Reserve Bank deputy governor and Prudential Authority (PA) CEO Fundi Tshazibana says law enforcement must come to the party for South Africa to be removed from the greylist next year.
“The Financial Action Task Force [FATF] needs a clear indication of how the investigation and prosecution of financial criminality is under way.”
The country needs to pass two critical FATF assessments by January 2025. One relates to technical issues and the other to effectiveness in terms of successful prosecutions of financial crimes such as money laundering and illicit money flows.
“On technical compliance, I’m very confident we’ll meet the January 2025 deadline, because we have the laws and framework in place. Effectiveness is another matter.
“What I can say is that the financial surveillance departments are doing what they need to. We in the Reserve Bank are doing everything in our power to make sure we can get off the greylist.”
Teams from the Financial Intelligence Centre (FIC), the Financial Sector Conduct Authority (FSCA) and the Companies and Intellectual Property Commission (CIPC) are working hard to meet their delivery deadlines, she says. “But the most difficult deliverables are ahead of us.”
One relates to illegal money transfers. The FATF requires demonstrable evidence that these are being identified.
“We’re already doing that, but on the basis of whistleblowing. The FATF has requested we identify them proactively, and they need a demonstration that it is not just the Reserve Bank that is working in this area. They want a clear indication of how ... we escalate items to law enforcement, and how ... the prosecution of the criminality of these activities [is] under way.”
The second “big deliverable” concerns the severity of the central bank’s administrative action.
“The FATF opinion is that the administrative sanctions we issue have not been proportionate to the transgressions we have been seeing. They need them to be more effective.”
Tshazibana says the R6bn-plus forfeit the Bank recently ordered from Steinhoff for failing to “regularise ” exchange control contraventions was not a response to the FATF demand for more rigorous oversight and enforcement of exchange-control laws by the Bank and stiffer penalties.
“It’s just a timing coincidence. We’ve always been issuing administrative sanctions when we’ve seen transgressions by the institutions we as the PA supervise — such as banks, insurers and market infrastructures, including companies, that provide money-transfer services.
“But we have had to reassess our methodology in terms of how ... we assess the severity of transgressions and their impact.”
Forfeit orders are not unusual, she says, though she concedes no forfeit order has come close to the severity of the action against Steinhoff.
When we go back to the state-capture era, there was a lot we did as a central bank. The disadvantage for us [was] in terms of our laws and governance framework. But we blocked funds [and] did a lot of things.
— Fundi Tshazibana, Reserve Bank deputy governor
Does this mean the Bank is starting to play hardball with transgressors?
“Yes and no. We always have done it. If you look at the Government Gazette, you’ll see that every other month we have a list of forfeitures, [but] just not of this quantum, [and this] is a reflection of how big the [Steinhoff] transgression was.”
She denies they’ve left their intensification of oversight and enforcement very late.
“As a central bank, we don’t just wake up and decide this is what we’re doing. Investigations take time to wrap up, [and] we have to be certain we follow due process.”
Should the central bank not have been doing more of this in the state-capture era, when the Guptas were channelling billions out of the country?
“When we go back to the state-capture era, there was a lot we did as a central bank. The disadvantage for us [was] in terms of our laws and governance framework. But we blocked funds [and] did a lot of things.”
That “some of the things are not playing themselves out in the public space doesn’t necessarily mean we did not act”, she says. “It might be that the actions [were] not always visible because of the legal framework.”
Will these “actions” be enough to impede the money laundering and illicit financial flows flagged by the FATF?
“What we do on the exchange-control side is only one kind of impediment. Not all money laundering is cross-border. We also know there are smaller, informal channels through which funds can flow across borders.”
Does the Bank have a good handle on them?
“By their nature, these are illicit. They are shopfronts for other kinds of businesses. They’re not easy to identify and catch.”
In addition to the PA’s financial surveillance, there are things banks themselves ought to be doing more of to identify suspicious transactions. And then, critically, there’s the role of law enforcement.
“We have to improve the entire ecosystem. We can’t just say financial surveillance is the one that must catch everything.”
Entities such as the FIC, the FSCA and the CIPC have limited instruments, she says.
“That’s why you need the police to complete their part of the investigation, and you need the prosecution element to complete the circle of what it is that we can do as financial regulators and supervisors.
“You need the criminality to be prosecuted through the other channels.”
To expedite this, the Bank has been fostering stronger relationships with law enforcement and prosecutors, she says.
The biggest challenge is to demonstrate to the satisfaction of the FATF that there has been a notable increase in investigations and prosecutions of money laundering and illicit financial flows.
“I would say we’re seeing an improvement on our side , ” she says, citing the comprehensive PA-commissioned report on the VBS Mutual Bank scam, which after five years has resulted in only two successful prosecutions.
“The Reserve Bank has completed its part. The Hawks then took over a part of the investigation, and they’re working with the prosecution team.”
Having such a cumbersome legal system doesn’t improve the country’s chances of satisfying the FATF’s requirement for successful prosecutions by January 2025 in order to come off the greylist in mid-2025, two-and-a-half years after being put on it.
“It’s unavoidable that you need to follow the legal system as it is. You have to queue up and line up in the courts and wait.”
Nevertheless, she’s encouraged by the National Prosecuting Authority’s announcement that it is bringing in private sector assistance.
“We see that as a positive in terms of moving the work forward. A partnership with the private sector will help because there are resource constraints, and these are very complex cases which require specialised investigation and specialist skills.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.