Dear Corruption Watch,
We read a lot about the families of foreign dictators buying expensive properties in South Africa. No doubt many wealthy South Africans similarly have large personal bank accounts in other countries. How do we know that these inward and outward flows are not the proceeds of corruption?
You are right to be concerned about the way in which the flow of money in and out of South Africa can facilitate corruption and criminal activity. Without proper controls, there is a risk that our banks and economy will be used to launder the proceeds of unlawful activities and allow criminals to evade prosecution.
Money laundering refers to any act that disguises the criminal nature or the location of the proceeds of a crime. South African legislation broadens the concept to virtually every act or transaction that involves the proceeds of crime.
The government seeks to strike a fine balance between encouraging foreign investment, allowing residents to invest abroad and preventing money laundering. It does so through the strict control of money in and out of South Africa, the creation of specific money-laundering offences and legislation that enables the authorities to track suspicious transactions once money has entered South Africa.
Importantly, the authorities rely on people inside the economy to report any transaction or conduct they believe is related to the proceeds of criminal activity.
The South African Reserve Bank is responsible, on behalf of the minister of finance, for the day-to-day administration of exchange controls. These regulations limit the extent to which South African residents and companies may transfer funds abroad and what money can enter South Africa.
Only certain banks are authorised to buy and sell foreign exchange. This allows the bank’s financial surveillance department to keep a close watch on these institutions to ensure compliance with all anti-money laundering control measures. The department also analyses cross-border flows and shares this information with other authorities.
The Prevention of Organised Crime Act creates the specific offence of money laundering. Anyone who is linked to ill-gotten gains can be found guilty of money laundering. The act imposes further reporting obligations and anybody who buys or rents, or is involved in any deal linked to property that they suspect has been illegally acquired must report their suspicion within a reasonable time.
The Financial Intelligence Centre was established under the Financial Intelligence Centre Act of 2001 to assist in the identification of the proceeds of unlawful activities and to combat money-laundering activities. It does so by collecting and analysing information it receives from institutions such as banks, which are obliged by law to report suspicious transactions.
The act imposes obligations on anyone doing business or managing one, or who is in charge of or employed by a business to report specified unusual and suspicious transactions. Attorneys, bankers, brokers, estate agents and trustees also have additional duties to report certain cash transactions.
These legislative controls ensure that officials can track money coming in and out of South Africa. The strict reporting obligations create opportunities for the authorities to track the proceeds of crime even when they are being used for seemingly innocent transactions.
• This article was first published in Sunday Times: Business Times