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More proactive, collaborative efforts needed to combat financial crime in SA


Johannesburg, 12 Jun 2023
Lizette Sander, Product Manager, Bateleur Software.
Lizette Sander, Product Manager, Bateleur Software.

South Africa’s greylisting by the Financial Action Task Force and the recent ‘Gold Mafia’ reports have again reinforced the need for proactive collaboration by the public and private sectors to combat financial crime in South Africa.

This is according to anti-financial crime technology providers and consultants, who say more can be done to bring all stakeholders together to address these forms of crime. Bateleur Software regularly partners with Financial Crime Risk Management Consultants (FCRMC) on these types of projects.

Commenting on the recent exposé by Al Jazeera’s Investigative Unit of a major gold smuggling and money laundering operation in Zimbabwe and South Africa, FCRMC MD Roy Melnick and Operations Director Eugene Salvado say the latest financial crime revelations come as no surprise, given the culture of corruption pervading South Africa.

The ‘Gold Mafia’ documentaries allege that smugglers effectively took over key functions of leading banks by bribing officials to process and approve illicit transactions. These explosive revelations, yet to be investigated by the South African government, uncovered a complex web of fake invoices, front companies and dubious foreign exchange transactions.

Salvado says: “Banks have spent an exorbitant amount of money on technology to prevent money laundering, and the risk and compliance focus has been to protect the institutions and their reputation. But the time has come for all of us to lift our heads, focus on our people and consider the society we are operating in. Society constantly criticises corruption in government, but it takes two to tango as businesses and individuals pay bribes.” This should also alert the institutions not named that they too are at risk and to take these revelations as an early warning.

Melnick adds: “The banks named in the report are substantial spenders on security and anti-financial crime solutions. They put all this investment in, but the money apparently flowed straight through their implemented control measures. This proves to those banks not named that they are at risk and need to take additional steps to safeguard their organisations as a precautionary measure.” He notes that while the right systems and processes are in place to mitigate the risk, they will be ineffective unless the processes are well-managed and crimes are properly prosecuted.

“Organisations need to focus more on the employee. Everyone tends to look at the client, but bank systems are being compromised internally. Sector stakeholders need to look at how this happened and put controls in place to prevent similar situations in future,” Melnick says.

“When major financial crimes such as these are exposed, a task force of experts should be established to conduct a root cause analysis and plot the way forward to address control breakdowns, plug gaps identified and plot the way forward, to ensure that such matters do not raise their heads in the future,” he says.

“Who should drive such an initiative, you may ask. Clearly, this will need to be explored. The time has come for society to dust itself off from the ills and embarrassments of the past and to make a difference by setting the example for future generations of how such matters ought to be addressed – quickly and effectively. Embracing the use of technology every step of the way is the way to go – after all, that is what the bad guys do.”

Melnick points to certain measures that could improve controls, including breaking down silos between fraud, anti-money laundering and compliance departments, improving employee screening, conducting regular employee lifestyle audits and harnessing the capabilities of advanced software. “With the use of technology and data, data manipulation techniques and experts in these fields, the focus naturally evolves, being less reactive and more proactive – identifying and addressing potential risks before they manifest themselves. Success would involve a societal approach, calling on expertise across the public and private sectors with equal participation from civil society institutions,” he says.

Lizette Sander, Product Manager at Bateleur Software, says technology helps banks better understand suspicious activity and transaction flows. She says: “Link analysis can associate transaction and payment flows and also connect them to particular compliance officers, for example.”

Bringing technology into the discussion

While advanced technology with AI can help flag anomalies and monitor financial flows, Sander notes that technology vendors are seldom included in forums shaping policy on financial crime.

Melnick says: “Traditionally, the government has been reticent to get involved with technology vendors and service providers, with the result that many government stakeholders may not be aware of the kind of progress that has been made in terms of risk assessment and management platforms. The government’s usual approach is to design more laws and regulations, instead of saying here’s a package of solutions to help SOEs to identify potential financial crime. There needs to be political will to understand the technology available and implement it.”

Salvado notes: “More laws simply create more minefields and higher costs for business. Laws are for law-abiding citizens and don’t stop criminals. Instead of making new laws, it’s time to stand up and start enforcing those laws.”

Melnick, Sander and Salvado say South Africa needs a collective will and closer collaboration across the public and private sectors to learn from previous control failures and proactively prevent future financial crimes.

Says Melnick: “Everyone waits for the government to make the first move. We wait for laws before we act, instead of proactively acting and preventing financial crime. We work with a broad network of expert service providers – and we believe they can play a key role in combating financial crime. They should be part of the discussion and the solution to safeguard the community.”

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