Banking institutions are struggling to conform with the new regulations that they identify and verify all their clients by June 30, but experts believe it is unlikely and believe the procedures they are following are fundamentally flawed.
”It is an enormous task, we are talking about roundabout 18-million accounts,” said Claire Gebhardt-Mann, spokesperson for the SA Banking Council.
No bank was willing to give Sapa clear information on how much progress they had made.
”At this stage it is difficult to give precise numbers, it really is a huge task,” said Nedcor’s director of management services, Peter Hibbit.
Professor Louis de Koker, head of Rand Afrikaans University’s Centre for the Study of Economic Crime, does not believe it is possible to meet the deadline.
”From the start the time period allowed was unrealistic,” he said.
The Banking Council has approached the Minister of Finance to ask for an extension to the date, said Gebhardt-Mann.
As the law stands, banks would be obliged to freeze the accounts of everyone who has not provided them with proof of identification and residence by June 30, but Gebhardt-Mann said the banks were adamant they would not freeze accounts unilaterally: ”It would be total chaos,” she said.
”I don’t think government can afford not to give the extension,” said de Koker.
He pointed out how the effects of account freezing would ripple down through the economy as individuals were unable to pay their accounts to other individuals.
The Financial Intelligence Centre Act 38 of 2001 compels certain ”accountable” institutions to identify and verify the identity of any new client before proceeding with a transaction.
The duty to identify new clients came into effect on 30 June 2003, but the institutions involved, which include estate agencies, casinos, and law firms, had until June 30 2004 to produce this information for their existing clients.
The law was created as part of an attempt to crack down on money laundering in South Africa. It is part of a global effort in this regard, and international recommendations have been formulated to ensure that all countries function under the same set of standards.
However, in South Africa, many people in the lower income groups do not have a fixed residential address, nor do they have Telkom or electricity accounts which were originally the only acceptable proof of residence.
Thus the banks were forced to relax some of their requirements, and would now accept TV licences, cell phone accounts, and sworn affidavits.
”On the one side we have pledged to take banking to the people, on the other side we have committed ourselves to fulfilling these international laws,” said Errol Smith of Absa.
Gebhardt-Mann said the Banking Council had approached the government to make various exemptions regarding low income clients. If these exemptions were granted, then identity documents would provide sufficient proof of identification, together with credit checks if necessary.
However, once the standards start to be relaxed at what point does the whole — extremely expensive — exercise become pointless, asked De Koker?
Already each bank has its own set of procedures, some of which have been approved by the Financial Intelligence Centre, and some not.
Absa, for instance, does not check whether each client’s identity number is valid, they only run cross-checks on the ”high risk” clients, said Smith.
However, Hibbit said Nedcor cross-checked each client’s details using external, third party data bases.
Some banks are accepting drivers licences as well as ID books.
”The verification process has been diluted to such an extent that it becomes meaningless,” said De Koker.
”Most professional crooks will bring false documents anyway, the system won’t get at them through this procedure.”
De Koker said the regulations had missed the ball. To prevent money laundering there was no need to get residential addresses out of every client — that is information that the Department of Home affairs should already possess. What was necessary, said De Koker, was to have good information on the high risk clients — information that would allow banks, and other institutions, to predict their behaviour, and thus pick up on irregular behaviour.
He was curious as to why the government had created such strict regulations in the first place. According to his reading of the international law, details such as proof of residence were not actually required.
He said he was forced to wonder whether it is just a mechanism on the part of government to get the corporate sector to collect information for them: Gebhardt-Mann has estimated the total costs of complying with the law at around R750-million.
However, spokespersons from the banks still supported the process.
”When banks know who they are dealing with it will make it much more difficult for criminals,” said Gebhardt-Mann.
”It sends out a strong message to crime syndicates within South Africa. and it sends out a good message to international investors,” said Smith. – Sapa