South Africa: Prevention and Control of Money Laundering
| Published date | 01 March 1998 |
| Pages | 74-81 |
| Date | 01 March 1998 |
| DOI | https://doi.org/10.1108/eb027173 |
| Author | Angela Itzikowitz |
| Subject Matter | Accounting & finance |
Journal of Money Laundering Control —
Vol.
2 No. 1
South Africa: Prevention and Control of Money
Laundering
Angela Itzikowitz
The subject of this article is the prevention and
control of money laundering in South Africa. In
particular, it focuses on the reporting obligations
under existing legislation and the proposed Money
Laundering Control Bill.
The return of South Africa to the international
arena, the deregulation of financial markets and the
advances in communications technology have
brought a dramatic increase in organised crime.
Although it is difficult to quantify the extent of
drug trafficking, organised and white-collar crime,
the Minister of Justice, Mr Dullah Omar, stated at
a money laundering seminar in 1995 that there
were some 300 international crime syndicates
operating in South Africa, involved mainly in drug
trafficking and money laundering. The Minister
also said that controls over money invested in
South Africa were inadequate and that banks were
being used to launder illicit profits.
In South Africa money laundering has hitherto
received little attention. This is in marked contrast
with the position abroad. Sustained international
interest in money laundering arose in the 1980s
primarily within a drug trafficking context. During
the early 1990s the prevention of money launder-
ing, particularly drugs related, has evolved into an
important foreign-policy and financial-manage-
ment priority in both the major and minor finan-
cial centres throughout the world. Many
governments have already put controls in place or
are in the process of strengthening controls to
counter a potential threat to both the integrity and
stability of their financial systems and, increasingly
for certain countries, the threat of political and
social instability in that particular country.1
THE DRUGS AND DRUG TRAFFICKING
ACT 140 1992
The Drugs and Drug Trafficking Act ('the Drugs
Act') was the first South African statute to deal
with money laundering. The Drugs Act makes it
an offence for a person to acquire any property
knowing it to be the proceeds of
a
drug offence or
to convert property 'while he knows or has reason-
able grounds to suspect' that it is the proceeds of
a
drug offence.2 These provisions are fortified by the
imposition of a duty on directors managers and
executive officers of financial institutions, stock-
brokers and dealers in financial instruments to
report to the authorities if they have reason to
suspect that any property they have acquired is the
proceeds of a drug offence.3 Failure to do so is an
offence.4 This obligation overrides a financial insti-
tution's obligation to treat the client's affairs as
confidential.5 Compliance with the statutory obli-
gation will serve as a defence against a claim based
on a breach of confidentiality. But, it is only in
cases of suspicion that the property is the proceeds
of a drug offence that protection against a breach
of confidentiality is given. Financial institutions
therefore tended to adopt a cautious approach and
did not report suspicions unless they could be sure
that the property they received was drug related.
The Act also provides for the confiscation of
property derived from drug trafficking6 and mutual
legal assistance.7 At the stage when the Drugs Act
was the only statute that dealt with money laun-
dering, the law did not recognise the manipulation
of the proceeds of crime in general as an offence.
Where the Drugs Act did not apply, no offence
would be committed unless the methods used to
bring about the misrepresentation as to the origin
or nature of the illegal proceeds constituted
another offence such as fraud. Neither did the law
provide for a procedure whereby the proceeds of
crime in general could be confiscated.
THE PROCEEDS OF CRIME ACT 76
1996
The Proceeds of Crime Act, which came into
effect on 16th May, 1997,8 provides inter alia for
the confiscation of the proceeds of crime in
general, and criminalises money laundering.9 The
South African Law Commission was of the view
that money laundering is a reaction to measures to
confiscate the proceeds of crime and that it is logi-
cal that any attempt to regulate the confiscation of
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