Money laundering control: the South African model
| Pages | 166-181 |
| Date | 01 April 2003 |
| Published date | 01 April 2003 |
| DOI | https://doi.org/10.1108/13685200310809527 |
| Author | Louis de Koker |
| Subject Matter | Accounting & finance |
Journal of Money Laundering Control Ð Vol. 6 No. 2
Money Laundering Control: The South African Model
Louis de Koker
INTRODUCTION
The Financial Intelligence Centre Act 38 of 2001
completes the broad legislative framework for
money laundering control in South Africa. Core pro-
visions of the Act came into eect on 1st February,
2002 thereby establishing the South African Financial
Intelligence Centre (FIC), the Money Laundering
Advisory Council (MLAC) and enabling the drafting
of the regulations under the Act.
1
It is envisaged that
the other provisions of the Act, notably those that
create customer identi®cation, record-keeping and
other compliance obligations, will enter into eect
as soon as the relevant regulations are ®nalised and
the FIC is operational.
2
This paper provides a brief
overview of the existing money laundering law in
South Africa and discusses the core provisions of
the Financial Intelligence Centre Act.
3
SOUTH AFRICAN MONEY
LAUNDERING OFFENCES
Although persons who intentionally involve them-
selves in laundering can be prosecuted in terms of
the South African common law as accessories after
the fact in respect of the underlying oences,
4
South Africa followed the international approach in
the 1990s and created a statutory framework to
increase the reach of its criminal law relating to
laundering.
The ®rst statutory laundering oences were intro-
duced by the Drugs and Drug Tracking Act 140 of
1992.
5
These oences were restricted to proceeds of
drug-related crimes.
6
Largely as a result of the
restricted ambit of these provisions they did not
prove eective in practice.
7
In 1996 the Proceeds of
Crime Act
8
was promulgated. This Act broadened
laundering oences to proceeds of all types of
crimes and also provided for con®scation of proceeds
of crime upon conviction of the criminal.
In 1998 the South African government decided to
introduce extraordinary measures against organised
crime. A Prevention of Organised Crime Bill
9
was
drafted, which provided for particular oences
relating to organised crime and street gang activity
and for the introduction of American-style civil
forfeiture. The Bill also contained amendments to
the Proceeds of Crime Act that broadened the scope
of its money laundering provisions and addressed
constitutional concerns regarding some of its more
draconian criminal con®scation provisions.
10
During
the parliamentary passage of the Bill it was decided
to repeal the Proceeds of Crime Act and to re-enact
its provisions, as amended in accordance with the pro-
posals contained in the Bill, as part of the new Act.
11
This process resulted in the Prevention of Organised
Crime Act 121 of 1998 (POCA) which came into
eect on 21st January, 1999. Apart from repealing
the Proceeds of Crime Act, the Act also repealed
the relevant provisions of the Drugs and Drug Traf-
®cking Act. The provisions creating money launder-
ing oences were therefore consolidated in one Act.
12
POCA also criminalises certain acts relating to street
gangs and organised crime syndicates and regulates
criminal con®scation of proceeds of crime and civil
forfeiture of proceeds and instrumentalities of
crime. Despite the name of the Act the provisions
relating to money laundering, criminal con®scation
and civil forfeiture apply to the proceeds of all types
of oences, whether committed by organised crime
syndicates or individuals acting on their own.
13
The laundering provisions of POCA are some of
the broadest in force internationally.
14
In keeping
with international standards, it creates the normal
laundering oences by criminalising any act in
respect of proceeds of crime which is likely to have
the eect of concealing or disguising the nature, loca-
tion or movement of the proceeds of crime or which
is likely to assist a criminal to avoid prosecution or to
remove or diminish such proceeds.
15
It also crimina-
lises the rendering of assistance to another person to
enable him or her to bene®t from crime and crimina-
lises the acquisition, possession or use of proceeds of
crime of another.
16
It furthermore creates a whistle-
blowing oence
17
and puts an obligation on every
person carrying on business and every employee of
a business to report any transaction, whether it was
completed or not, which is suspected of having
involved proceeds of crime or of facilitating the
transfer of such proceeds.
