SOUTH AFRICAN BANKS AND THE ANTI-MONEY LAUNDERING

C O N F I D E N T I A L SECTION 01 OF 03 PRETORIA 000677

SIPDIS

SIPDIS

TREASURY FOR FINCEN JILL BEZEK

E.O. 12958: DECL: 03/31/2018
TAGS: ECON EFIN PGOV PTER SF
SUBJECT: SOUTH AFRICAN BANKS AND THE ANTI-MONEY LAUNDERING
REGIME

Classified By: Economic Counselor Perry Ball, reason 1.5 (b) and (d)


1. (C) Summary: South African banks have implemented
extensive money-laundering controls since the Financial
Intelligence Centre Act was passed in 2001. The major banks
now employ large anti-money-laundering staffs and use
sophisticated software to identify suspicious transactions.
They also file thousands of suspicious transaction reports
with the Financial Intelligence Centre (FIC) every year. FIC
is growing and wants to strengthen its ties with FinCEN.
However, capacity constraints in the police mean that few
money laundering cases are prosecuted in court. End Summary.

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The New Regime
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2. (U) South African banks have implemented extensive money
laundering controls since the Financial Intelligence Centre
Act (FICA) was passed in 2001, according to local bankers.
They met recently with visiting FinCEN Africa Regional
Liaison Jill Bezek and Deputy Economic Counselor to discuss
the impact of money laundering laws on banks and
money-launderers alike.


3. (C) According to Stuart Grobler, general manager of the
Banking Association of South Africa, the new anti-money
laundering (AML) regime met with a positive response from the
country's four major banks. "The banks collaborate on AML
and share best practices," he said. Each bank has given AML
training to its staff, set up large compliance offices
virtually from scratch, and installed sophisticated software
to detect suspicious transactions. "The cost has been
enormous," he said, particularly the programs to reidentify
and verify the addresses of millions of existing customers.

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A Tale of Two Banks
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4. (C) These points were echoed by Nadia Hoff, Group Money
Laundering Control Officer at Standard Bank. She said that
Standard employs 15 compliance officers in its central
compliance office, plus at least one compliance officer in
each of its main business units. In contrast, the bank had
almost no AML staff only a few years ago. Standard is also
enforcing "minimum AML standards" at its many branches and
subsidiaries in Africa, even where local AML laws are weak or
non-existent. According to Hoff, "Our minimum standards are
based on FICA and FATF guidelines, but modified when
necessary to fit local conditions (e.g., where local
governments do not furnish ID documents to all citizens as
happens in South Africa)." She said that some of Standard's
African customers did resist AML controls at first, but
Standard's concern for the reputation of its entire banking
group carried the day. "We didn't want those customers
anyway," she laughed.


5. (C) Roy Melnick, Group Money Laundering Control Officer
at ABSA bank, made similar points in a meeting with Deputy
Economic Counselor in November 2007. Melnick said that FICA
has had a "huge impact" on banks: "It touches every aspect of
our business. Transactions are monitored, business
relationships are affected, staff had to be trained."
Melnick supervises a staff of 10 analysts who review
suspicious transactions identified by ABSA staff or churned
out by ABSA's transaction-monitoring software. "The software
looks for transactions that don't fit a profile: huge sums
going into the checking account of a factory worker, for
example," he said. ABSA also employs a "risk-based" model to
evaluate potential customers. The model looks at factors
such as customer identity, type of business, and geographic
Qsuch as customer identity, type of business, and geographic
scope of business. "If the model identifies trouble, we look
into the matter to decide whether we want the customer,"
Melnick said.

