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Picture: 123RF/DMITRY KALINOVSKY
Picture: 123RF/DMITRY KALINOVSKY

SA’s ability to secure its borders and issue identification documents and to minimise the abuse of its territory and economic infrastructure to finance acts of terror elsewhere on the continent is getting weaker. So weak that a recent government report raised SA’s terrorism-financing risk to its highest level since 2022. 

The report comes two years after the SA Reserve Bank assessed the inherent money-laundering and terrorism-financing risk facing the country’s banking sector to be high. It also follows more than a year after the Financial Action Task Force (FATF) placed SA under “increased monitoring” — the infamous greylist — meaning the country had “committed to resolve swiftly” the deficiencies the task force had identified in its anti-money-laundering and terrorist-financing regulatory regime. 

These reports raise questions about SA’s ability to secure its sovereign borders and deal with crime, especially of the organised nature. They also explain why SA documents, especially passports, are losing their reputation globally.

June’s SA national terrorism-financing risk assessment concluded that terror financing was now a high risk, up from moderate in 2022. Approved by the cabinet, the risk assessment is put together by government departments, state agencies, the private sector and financial and non-financial regulators. It defines terror-financing as the raising, moving, storing and use of legitimate and illicit funds and other assets in support of terrorist institutions and individuals. 

SA has a high level of crimes that generate income, including significant amounts of cash

The assessment says the use of funds for terror financing in SA is mainly linked to “domestic violent extremism (including right-wing extremism) and for sustaining the activities of a small group of Islamic State sympathisers”. Some terrorist groups have been soliciting support in the country over the past decade, with some prosecutions taking place in the local courts.

“Despite SA not currently being regarded as a primary target for attack, the country is implicated in the financing of terrorist activity that takes place beyond its borders, which contradicts the country’s international obligations and presents a high reputation risk.” 

It lists nine reasons for the elevated risk, including SA’s failure to secure its borders, the abuse of its identity documents as well as its “refugee and asylum system”. Then there is SA’s large informal economy, which uses cash and informal banking systems such as informal money remittance channels, “illegal money value transfer services” and cash couriers.

The use of cash was flagged by another report, also published in June, by the Financial Intelligence Centre (FIC), on the use of “money mules” — individuals recruited “to help launder the proceeds of crime or physically transport goods, merchandise or money on behalf of a criminal”. 

The FIC’s analysis of 58 cases referring to “money muling” and related illicit flow of funds showed that the majority happened in Gauteng and the Western Cape. These cases were drawn from the reports on suspicious and unusual transactions reporting institutions submitted to the FIC between August 2016 and July 2023. 

The centre found “extensive use of shell companies” in hosting fraudulent funds. South Africans were also identified as directors or signatories for entities associated with the use of money mules or illicit financial flows, and were recipients of remittance funds from abroad “with no clear purpose for the funds” and where the relationship between the sender and the recipient was unknown. 

Crypto assets were often used in money mule transactions, “with suspected accounts reflecting high-value daily cash deposits in the banks”. These deposits were then rapidly transferred to crypto asset service providers. The terror financing risk assessment also flags the risk facing banks and other financial institutions, as well as “SA’s burgeoning fintech ecosystem”, including crypto assets and services. 

SA has a high level of crimes that generate income, including significant amounts of cash. Among these crimes are business robberies, cash-in-transit heists and kidnapping for ransom. While these crimes are overwhelmingly committed for personal gain, “it is believed that a proportion of this may be in support of terrorist activity”. 

In its assessment of money-laundering and terror financing risks for the banking sector published in July 2022, the Reserve Bank also flagged corruption, bribery, tax evasion, fraud, drug trafficking, cryptocurrency-related transactions and illegal wildlife trade as among the most common predicate offences.

These are crimes that form part of a more complex criminal activity.

The Bank’s assessment of 34 banks, including 17 foreign banks and branches of foreign banks, covered the period from October 2018 to December 2020.   

• Sikhakhane, a former spokesperson for the finance minister, National Treasury and SA Reserve Bank, is editor of The Conversation Africa. He writes in his personal capacity.

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