The world of foreign exchange dealing is a murky and complicated market to most human beings who are not front-line bankers. It is characterised by minute-by-minute fluctuations in exchange rates that might be tiny in numerical movements but have enormous effects on the global economy on a daily basis.
Predicting these fluctuations might be the job description of some people, but for businesses that simply need to know what their exposure to foreign currency will be from time to time, the job of tracking the currency movements and their resultant consequences is best left to others.
When businesses are forced to engage in foreign currency transactions either because they have suppliers or customers in other countries, or because they wish to raise funding from foreign financiers, they are forced to engage the services of those with the licence, and presumably the expertise, to engage in foreign currency dealing.
SA banks — in their capacity as licensed foreign exchange handlers — have created dedicated business units to service this market, and for all of them it is a rather lucrative business. However, with great privilege comes great responsibility. As licensees, such banks are expected to honour the regulatory playbook, which involves not just facilitating trades for their clients but also keeping regulators informed about the nature of transactions clients are executing.
It was in this part of the business where Sasfin Bank seems to have found the balance between facilitation of trades and observation of regulations particularly onerous. According to the Reserve Bank, Sasfin’s foreign currency unit did a less-than-stellar job of maintaining the balance between facilitation, compliance and vigilance.
While Sasfin was aware that its employees were facilitating foreign currency transactions for its clients, it was not aware that gaps within its systems had created an opening for some employees to bypass the compliance tapestry created to ensure all transactions concluded on behalf of clients were recorded accurately.
Rather than keeping the audit trail as required, employees of negotiable ethical persuasion deleted transactions relating to particular clients and left the regulatory authorities, including the SA Revenue Service and Reserve Bank, working with an incomplete picture of the foreign currency movements within the country’s financial system.
Since the discovery of this huge breach Sasfin has had to deal with the question of whether a breach so material could ever be remedied. In a documentary created by Al Jazeera, the deep involvement of Sasfin staff in enabling rogue clients to write their own rules and pay their way past the compliance checks indicated a bank whose vigilance over the integrity of its systems was either nonexistent, or a company whose employees were rogue agents who found the idea of personal enrichment much more enticing than regulatory discipline.
A few years before the discovery of the forex unit scandal Sasfin had received a sanction from the Prudential Authority relating to noncompliance with provisions of the Financial Intelligence Centre Act. Included in the sanction was the requirement to provide training to some employees regarding compliance. Whether Sasfin took that as an alert to check the probity of its staff and systems will never be known, but what we do know is that dodgy conduct persisted in some parts of the bank.
The new sanction issued by the Prudential Authority — R210m — reflects the scale of the problems found in the foreign exchange division before it was shut down by Sasfin. As the bank “resets” itself and seeks to map a future far removed from the scrutiny of listed entities, one hopes the sum of alerts and lessons learnt over the past few years are taken to heart by its management regardless of whether it retains the glare and twin burdens of compliance with banking and listing requirements.
• Sithole (@coruscakhaya) is an accountant, academic and activist.
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