Big South African banks carry high money laundering risks; S&P downgrades Ghana

South Africa's major banks are at high risk of being exposed to financial crimes and terrorism financing, according to the country's central bank, which also found that some lenders had insufficient information on thousands of clients' citizenship or country of incorporation.

The South African Reserve Bank's Prudential Authority, or PA, released its risk assessment report of the banking sector in July. The report covered 34 banks across four categories depending on their size, namely large banks, medium to small locally controlled banks, branches of foreign banks, and foreign-controlled banks and mutual banks.

The five large banks — Absa Bank Ltd., FirstRand Bank Ltd., Investec Bank Ltd., Nedbank Ltd. and Standard Bank of South Africa Ltd. — carry high inherent risk of money laundering, terrorism financing and proliferation financing, the assessment found. These banks held nearly 90% of the country's banking assets as of the end of September 2021, meaning their "materiality to the sector is significant," according to the report.

The elevated risks come due to having many clients, being exposed to foreign country risk and "the propensity for the illicit flow of funds," among other factors, the regulator said.

In a separate mutual evaluation report of South Africa's systems, released in October 2021, global financial crime watchdog Financial Action Task Force, or FATF, said despite the country having a solid legal framework, there were material shortfalls in its implementation, including a failure to prosecute serious cases. The ubiquity of cash is considered high risk, the FATF said.

"Detecting and recovering cash proceeds of crime remains challenging while efforts to prevent false or undeclared cross-border currency movements need major improvement," the FATF said.

The PA's assessment found that one large bank, which was not named, has no information about the citizenship of 8,388 clients, while another large bank reported 1,782 clients with an unknown country of incorporation. Three large banks also transacted with clients deemed high risk.

Between Oct. 1, 2018, and Dec. 28, 2020, large banks' automated transaction monitoring systems generated 1,058,602 alerts, of which only 160,445 were reported to the country's Financial Intelligence Center.

Absa supports the implementation of the suggested FATF reforms and is working to address those recommendations within its purview, a spokesperson told S&P Global Market Intelligence via email. The banks already complies with rigorous international anti-financial crime standards and regulation, the spokesperson added.

Representatives for the other four large banks did not respond to requests for comment.

The Bank Association of South Africa said it is working with the PA to address weaknesses in the way banks manage the risk of their businesses being used for illicit financial transactions. "This is ongoing work," the association said via email.

Other news

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