laundering
Tebello Radebe
Justice Minister Dullah Omar is confident that several key laws to curb the easy pickings made by embezzlers, thieves, insider traders, and fraudsters will be in place before year-end.
“This will be the culmination of a process we started two years ago to review our legal system because we inherited many laws that are hopelessly inadequate to deal with crime,” he says. Omar believes this is one of the main reasons for South Africa’s high crime rate.
He said the process took so long because “we started off with nothing and had to examine laws of different countries abroad first so that we stay in line with the latest trends. Ultimately, we will even surpass the Vienna Convention with our laws,” he said.
Parliament has been asked to prioritise these bills to ensure they are passed before the end of this session. The bills tabled in parliament this week include the Proceeds of Crime bill, which criminalises money laundering and allows the state to seize assets bought with funds from criminal activities; the International Co- operation in Criminal Matters bill and the Extradition Amendment bill — aimed at bringing South Africa in line with international efforts to stamp out drug trafficking.
Reserve Bank Governor Chris Stals confirmed that former inspectors of foreign exchange controls in his staff were to be redeployed to facilitate the administration of the new money laundering laws. He added that it was possible these new posts would be operational before the end of the year.
Experts believe most of the staff and equipment at the South African Reserve Bank previously involved in administering exchange control regulations will be redeployed to form one of the main new structures to combat money laundering — the Financial Intelligence Centre (FIC) – — in line with recommendations made by the South African Law Commission (SALC).
The FIC will oversee the reporting and initial investigation of suspicious transactions in the banks and other financial institutions; in addition, a Money Laundering Control Board will be set up to revise and control money laundering laws.
According to the Law Commission’s proposals to the Justice Ministry, attorneys, accountants, executors, estate agents, dealers in securities, insurers and insurance brokers, unit trust schemes, banks, stokvels, gambling institutions, dealers in bullion, travellers’ cheques and money orders will have to appoint officers, who will in turn report “suspicious transactions” to the FIC, which will pass on the information to the police where necessary.
The considerable costs of setting up and running these structures will initially be borne by the government, but in time will be covered by the provisions of the Proceeds from Crime Act. This will ensure that assets seized from the estates of drug pedlars and all other criminal activities will be used to fund the system to combat crimes.
Stuart Grobler of the Council of South African Banks, one of the organisations that made submissions to the law commission proposals, sees the new laws covering far more than just drug lords and robbers.
He said even most small businesses that are not registered with the taxman, as well as foreign exchange manipulators and fraudsters, are effectively engaged in money laundering, but since this practice has never been illegal in South Africa, they get away unchecked in too many cases.
But Grobler, like many other experts, says it is not possible to estimate the extent of money laundering, because “nobody keeps records of any of the ill-begotten funds as they get deposited into the financial system”.
However, Pieter Smit, a researcher at the SALC, says: “There is already a lot of criminal [laundered] money in the South African financial system. It is hard to say how large the amount is, but the banking sector is aware of suspicious transactions going through the system, including monies coming into and out of the country.”
A recent International Monetary Fund (IMF) publication states that the globalisation of the world economy and the growing efficiency of capital markets allows individuals and firms to shift vast sums of money freely between countries. Although difficult to measure, the magnitude of the sums involved and the extent of the criminal activities that generate this “income” have implications for both the domestic economy and the allocation of international resources and macro-economic stability.
Peter Quirk and Vito Tanzi, of the IMF, claim their research proves money laundering can corrupt parts of the financial system and undermine governance of central banks. Other major macro- economic effects include the destabilisation of interest rates, budget deficits brought about by large-scale tax evasion, as well as the creation of financial “black” markets where strict exchange controls are in place.
“Once a bank manager is corrupted, non- market behaviour can spread into areas other than those directly related to the money laundering, which undermines the safety and soundness of the bank,” says Quirk.
Money laundering and measures to counter it have, therefore, become the focus of intense international attention. Last week’s Southern African Development Community meeting in Maseru, Lesotho, saw the heads of its 12 member states signing a Protocol on Combating Illicit Drug Trafficking.
Omar said the protocol will afford mutual assistance among the member states, including co-operation on the communication of information, taking evidence, searches and seizes and the tracing of suspects or proceeds. “Special laws for drug trafficking and money laundering enforcement measures will also flow from this protocol,” he said.
He will be hosting justice ministers of Commonwealth countries at a conference of money laundering in Cape Town in October, taking forward the process of establishing common money laundering laws in all the member states.