Alarms raised by the global money-laundering and terrorist-financing watchdog about the gaping weaknesses in SA’s system of combating these activities were substantiated this week. Four alleged SA-based, Islamic extremist organisers were sanctioned by the US for financially facilitating terrorist activities in the continent from this country.
It is an indictment of our law-enforcement agencies that it was left to the US to identify and sanction the four rather than this being done here. The US treasury department’s Office of Foreign Assets Control designated the four as financial facilitators of Islamic State of Iraq and Syria (Isis) and Isis-Mozambique (Isis-M), both groups regarded by the US as terrorist organisations.
It said in a statement that Isis members and their associates in SA — including the four — are playing an increasingly central role in facilitating the transfer of funds from the top of the organisation’s hierarchy to branches across Africa. One of the implications of the sanctions imposed is that any financial institution transacting on behalf of the four risks being restricted from operating dollar accounts.
SA authorities are engaging with the US authorities on the case, and have insisted that they will not allow SA to be used to fund terrorism in other countries. The international watchdog, the Financial Action Task Force (FATF), highlighted in its 2021 report SA’s potential to be used for the financing of terrorist groups.
“Funds for some attacks in Africa are suspected of originating from or transiting from SA”, it said, adding that the country’s status as a large economy and regional financial hub for Sub-Saharan Africa exposed it to the threat of foreign proceeds of crime generated in the region being laundered through it. It was being used by terrorist groups as a transit point and base for planning and logistics.
The prevalent use of cash in SA, including cross-border movements, was also identified as a high risk for money laundering and terrorism financing.
FAFT, which develops and monitors policy to combat financial flows from organised crime and terrorism, found that there were significant weaknesses in parts of SA’s system to combat money laundering and terrorism financing. It gave SA 18 months to improve its capacity to track and prosecute these activities, failing which SA could be grey-listed.
Greylisting by FATF has serious implications. It would raise SA’s risk profile, place a question mark over its financial regulatory bodies and attach a higher risk premium to corresponding relationships between SA banks and international financial institutions. It would hamper SA’s ability to secure loans and investment.
On combating terrorism financing specifically, the report said SA was particularly weak in monitoring possible terrorism financing activities, exposing itself to be used as a transit point or base for terrorism activities in other countries. Law-enforcement agencies lacked the skills and resources to proactively investigate money laundering or terrorism financing.
Targeted financial sanctions were not used to any great extent to deprive terrorists of their assets. The report also said that the authorities’ understanding of terrorism financing threats was undeveloped and uneven and the low level of viable investigations and prosecutions into such activities was not consistent with SA’s risk profile.
The National Prosecuting Authority (NPA) has been notoriously weak in investigating and prosecuting financial crimes, a weakness that deepened during the years of state capture, and has been seen as unable to prosecute crimes here that have long been exposed by the media and various commissions. This fact is acknowledged by FATF. The rate of prosecution of some financial crimes remains dismally low, with the only terrorism financing conviction obtained seven years ago.
The Treasury has responded with the necessary urgency to the FATF report and recommendations, indicating that it will submit draft legislation to parliament in April to address the weaknesses identified. However, it will take more than a law to address the deficiencies. Systemic changes are required, including greater collaboration between agencies involved in combating money laundering and terrorism financing.
SA is renowned for its sophisticated financial services. It would be ironic if yet another case of official ineptitude turned them into pariahs.
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