18
Although the general tenor of these provisions is
standard when measured against the laws of leading
international jurisdictions, their ambit is not. First,
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Vol.6, No. 2, 2002, pp. 166± 181
#HenryStewart Publications
ISSN1368-5201
these oences can be committed either intentionally
or negligently.
19
A person will commit an oence
intentionally when he proceeds to act while he
actually realises that the transaction involves proceeds
of crime or when he wilfully chooses to be blind to
the facts.
20
The oences will be committed negli-
gently if the person negligently fails to appreciate
the true nature of the property involved in the trans-
action. In terms of POCA a person acts negligently if
he fails to form conclusions which would have been
formed by a reasonably diligent and vigilant person
having both the general knowledge, skill, training
and experience that may reasonably be expected of
a person in his position and the general knowledge,
skill, training and experience that he or she in fact
has.
21
Second, the laundering oences are not con®ned to
proceeds of drug-related or serious oences, but can
be committed in respect of the proceeds of any type
of oence, whether committed in South Africa or
elsewhere, whether committed before or after the
commencement of POCA and irrespective of the
amount involved.
22
Third, although the majority of oences can only
be committed by third parties who facilitate the
laundering of proceeds of another, the main launder-
ing oences can be committed by the criminal who
committed the underlying oence. Every act that
the criminal commits in an attempt to hide, change
or spend the proceeds can therefore constitute a
laundering oence.
Fourth, the Act requires the reporting of trans-
actions that are suspicious because they may involve
proceeds of crime or may facilitate the transfer of
such proceeds, irrespective of the nature of the
predicate oence or the amount involved.
23
Fifth, the penalties for these oences are harsh. If
the laundering oence was committed in respect of
proceeds of crime in general, the maximum sentence
is R100m or 30 years. If it was committed in respect
of the proceeds of racketeering, the maximum sen-
tence is R1bn or life imprisonment. At the current
exchange rate these amounts are respectively
US$10m and US$100m.
The broad ambit of these provisions ensures that
law enforcement authorities can apply them with
ease. Unfortunately their eectiveness has been
undermined by the fact that the general money
laundering control legislation took a number of
years to be ®nalised. As a consequence, the oences
had to be investigated and prosecuted although
South Africa did not have a ®nancial intelligence
unit and while it lacked general legislation that
required ®nancial institutions to identify their clients
and to maintain anti-laundering compliance and
training programmes. The long-awaited Financial
Intelligence Centre Act closes these important gaps
and will ensure that the criminal provisions can be
applied more eectively.
Despite these gaps in the money laundering control
framework, a number of important successes were
achieved. More than 2,500 suspicious transaction
reports have been ®led with the South African
Police Service since 1997.
24
Investigations into
statutory laundering oences committed in terms of
the Proceeds of Crime Act resulted in the ®rst two
convictions for statutory laundering in 2001.
25
A
further eight persons were committed as accessories
after the fact on the strength of their involvement
in a laundering operation.
26
The ®rst conviction for
statutory laundering under POCA was handed
down on 12th April, 2002
27
and a number of further
prosecutions are in their ®nal stages. The prosecution
rate is set to rise because a Proceeds of Crime
Investigation Desk was established at the Commercial
Branch Head Oce of the South African Police
Service on 1st January, 2002. This Desk will receive,
evaluate, analyse and distribute the suspicious trans-
action reports and other relevant information which
is sent to the Commercial Branch. The Desk will
improve the ability of the South African Police
Service to process and investigate laundering reports
as well as relevant information and intelligence.
CURRENT MONEY LAUNDERING
COMPLIANCE SYSTEMS
Although South Africa lacked a general money laun-
dering control framework, important building
blocks of a compliance system have been in place
for some time.
South Africa, for instance, has a strict exchange
control regime.
28
The South African ®nancial com-
munity is therefore accustomed to paying particular
attention to international transactions with a view
to determining their compliance with exchange con-
trol regulations. This system has certainly made
South Africa a less attractive destination for foreign
criminals.
The gambling industry provides an example of an
industry that is subject to a number of money laun-
dering control obligations. Provincial gaming laws,
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Money Laundering Control: The South African Model
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