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Few Criminal Cases
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6. (C) South Africa's new AML machinery now generates more
than 21,000 suspicious transaction reports to the Financial
Intelligence Centre (FIC) per year, the vast majority from
banks. However, this flood of reports has yet to generate a
comparable response from the criminal justice system.
According to Grobler, only a handful of money-laundering
cases have been prosecuted to date, almost all of them cases
where prosecutors tacked the charge on to an indictment in
order to beef up the underlying case. "These were cases

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where the proceeds of crime simply flowed into a bank
account," he said. "I'm not aware of a single 'traditional'
case involving money truly laundered through our system,
where it came in as one thing and left as something else."
Grobler also said that he is aware of no "serious" estimate
of the amount of money-laundering in South Africa. Big-time
money-launderers would be wary of rand-denominated assets, he
speculated, since the currency is so volatile. "It would be
a real gamble."


7. (C) Hoff blamed the small number of cases on "capacity
problems" in the police and prosecution services. She also
noted that South African law enforcement has other
priorities, such as murder and rape. "When the police come
to us to ask about money laundering, they are usually
responding to reports we filed four or five years ago," she
claimed. She said that money-laundering is a "serious"
problem in South Africa, often related to drug trafficking,
but involving many other crimes as well. Based on his years
at ABSA, Melnick said that money laundering usually involves
fraud, corruption or white collar crime. Terror finance
exists but is not a big problem so far.

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Sanctions
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8. (C) Melnick confirmed that the South African government
promptly circulates the names of all persons listed on the UN
1267 list. He and Hoff said that persons designated by the
U.S. as terrorists are subjected to the highest levels of
bank scrutiny, whether or not the persons are also listed by
the UN. "Anyone on the OFAC list would automatically be
asked to take their business elsewhere," Melnick said. Hoff
did not go this far. She confirmed, however, that Standard
Bank would move anyone designated by the U.S. into a "high
risk" category not eligible for additional credit, unless the
person had been named in Cuba sanctions or other "peculiar"
U.S. programs.

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The View from FIC
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9. (C) If AML is a growth industry, then FIC is the market
leader. FIC Director Murray Michell told us that FIC now
employs 130 staff and may grow to 250 in the near future. He
hopes to open satellite offices in Durban and Cape Town, and
to upgrade AML controls in non-bank institutions such as
casinos. He would even like FIC to hire its own inspectors
to carry out on-site examinations of firms. At the same
time, Michell expressed frustration that the expanding
apparatus of monitoring, reporting, and analysis has not
resulted in more money-laundering prosecutions. "I'm not
sure if the police even understand half of the financial
intelligence we give them," he admitted. He predicted that
this capacity problem would worsen when the elite Scorpions
crime-fighting unit is merged into the regular police, as is
currently planned. Note: FIC referred almost 550 suspicious
transaction reports to police and/or intelligence agencies
for follow up action between March 2006 and March 2007.
Although official figures on the number of money-laundering
cases are not published, observers believe that only a few go
to court every year. End Note.


10. (C) Murray agreed that FIC and FinCEN should work to
strengthen their relationship. He suggested reviving stalled
MOU talks and organizing joint training workshops. Possible
workshop topics could include strategic trend analysis and
ways to improve coordination between financial intelligence
units and law enforcement agencies.

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The View from the Banks
QThe View from the Banks
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11. (C) Relations between FIC and the banks are not always
smooth, to judge by the comments of our banking contacts.
They accused FIC of amending laws and issuing guidelines
without consulting banks, of hoarding information on AML
trends, of not offering feedback on suspicious transaction
reports, and of disregarding the real costs and benefits of
regulations. "FIC likes to prescribe and dictate," one said,
adding, "Sometimes FIC acts as if we/we (the banks) are the
ones who are laundering money." Another complained that top
officials at FIC are often inaccessible to bank officers.
Comment: These remarks struck us as relatively unexceptional
complaints about regulation from a regulated industry. We do
not think the relationship between FIC and the banks

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undermines AML efforts in South Africa. End Comment.

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Comment
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12. (C) South Africa has taken important steps toward
setting up a comprehensive AML regime almost from scratch and
in a short period of time. Local banks and FIC take AML
seriously. Working with FinCEN and other USG agencies, post
will continue to engage on AML issues with FIC and concerned
SAG departments, including the police and prosecution
services.
BOST