With all the rigmarole required by the Financial Intelligence Centre Act (Fica) when opening up a bank account, one would think criminal syndicates have nowhere to hide. The reality is that, according to the banks, the identification verification process as required by Fica does little in combating fraud, mostly due to the proliferation of false identity documents.
A Mail & Guardian reader can attest to this; his company was recently defrauded of R100Â 000 following a typical scam called deposit fraud that is doing the rounds.
A criminal syndicate contacts a business and says it has made a deposit into their account in error and requests the company to refund the money. Often they pretend to be customers or even the South African Revenue Service. Not wanting to get on the bad side of the Receiver the company complies, only to discover that the payment into the business’s account has been rejected or that the deposit slip faxed to them was a fake.
In this particular case, the business owner discovered the scam, in which a junior clerk was duped, within hours and immediately alerted the bank involved and contacted the fraud squad.
‘We thought that with all the information and identification that Fica requires the recipient would be traced quickly.†Apparently not. The money was immediately transferred into 10 other accounts, all the details were on record with the bank, but both the banks involved and the fraud squad said quite openly that Fica would not help to trace the individuals perpetrating the fraud as fraudulent IDs and other documents had been used. So why all the palaver?
According to Murray Michell, head of the Financial Intelligence Centre, the principle objective of Fica is to facilitate the combating of money laundering. ‘The FIC Act was not designed with a view to eliminating fraud and identity theft,†says Michell, although he argues that it does contribute to an institution’s ability to recognise cases where criminals are perpetrating fraudulent schemes.
The reality is that the first step in the Fica process — the verification of account holder, which causes so much frustration for customers — is pretty useless in stopping criminals from opening bank accounts. If it can’t prevent fraud then it is unlikely to have much impact on even its stated objective of preventing money laundering.
An official at one of the banks says the main problem with fraudulent IDs is the level of corruption at home affairs. With fake IDs being issued by officials on the take, it is virtually impossible for the banks to identify the fraudulent documents. ‘Fica is a senseless exercise because government is not putting in an infrastructure to support it,†says the official, who asked not to be named. While identity verification may put off the petty criminals, it is not deterring organised crime.
Paul Maphias, who is responsible for overseeing anti-fraud measures at Standard Bank, says money syndicates are using the exemption under section 17 of the Act to open fraudulent accounts. ‘Most of the false accounts opened are in that space.†The exemption is aimed at making it easier for low-income earners without a permanent address to open a bank account, therefore their documentation requirements are not as onerous.
Although this may explain why the syndicate split the payments, Maphias says it is a typical modus operandi by syndicates to avoid bank monitoring systems. All banks have a monitoring system that flags suspicious transactions. So someone who normally only has a balance of R10Â 000 in their account suddenly receiving a R100Â 000 transfer would find their account blocked while the bank investigates. By breaking the amounts into smaller units, they do not attract the bank’s attention.
Maphias says the only real defense is to inform customers of these types of fraud and to have staff members properly trained to identify them as early as possible. Although he agrees that fraudulent IDs are the biggest challenge to the bank, they are working with home affairs to come up with new measures to prevent ID fraud, such as biometrics. ‘They are coming to the party,†says Maphias.