrorism and related illicit
activities in line with the United Nations (UN) SecurityCouncil Resolutions that are binding
on South Africa since it is a member of the UN. Related aspects on the scopeand application
JMLC
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