While there is a great deal of work being done behind the scenes to combat financial crime in SA, fintech and legal experts have urged greater collaboration between the public and private sector to tackle money laundering and other forms of fraud committed using digital technologies.
It is widely reported that financial crime is rising, with emerging technologies like AI accelerating the trend. A LexisNexis Risk Solutions study found 60% of South African organisations have seen an increase in AI-facilitated financial crime – above the 56% global average.
According to the United Nations Office on Drugs and Crime, between 2% and 5% of GDPs are laundered annually (between $800 billion and $2 trillion). This equates to trillions of rands in SA, said Hawken McEwan, director of risk and compliance at fintech solution firm nCino KYC Africa.
nCino KYC Africa, formerly DocFox Africa, believes technology, compliance with regulation, awareness and a unified approach represent SA’s best chance to tackle financial crime – and be officially removed from the Financial Action Task Force (FATF) greylist.
Since being greylisted in February 2023, SA has addressed 20 of the 22 reforms required by the FATF. Remaining gaps include complex investigations and prosecutions.
This issue adds to the urgency with which SA has to address financial crime, which includes support for the fight against human trafficking, illegal wildlife trade and the drug trade.
nCino lauded the work done by stakeholders to date in helping to gather and analyse data, investigate and prosecute financial crime, but called for even more collaboration between law enforcement, regulatory and industry organisations, including the Financial Intelligence Centre, the South African Anti-Money Laundering Integrated Task Force, the South African Fusion Centre, the National Priority Crimes Operational Committee, as well as the Digital and Financial Forensic Analysis Centre.
Speaking at the company’s Fighting Financial Crime Conference, in Bryanston, on 25 June, advocate Nomvula Mokhatla, founder and president of Sky Lenong Holdings, said a Treasury report issued on 13 June has highlighted the positive outlook of where the country is.
She listed several legislations, protocols and institutional frameworks that SA has in place, including the National Prosecuting Authority, Directorate of Priority Crimes Investigation, the Special Investigations Unit, Auditor-General of South Africa, Public Protector and the National Anti-Corruption Advisory Council.
“South Africa has definitely made progress. Among several prosecutions are Fadwaan Murphy on drug dealing, racketeering and 73 counts of money laundering. The AFU (Asset Forfeiture Unit) seized R54 million worth of assets,” she said. “Also, Maurice Tshabalala, convicted of fraud, corruption, contravention of the PFMA (Public Finance Management Act) and money laundering.”
However, the message to delegates is that the country cannot rest on its laurels; there is still a great deal of work to do to combat increasingly technical fraud and financial crime.
KYC deepens
The relevance of KYC and the need for heightened security awareness remains critical as fraudsters continue to leverage emerging technologies to refine their techniques.
Kevin Hogan, head of fraud at Investec, said phishing is at the heart of 99% of all intrusions worldwide, and vhishing, or voice phishing, is the biggest form of retail fraud in SA.
Hogan cited poor password protection (using the same password for multiple accounts, rarely changing passwords), lack of threat awareness when utilising public WiFi (few people check who the authorised internet service provider is on the network and are at risk of actually logging on to a hacker’s network), and a false sense of security when online as weaknesses in the defence against attackers.
Reflecting on threat actors' advancing techniques, Hogan said man-in-the-middle attacks are gaining traction. These attacks takes the form of an actor able to intercept and possibly change comms between multiple parties, with none of them aware of any issue.
“The Android Trojan GoldDigger is an example,” he added.
Wins in the fight against financial crime
McEwan said the country has achieved some wins in its fight against financial crime, and cited its collaboration with global agencies like Interpol to all but neutralise the threat of Nigerian organised crime group Black Axe, as an example. Operation Jackal III resulted in multiple arrests globally, including some kingpins targeting SA.
In 2021, authorities uncovered a syndicate that pilfered the Unemployment Insurance Fund COVID-19 Temporary Employer-Employee Relief Scheme (TERS) of R11.1 million.
“The TERS fraud involved 17 individuals, 26 entities, 53 bank accounts and 983 transactions,” said McEwan.
According to McEwan, SA’s regulations are solid, but inconsistent enforcement allows financial crime to thrive.
nCino KYC Africa underlined the need for cross-border collaboration, to build capacity and knowledge, for strengthened whistleblower protection, access to leading-edge technology and enhanced transparency and accountability to better manage the wider risk landscape.
Financial crime is not going away anytime soon and affects economies across the world, said the nCino KYC Africa boss. “Fighting financial crime is a team sport… everyone has a role to play to contribute and help.”
Mokhatla also called for more collaboration and information share between initiatives and organisations to strengthen SA’s effort to combat financial crime.
In addition to this collaboration, Mokhatla listed several actions that can be taken to improve efforts to tackle money laundering, including enhancing the integrated justice system, smart investments in personnel, systems and projects, strengthening global international co-operation, fostering strong transformation initiatives in industries and re-bolstering independent, responsible and objective reporting.
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