Cape Town - The South African Reserve Bank (SARB) has warned that South Africa's biggest banks are at “high risk” of being used for money laundering and terrorism funding.
The warning is contained in SARB’s Prudential Authority’s latest Banking Sector Risk Assessment Report, which said that the big five banks, Standard Bank, FirstRand (FNB), Absa Bank, Nedbank and Investec had to improve their prosecution of financial crimes and their ability to identify and report illegal cash flows and crimes by October this year.
The alternative would be South Africa being placed on an international grey list of countries that pose a threat to the international financial system by the global money-laundering watchdog, the Financial Action Task Force (FATF), of which the country is a member.
Being grey-listed by the FATF would have adverse economic consequences for trade and transactions with other countries.
The report said the five large banks hold 89% of the total assets for the banking sector, and are widely exposed to a high level of inherent money laundering/terrorism funding 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.
The report, which does not name names, said one of the large banks indicated a total of 8388 clients with unknown citizenship, which posed a high risk within the sector.
It also said that a large bank had indicated a total of 1 782 clients with the country of incorporation unknown.
The report said: “The sub-sector is still targeted by criminals, as clients use cash extensively, and can use non-faceto-face methods such as automated teller machines (ATMs) to deposit cash, while the source of funds and details of depositors are largely unknown.”
It said the large banks dealt with clients with complex company structures, and this could be used to obscure the true beneficial ownership of funds.
The common threats identified in the report across the banking sector included fraud, bribery and corruption, as well as illegal investment scams.
The report said: “Corruption affects the banking sector as banks may inadvertently process the bank accounts of government and salaried employees that are credited outside of the normal expected salary scope, and may involve the proceeds of crime.”
In a statement issued in response to questions by the Cape Argus, Absa Bank said it supported the implementation of the recommended FATF reforms.
“There are serious adverse consequences to South Africa being greylisted, including, but not limited to, increasing the country’s risk profile, and therefore, raising the cost of doing business,” the bank said.
Absa said it was actively working to address recommendations within its purview, while participating in industry efforts co-ordinated by the Banking Association of South Africa (Basa).
Basa said if FATF grey-listed the country, it would further hamper investment and international financial transactions, which it could ill afford.
Basa said responsibility for avoiding grey-listing lay with the Treasury and Parliament, and urged them “to act timeously”. It said if South Africa did not have easy, affordable access to global financial markets through the international financial system, it would become much harder for it to meet the basic needs of its people.
Business Leadership South Africa chief executive Busi Mavuso said that being placed on the grey list would mean that businesses as well as NGOs would have extra requirements to clarify sources of funding.
“South Africa’s reputation will also be battered, as we’d be known as a money-laundering destination and, given our reputation for corruption, that will drive investors to look elsewhere.”