Despite efforts to improve compliance, South African businesses remain highly vulnerable to financial crime – with an estimated R182 billion lost annually to money laundering and related illicit activity. This is according to Global Financial Integrity, a US-based think tank, which ranks South Africa seventh globally among the countries most affected by money laundering over the past decade.
Recent figures from the South African Banking Risk Information Centre (SABRIC) further underscore the trend, showing that financial crime losses in 2023 alone neared R3.3 billion. According to Sameer Kumandan, Managing Director of SearchWorks, this wave of criminal activity highlights critical gaps in how businesses are identifying and responding to compliance red flags.
“While many businesses have made strides in meeting the requirements of the Financial Intelligence Centre Act (FICA), the numbers – and the headlines – tell a very different story,” he says.
Over the past 12 months, failures to comply with FICA have resulted in significant regulatory action against several of the country’s major banks, leading law firms, and global asset managers. Fines for non-compliance have ranged from hundreds of thousands to tens of millions of rand. Beyond fines and legal sanctions, these businesses also suffer reputational damage and possible operational disruption when they fail to effectively play their part in mitigating money laundering, the financing of terrorism and other criminal activities.
These incidents highlight a fundamental issue – inadequate resource allocation and insufficient training. Many businesses lack the necessary expertise and do not have the appropriate technology in place to ensure full compliance with the evolving requirements of the FIC Act. Many teams are not adequately trained to identify FICA red flags or understand their responsibilities within the compliance process, increasing the risk of non-compliance. This often results in partial or inconsistent implementation, creating gaps that undermine overall compliance efforts. Similarly, a lack of understanding around the importance of FICA compliance often results in poor diligence when it comes to monitoring and reporting. Late or missing reports, combined with inadequate ongoing monitoring of transactions and risk profiles, weaken an organisation’s ability to detect and prevent financial crime.
Spotting financial crime red flags
For all accountable institutions, early detection of compliance red flags is critical to avoiding significant financial losses and potential legal consequences. Here are some common red flags that businesses should be aware of:
- Mismatched or changing details: Inconsistencies in addresses, phone numbers, or company registration information should raise alarm bells.
- Unusual transaction activity: Is this person trying to move a large amount of money quickly? Are they pushing you to speed up or skip regular checks and approvals? If so, this activity should be labelled as suspicious.
- Unusual customer behaviour: Incomplete or suspicious customer information is a cause for concern.
- Transactions structured to avoid detection: If someone is making multiple smaller payments just below reporting thresholds this could be an attempt to evade financial regulations.
- Hidden or complex ownership structures: Are you struggling to understand who ultimately owns or controls an entity? Complex ownership structures are a common red flag.
- Unnecessary involvement of unknown third parties: Someone using intermediaries or proxies without clear justification could indicate that they are trying to hide the true origin, destination, or purpose of funds. Similarly, if the money is coming from jurisdictions known for financial crime or with unclear origins, this should raise alarm bells.
- Reluctance to complete compliance checks: If a client resists standard due diligence or compliance processes, this is a common sign that they’re involved in illicit activities.
- Poor documentation and record-keeping: FICA require accurate and up-to-date records. Failure to produce the necessary paperwork or inconsistent supporting documentation is a clear red flag.
VOCA, powered by SearchWorks, automatically flags potential high-risk individuals. Providing a range of automated compliance tools, VOCA can also detect changes in borrower risk profiles. These tools enable accountable institutions to identify red flags more quickly, accurately, and consistently. This strengthens their defence against financial crime and improves regulatory compliance and overall operational efficiency. In today’s high-risk environment, one missed red flag can cost millions, making automation not just a tech upgrade, but a strategic necessity.