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Tackling international cyber crime with global criminal regulations

Banks must screen customers and their transactions throughout the client life cycle to comply with strict international financial crime laws.

Johannesburg, 20 Jul 2023
Vincent Gaudel, financial crime and compliance expert, LexisNexis Risk Solutions.
Vincent Gaudel, financial crime and compliance expert, LexisNexis Risk Solutions.

Many criminals are using offshore accounts to make it more difficult to track their assets. Nations cannot address such a challenge in isolation. In turn, businesses need global co-operation and a common set of standards and responses to these risks.

The Financial Action Task Force (FATF) sets the global standard for financial regulations and ensures countries implement the appropriate responses.

Vincent Gaudel, financial crime and compliance expert at LexisNexis Risk Solutions, highlights that increasing digitalisation drives crime. Customers are demanding digital transformation due to its simplicity and ease, but companies must factor in how they deliver digital services and the risks involved.

“The remote nature of the relationship with the customer is one of the challenges posed by digitalisation, as well as the ease and speed of the transactions,” says Gaudel. “While this is great from a service point of view, it makes it harder to stop or reverse illegal transactions.

“Nevertheless, organisations can spot risks by implementing automated functionality to help leverage additional clues. There are four high-risk areas to focus on: risks to the products and services provided, distribution channels, geographical challenges and end-customer risks. These areas are where businesses need to be extra careful and implement rules.”

According to Gaudel, regular screening is crucial for identifying illegal activity and organisations should initiate the screening process at the onboarding stage. Organisations must understand if a customer is on a sanctions list and whether they pose an unacceptable risk. Customers may be associated with politically exposed persons or even have a criminal record, which would make organisations think twice before transacting with them.

“Screening must take place when anything changes during the business relationship, which can happen sometimes daily. Businesses must keep track of customers and their risk scores and how they evolve. Screening customer transactions is also good practice, because even if the client passes risk tests, they may be sending money to someone else on the sanctions list,” says Gaudel.

“Organisations in the private sector should look at the nature of customer transactions and establish whether the transactional activity makes sense based on the profile they have built of the customer. Understanding a customer’s behaviour allows companies to anticipate patterns within their customer’s transactions, checking anything that appears anomalous or suspicious.”

The private sector is only one piece of the puzzle. Developing processes is equally crucial for public sector authorities in guiding private companies on how to act on any suspicious activity. Authorities may choose to follow up on any suspicions.

“FATF has grey-listed South Africa (SA) and it is clear rules and processes need upgrading. The FATF has laid out the problem and now it is up to the SA authorities and other national stakeholders in this ecosystem to embrace the changes required to remove the country from the list,” he says.

“The action plan’s key focus is on better addressing the risk of terrorist financing and the powers and responsibilities of the competent authorities. It is about making sure SA is better at investigating and prosecuting cyber criminals and removing the assets of financial crimes."

The grey-listing is far from ideal because of the financial effect on the nation. International investors and capital may not flow as easily to SA because there is usually a reduction in investments in grey-listed countries.

“Other impacts typically experienced by the financial services sector and large corporations are operational in nature, as these businesses face heightened scrutiny from foreign counterparts," says Gaudel. “Grey-listing poses challenges for South African banks in establishing and maintaining customer relationships with foreign entities.

"The government had already been working on amending the relevant regulations prior to the grey-listing announcement. These amendments serve as a clear response to the FATF, indicating that the government is actively addressing the identified issues. It is expected that once these changes are taken into account, SA may receive a more positive re-evaluation from the FATF," concludes Gaudel.

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