In an era where financial crimes are becoming increasingly sophisticated, Greylisting evidenced that South Africa faces significant challenges in combating money laundering and terrorist financing.
Criminals are continually evolving their tactics, leveraging advanced technologies and complex networks to obscure their identities and their illicit activities. This necessitates a proactive and technologically adept response from businesses and regulatory bodies to safeguard the financial system in its entirety.
The Evolving Tactics of Financial Criminals
Modern financial criminals employ various advanced methods to launder money and finance terrorism. These include utilizing deepfakes, photo-editing documents to disguise their identities, and engaging in intricate layering techniques to disguise the origins of illicit funds.
An example includes the saga of Mozambican Zingai Dhliwayo, who stole the identity of South African Bethal Ngobeni by replacing the photograph on his ID. Under his newly assumed identity, the alleged illicit gold trader went on a shopping frenzy—splashing R4,2 million on six cars and two homes—hoarding the other R2.4 million in his bank account.
Within just seven months, Dhliwayo allegedly spent millions of rands he ‘earned’ through buying stolen gold-bearing materials from mineworkers in Carletonville and selling them at inflated prices on the black market. And potentially all of this could have been avoided through a proper check of his (falsified) ID document.
Repercussions of Non-Compliance in South Africa
South African regulatory authorities have demonstrated a renewed commitment to enforcing compliance with anti-money laundering (AML) and counter-terrorist financing (CFT) legislation and the Financial Intelligence Centre Act (FICA) in a bid to remove the country from the international Greylist.
This places great pressure not only on the government but also on institutions on the ground, where failing to adhere to FICA compliance regulations will greet them with substantial penalties.
In November 2024, a law firm was sanctioned with a R7,7 million financial penalty for non-compliance with FICA. This case, just one of many such examples, clearly showcases the severe consequences legal entities can face when they neglect their AML obligations.
Similarly, the South African Reserve Bank imposed administrative sanctions, whose ramifications even extended beyond South Africa’s own borders, on the State Bank of India in August 2024. The bank faced a financial penalty that totaled
R10 million for failures in customer due diligence and cash threshold reporting obligations. These incidents highlight the critical importance of robust compliance programs to prevent financial misconduct.
Leveraging Smart Technology to Combat Financial Crime
As criminals adopt more sophisticated methods, businesses must employ even more advanced technologies to detect and prevent illicit activities.
Biometric authentication, combined with liveness testing, has emerged as a critical component in enhancing security and compliance. These technologies verify a person’s identity based on unique biological traits and ensure that the individual is physically present during the verification process.
Liveness detection analyzes biometric features such as skin texture, pupil movement, and facial expressions to distinguish between a live person and fraudulent representations, like through the use of fakes, digital or printed photos, or even masks. This process, then, significantly reduces the risk of identity fraud during digital onboarding.
Implementing biometric authentication and liveness testing offers several benefits:
- Enhanced Security: By ensuring that only legitimate individuals can access services, these technologies protect against unauthorized account access and fraudulent activities.
- Regulatory Compliance: Accurate identity verification helps businesses meet AML and CFT regulatory requirements, minimize the risk of involvement in financial-related crime, and reduce the risk of non-compliance penalties.
- Improved Customer Experience: streamlined and secure verification processes enhance customer trust and satisfaction, fostering better business relationships.
The landscape of money laundering and terrorist financing is continually evolving, with criminals employing increasingly sophisticated tactics. For South Africa to rid itself of its Greylisting, the solution cannot be a once-off “fix.” In response, South African businesses and regulatory bodies must, therefore, adopt advanced technologies and robust compliance measures to protect the financial system as a whole.
By embracing these innovations, organizations can enhance security, ensure compliance, and contribute to the integrity of the financial sector.
By Hawken McEwan, Director of Financial Crime Compliance, nCino KYC Africa
