Louis de Koker

Money laundering control and suppression of financing of terrorism: Some thoughts on the impact of customer due diligence measures on financial exclusion

Purpose – The purpose of this paper is to explore the relationship between anti‐money laundering (“AML”) and combating of financing of terrorism (“CFT”) customer due diligence (“CDD”) measures in the financial services industry, and exclusion from financial services.Design/methodology/approach – An introduction to the concept of financial exclusion is provided as well as an overview of international AML/CFT CDD standards. The paper highlights a softening of national CDD measures in South Africa and the UK to lessen the impact on financial exclusion.Findings – Countries should consider the impact that CDD requirements may have on financial exclusion when they design their AML/CFT systems.Research limitations/implications – Multi‐discilinary research is required to improve the understanding of the broader interaction between AML/CFT objectives, financial exclusion and economic development, especially in countries with a large informal economy.Practical implications – CDD requirements may unnecessarily exace...

Identifying and managing low money laundering risk: Perspectives on FATF's risk‐based guidance

Purpose – The purpose of this paper is to investigate Financial Action Task Force (FATF)s risk‐based guidance to combat money laundering and terrorist financing to determine its approach to the identification and management of low‐risk providers, products and transactions.Design/methodology/approach – The paper analyses the relevant FATF recommendations and its guidance notes and reflects on key questions for regulators and financial institutions.Findings – FATF has not defined “risk” for purposes of the risk‐based approach. The absence of a clear definition complicates the identification of low‐risk products. FATF do provide an example of a risk matrix that can be used to identify low‐risk banks, but the example is based on assumptions and generalisations that are not sustainable. In addition, it identifies certain low‐value transactions as “low risk” transactions. The paper reflects on the role of value as an indicator of risk and concludes with a number of suggestions to clarify the conceptual framewo...

The money laundering risk posed by low-risk financial products in South Africa Findings and guidelines

Purpose – The purpose of this paper is to investigate the level and nature of criminal abuse of financial products that are classified as posing a low anti‐money laundering/combating of financing of terrorists (AML/CFT) risk in South Africa to determine the effectiveness of the simplified due diligence measures that apply to these products.Design/methodology/approach – The paper presents empirical research on the views of bank officials and law enforcement officials regarding the criminal abuse of South African financial products that are subject to simplified customer due diligence controls.Findings – South Africas AML/CFT laws allow certain deposit‐taking institutions and money remitters to implement simplified customer due diligence measures in relation to specific low‐risk products that are mainly designed to allow previously unbanked persons to access financial services. The paper finds that the products have been abused by criminals but that the incidence of such abuse and the amounts involved are ...

Aligning anti‐money laundering, combating of financing of terror and financial inclusion: Questions to consider when FATF standards are clarified

Purpose – The purpose of this paper is to identify key questions that should be addressed to enable the Financial Action Task Force (FATF) to provide guidance regarding the alignment of anti‐money laundering, combating of financing of terror and financial inclusion objectives.Design/methodology/approach – The paper draws on relevant research and documents of the FATF to identify questions that are relevant to consider when it formulates guidance regarding the alignment between financial integrity and financial inclusion objectives.Findings – The FATF advises that its risk‐based approach enables countries and institutions to further financial inclusion. It is, however, not clear what the FATF means when its uses the terms “risk” and “low risk”. It is also unclear whether current proposals for financial inclusion regulatory models will necessarily limit money laundering as well as terror financing risks to levels that can be described as “low”. The FATF will need to clarify its own thinking regarding low mo...

Money laundering control: the South African model

Outlines the Financial Intelligence Centre Act (FICA) 38 of 2001, which completes the broad legislative framework for money laundering in South Africa. Describes the functions of the Financial Intelligence Centre, including its liaison with the South African Revenue Service, and the Money Laundering Advisory Council; both of these bodies were established by FICA. Reviews the existing legislation such as the Drugs and Drug Trafficking Act 140 of 1992, and the 1996 Proceeds of Crime Act, which was repealed by the Prevention of Organised Crime Act 121 of 1998. Points out the gaps in the legislative framework before FICA; however, over 2,500 suspicious transaction reports have been filed with the police since 1997, and South Africa has had strict exchange control for some time, with gambling, the stock exchange and banking all locked into compliance.

Financial Crime in South Africa

During the 1990s economic crime began to spiral in South Africa. This phenomenon coincided with the countrys transition to a democratic state. The article outlines a number of steps that South Africa took to align its laws with international standards and to improve the legal tools of law enforcement to address the crime wave. A number of successes, for instance the improvement in tax morality, are pointed out but it is argued that co-ordination and co-operation between law enforcement agencies require more attention.

The FATF's customer identification framework: fit for purpose?

Purpose – This paper aims to investigate the purpose, reach and effectiveness of the customer identification framework of the Financial Action Task Force (FATF). Design/methodology/approach – The article draws on relevant research and documents of the FATF, the Basel Committee on Banking Supervision and the Alliance for Financial Inclusion to determine whether compliance with the standards and practices of the FATF would prevent anonymous usage of financial services. Findings – The FATF’s identification principles, guidance and practices resulted in processes that are largely bureaucratic and do not ensure that identity fraud is effectively prevented. Strict identification requirements on the other hand may impact on financial inclusion, leaving the FATF with little leeway to raise its standards. There are potential solutions, but they are longer-term and partial in nature. Originality/value – Current identification and verification practices affect the lives of millions of people around the globe. The measures are being enforced to ensure that users are appropriately identified. This article informs the debate by highlighting the weaknesses of the current approach.

Anonymous Clients, Identified Clients and the Shades in between – Perspectives on the FATF AML/CFT Standards and Mobile Banking

The FATF Recommendations set international standards regarding client identification by financial institutions and designated non-financial businesses and professions for anti-money laundering (“AML�?) and combating of terrorist financing (“CFT�?) purposes. The FATF standards regarding client identification were set to address concerns regarding the criminal abuse of anonymous financial services. While identified clients and unidentified anonymous clients represent opposites it is submitted that they should be viewed as opposite points on a continuum. This brief paper considers some points on that continuum especially in view of anonymity concerns regarding mobile phone banking.

Money Laundering Compliance—The Challenges of Technology

Anti-money laundering (AML) and counter-terrorist financing (CTF) measure focus on the abuse by criminals of technology and new payment systems to hide the flows of illicit funds. The AML/CTF system itself, however, uses technology to monitor transactions, identify potential suspicious and unusual transactions and report them to the authorities. This chapter considers the AML/CTF framework, technology and ethical implications relating to customer monitoring and reporting. The AML/CTF framework, especially in relation to new payment methods such as mobile money, gives rise to privacy risks. Mobile money systems are capable of collecting and storing large amounts of data on clients. In countries that are subject to rule of law, this data is shared with the state within a legal framework. Many mobile money models are, however, operating in countries where the rule of law is weak. The ethical implications of providing access to the client data in both types of jurisdictions are often neglected by AML/CTF practitioners. This chapter discusses risk and risk management in the context of mobile money and highlights some of the complexities that face compliance officers who need to ensure compliance but also appropriate protection of legitimate interests of clients. With increasing international consensus that millions of socially vulnerable people should be included in the formal financial system, appropriate balancing of potentially competing interests is of increasing importance.

Are governments doing business with criminals and terrorist financiers

Governments compel financial institutions and high-risk businesses to implement detailed customer due diligence measures to ensure that they do not finance terrorist activities or enable criminals to launder money. Governments, however, do not necessarily perform equivalent measures in relation to government contractors to protect public procurement processes against similar abuse. There is evidence that tax funds may find their way to criminal enterprises and even to terrorist organisations.