The last decade has seen a proliferation of legislation
and regulations designed to combat commercial crimes such as money laundering,
corruption and bribery – and many more industries, besides banking and
insurance, are now affected.
There really is no margin for error as far as compliance
with Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations is
concerned, and the onus to perform due diligence procedures is on the
institutions, not the criminals or the government.
Money laundering is the process through which criminals
integrate illegally obtained funds into the mainstream financial system by
concealing its origins, typically through transfers involving foreign banks or
legitimate businesses. It is one of the most serious financial offences that
can be committed under South African law, with penalties ranging up to ZAR1
billion and life imprisonment. Non-compliance with reporting requirements can
likewise lead to fines of up to ZAR100 million or imprisonment for up to 15
years.
South African organisations therefore have a
responsibility to mitigate operational, financial, legal, and reputational risk
against money laundering through sound procedures and preventative controls.
They must also ensure their employees are equipped with the knowledge, skills
and tools in order to ensure compliance.
However, preventative measures are not always cut and
dried. While due diligence is always required for all client relationships and
single transactions, irrespective of the value involved, accountable
institutions are expected to apply a risk-based approach inter alia in respect
of customer relationships, which can be open to misinterpretation. High-level
guidance includes:
·
Customer
identification information must be effectively verified for individuals, for
example through an identification document and proof of residential address
·
Customer
identification information must also be verified for legal entities or any
client acting on behalf of another
·
Simplified
due diligence may apply to certain low risk clients such as companies
listed on approved stock exchanges (exemption 6) and banking products issued to
customers subject to particular conditions and thresholds (exemption 17).
·
High-risk
client types and high risk transactions and services warrant enhanced due
diligence procedures, such as transactions pertaining to Politically
Exposed Persons (PEPs), non-face-to-face identification verification,
correspondent banks involving cross-border banking and similar relationships,
money service businesses, and intermediary and employee accounts.
In practice, it is often
challenging to interpret the law correctly and to ensure that the business is
compliant. Offences can be committed negligently by businesses as well as their
managers and employees who fail to comply with their duties under the
anti-laundering legislation.
We have seen several probes into weak AML procedures that have resulted in hefty fines for South African companies. The most recent prominent case involved five South African banks that were collectively fined ZAR30 million by the South African Reserve Bank for not having strong enough anti-money laundering controls in place.
In addition to the financial implication of the fines,
the reputational damage caused by weak AML systems can be sustained and far
reaching.
Enhanced Due Diligence
Meeting AML compliance demands, LexisNexis Risk
Management offers an enhanced due
diligence solution for corporate security professionals called Lexis®Diligence.
Companies need to understand their suppliers, partners,
acquisition targets, contractors, resellers, grant applicants, customers and other
associates effectively and efficiently. This requires the investment of time,
money and the relevant tools. With accurate
information, organisations are able to make informed and accurate decisions,
thus saving their company from fines, penalties and reputational damage.
Contributed
by: Rudi Kruger, General Manager at LexisNexis Risk Management.
