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SATF warns SA government to improve monitoring and prosecuting of financial crimes to avoid the ‘grey list’


RYK VAN NIEKERK: The international Financial Action Task Force or the FATF warned the South African government that it could put South Africa on its so-called ‘grey list’ should we not improve our ability to monitor and prosecute financial crimes. Should this happen, it would raise South Africa’s international risk profile and negatively affect trade between South African financial institutions and their peers in other countries. The FATF is the body that formulates international policy to control the flow of money and thereby curb organised crime. Although South African banks meet the required standards, there are other shortcomings and areas for which the FATF prescribes standards to which South Africa does not comply. These include inadequate systems, at institutions which do not do business in the financial sector, to identify illegal cash flows and crime and report these to the authorities. Those could be businesses such as attorney firms, property agents and casinos.

Ismael Momoniad is on the line. He is the deputy director-general at Treasury. Ismail, thank you so much for joining me. How concerned should we be about this?

ISMAIL MOMONIAT: What this process is, is that most countries of the world who want to be part of the banking system, to be able to trade with other countries and relate to banks in other countries, sort of to undergo what’s called mutual evaluation – which is an assessment of their anti-money-laundering system. It also deals with other issues like terrorist financing and proliferation financing. This happens once every seven to 10 years after the process is completed, and this is a peer review. So it’s done by people from other countries and they compare you to all the other countries, as to whether you are meeting FATF standards; they’ve got 40 standards, for example, and they identify various weaknesses. And then you are given 18 months as a country to address those weaknesses.

Once countries know that you acknowledge your weaknesses and you’re doing something about them, they can place reliance on your financial system. So if, for example, US banks – and we often need to deal with US banks, because we need access to the dollar to do most of your international trade – have correspondent banking relationships with our banks.

So, to make it relatively easy and much cheaper for us to access dollars, we need to make sure that we meet international standards in preventing criminals from using the system to hide and conceal their funds, so they can then place reliance on our system, and allow their banks to trade with our banks.

RYK VAN NIEKERK: As I understand it, the FATF is happy with the standards applied by our banks and financial system, but there are concerns about institutions in the non-financial sector, and these include lawyers, real-estate agents and casinos. You can probably also include car dealerships there. How will these proposed policies change the way these businesses do business?

ISMAIL MOMONIAT: Yes, that’s correct. Banks were right in after the Financial Intelligence Centre Act, the FICA, took effect. We’re forced to have what we call ‘know your customer’ provisions. That’s where a bank cannot just open an account for any person. They have to look at your documents, confirm your ID and so on –  basic details –  and have a sense of what your source of income is.

When you look at many of these other professions, they obviously don’t do a ‘know your customer’ test. They often seem to be complicit [in] that they actually hide the money, or they look the other way so that criminals can go into a casino and claim that they’ve won the money when they’ve actually got the money through illegal means; they use the casino, or they use attorneys to conceal the source of the funds, of their legality. All over the world, just as with banks, these professions are also expected to meet with minimum standards relating to preventing financial crime, so the abuse of the financial system.

RYK VAN NIEKERK: What should these businesses and sectors expect – some significant changes to the rules or the introduction of more red tape, if I can put it like that?

ISMAIL MOMONIAT: Well, it’s not really red tape. I think what happens is the FIC Act does allow, after process, for the anti-money laundering rules to apply to all those professions. Obviously mechanisms need to be worked out where firstly they have reporting requirements and they don’t follow the rule. There are criminal sanctions. But each sector, depending on who they are, [finds it] either easier or more difficult to enforce these regulations.

Obviously if you’re a major entity and you are listed, like a bank or a major company, there’s much more, not just oversight [but] their own shareholders watching, and there’s much more transparency. So they tend to comply because if they don’t comply they’ll be found out quite easily.

Once you start dealing with non-listed companies, closed businesses, they tend to be less transparent. They’re only accountable to their own owners and their owners may be one or two or just a few people, and therefore it’s much easier to conceal stolen funds with companies that are less transparent. It’s quite a challenge to get them to also comply. One either needs both the FIC Act or other legislation possibly to ensure that they also comply.

Let me give you an example. An attorney will claim ‘client privilege’, okay. But does that client privilege cover keeping the stolen loot of one of their customers in their trust funds? Those are the more difficult questions that we need to deal with.

RYK VAN NIEKERK: And somebody pitching up at a car dealership with a suitcase full of cash?

ISMAIL MOMONIAT: Absolutely. At least most of those tend to want very expensive cars, so it should be pretty easy to regulate, because all cars are registered. I think that those are the areas we need to focus on.

RYK VAN NIEKERK: Thank you, Ismail, That was Ismail Momoniat, the deputy director- general at Treasury.

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