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Crime By Numbers

ARTICLE BY

  • Hawken McEwan
  • Director of Compliance
  • DocFox FICA Compliance Experts

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The greylisting of South Africa (SA) in 2023 by the Financial Action Task Force (FATF) was a wake up call to many who may not have realised the prevalence of financial crime in the country. South Africans are (unfortunately) well aware of crime in the country, however financial crime in particular may be an unfamiliar topic. The reality is that financial crime has long plagued SA – and what’s more, it is on the rise.

Financial crime is more prevalent in our country than many South Africans may realise. While the threat of scams is not unheard of, financial crime comprises a wide range of illegal activities, and it’s important for people to be aware of all of them. Vigilance is the first line of defence.

Fraud on the rise

One of the major financial crimes scourging South Africa is fraud. This includes identity theft, credit card fraud, insurance scams, and pyramid schemes. The South African Banking Risk Information Centre (SABRIC) has reported a rise in other forms of fraud, such as digital banking fraud, where victims are deceived into sharing their sensitive information with fraudsters through scams such as “vishing” and “phishing”. Vishing involves phone calls being made to victims by fraudsters pretending to be officials from reputable companies, such as banks, and tricking victims into sharing personal information, for example, their banking login details. Phishing involves emails being sent to victims containing links to fake websites that resemble legitimate websites in order to acquire the victim’s personal information as they navigate the fake site. Fraudulent activities cost individuals and businesses billions of rand annually, eroding trust and hindering economic growth.

Money laundering threats

Money laundering is another significant concern in South Africa, with criminals using various methods to disguise the origins of illicit funds, such as purchasing high-value assets or funnelling money through complex networks. South Africa’s position as the financial hub in sub-Saharan Africa makes it prone to abuse, as it is exposed to both domestic and international criminal networks in the region. Moreover, the country’s historical ties to organised crime and the drug trade have provided a breeding ground for financial criminals. These criminal networks have infiltrated legitimate businesses, often using them as a front to launder money and funnel illicit funds. In fact, South Africa  has one of the highest organised crime rates in the world. On the Africa Organised Crime Index 2023, South Africa has ranked third.

Together with international guidelines, the Financial Intelligence Centre (FIC) have set out the FIC Act (FICA) which serves as a basic guide / requirement that all Accountable Institutions (AIs) need to follow in order to reduce the risk of facilitating money laundering. In order to combat crime, businesses should identify and assess the risk of all their customers as well as put together a Risk Management and Compliance Programme (RMCP) that will guide all employees. In other words, all employees of AIs should be trained on the anti-money laundering procedures in the business described within the RMCP and have adequate knowledge of FICA itself.

Impact of corruption

Corruption is another – and perhaps a more well known – form of financial crime present in South Africa. It may have come as no surprise when the country scored its lowest score on the 2023 Corruption Perceptions Index, especially considering the high-profile corruption scandals we have seen, such as State Capture. Corruption undermines public trust in government institutions, diverts funds away from essential services, and distorts fair competition. Additionally, corruption facilitates illicit trade, such as when collusion occurs between law enforcement officials and criminals. This highlights the urgent need for stronger anti-corruption measures and improved governance.

It is clear that financial crime has far-reaching consequences for the economy, society and governance, and South Africa’s complex financial landscape presents an attractive environment for criminals seeking to exploit vulnerabilities. Considering the negative effects of financial crime, and SA’s susceptibility to it, the fight against financial crime in South Africa has never been more important.

Technology vs Financial Crime

Technology has become a critical tool in the fight against financial crime. From simplifying how businesses onboard their customers, automatically performing ongoing monitoring and risk management to automating mundane tasks, it has become an essential component of any business.

Utilising digital solutions can help institutions prevent doing business with high-risk people and entities. By conducting continuous screening, software can identify potential red flags that prompt further investigation.

As an example, DocFox’s end-to-end software solution includes a watchlist and media screening service that provides ongoing, reliable, and efficient screening of your customer against a range of international sanctions and watchlists that could indicate potential higher risks to you and your business.

By recognising the severity of financial crime in SA, strengthening legal frameworks, working with law enforcement and financial institutions, utilising technology and educating the public about the risks and consequences of engaging in illicit activities, we can create a society that is more vigilant and less susceptible to exploitation.

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