Earlier this year, South Africa was linked to illicit financial activities involving a Hezbollah financing network. While this international money laundering and sanctions evasion unfolds, brought to light by the US Treasury, South Africa’s true involvement is still being assessed. Nevertheless, being associated with such an incident raises concerns about our anti-money laundering and counter-terrorism financing (AML/CFT) regime.
As South Africa aims to be removed from the Financial Action Task Force (FATF) Greylist as soon as possible, let’s consider what incidents like these could mean.
It is important to note that the investigation and disruption of illicit financial networks typically require significant resources, expertise, and collaboration among law enforcement and regulatory agencies from multiple countries. Therefore, it is not uncommon for foreign authorities to be involved in uncovering and disrupting such networks in other countries, particularly if they have a significant interest in the matter or if it involves international terrorism or organised crime.
One possibility is that the network was operating covertly and had taken steps to conceal its activities from authorities, making it difficult for South African officials to detect it. Another possibility is that South African officials may not have had the necessary resources, tools, or training to identify and investigate sophisticated money laundering and sanctions evasion schemes, particularly those with international connections. Corruption and lack of political will are also possible factors that have played a role.
The timing of this scandal of course doesn’t align well with efforts to be removed from the FATF Greylist – a scar South Africa may need to wear for longer than we’d like. It remains to be seen how the FATF will view this latest money-laundering scandal and South Africa’s involvement.
The FATF and other international bodies involved in AML/CFT efforts will next assess South Africa’s progress in January 2024. But I believe that even by 2025, we are unlikely to be any closer to being removed from the list. The US Treasury’s disruption of the Hezbollah financier’s network and ties to South Africa underscores the need for decisive, corrective actions to address any money-laundering and terrorism financing deficiencies.
If the US Treasury’s action results in significant disruption to the network’s illicit financial activities, including those related to money laundering and sanctions evasion, it could be seen as a positive development by the FATF, and other international AML/CFT bodies.
However, because South Africa failed to detect the illicit activities and network, it could be seen as a deficiency in its AML/CFT regime, and such a failure could result in remaining on the Greylist for an indefinite period.
To change the narrative, we urgently need to take corrective actions, such as implementing stronger regulatory frameworks, improving financial intelligence capabilities, and enhancing our enforcement mechanisms. Unfortunately, some believe that in South Africa, laws are not the issue, but rather the lack of enforcing laws.
It’s worth noting that Compli-Serve SA has recently launched a product called AML Protect that assists accountable institutions in pinpointing AML risks and screens transactions for money laundering activities. These risks change and evolve every day, so a constant monitoring process is essential. It’s through heightened controls that financial fraud can be avoided, and it will take widespread adoption of AML/CFT measures across South Africa for the FATF to confirm it sees positive change.
Article by James George, Compliance Manager, Compli-Serve SA
