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Money laundering, has been defined as the process of concealing the transformation of profits from illegal activities and corruption into seemingly “legitimate” assets. The processes by which criminally derived property may be laundered are extensive. Though, illegally sourced money may be successfully laundered without the assistance of the financial sector, although, the reality is that hundreds of billions of dollars of money is laundered through financial institutions every single year. The nature of the services and products offered by the financial services industry means that it is vulnerable to abuse by money launderers.

As a result of this abuse by money launderers, rules and regulations have been imposed on financial institutions to implement adequate anti-money laundering controls and risk measures. Through this, the concept of “Know your customer” (KYC) was created. KYC is the process whereby a business verifies the identity of its clients and assesses the potential risks of illegal intentions for the business relationship. KYC is not only employed by financial institutions but by companies of all sizes for the purpose of ensuring their proposed agents, consultants, or distributors are anti-bribery compliant.

Typical controls to adhere to KYC include; collection and analysis of basic identity information such as Identity Documents (referred to in US as Customer Identification Program or CIP), name matching against lists of known parties such as Politically Exposed Person (PEP) or sanction lists.

 

In 2014, the South African Reserve Bank fined the country’s four largest banks a collective amount of 124 million Rands (8.8M USD), for failing to implement adequate anti-money laundering controls and risk measures. Based on the findings, the Reserve Bank ordered these four banks to take remedial action and address the issues at hand. The Financial Intelligence Centre Act (FICA) aims to fight financial crime, such as money laundering, tax evasion and terrorist financing activities. Whilst bringing South Africa in line with similar legislation in other countries to reveal the movement of money derived from unlawful activities.

Whilst it is not believed that these banks deliberately defined South African regulators, the actions taken demonstrate the importance of KYC compliance for any business conducting financial services in the country.

In order to remain compliant, financial companies doing business in South Africa require the right tools to stay on top of their obligations. With access to more modern technology and consumer data from both alternative and traditional sources has allowed financial service providers meet rigorous regulatory requirements without negatively impacting their customers experience

The regulatory environment is very complex and continuously evolving, as a result providers are devoting more resources to governance, risk and compliance issues. The question still remains however, as to how a business can protect its bottom line in this changing legislative environment.

For PEP and sanction screening solutions, visit: namescan.io or email sales@namescan.io for more information about our AML services.

 

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