AML Compliance in South Africa - All You Need to Know

Recently added to the FATF grey list, South Africa has a history of being a hot spot for money laundering activities. The South African government estimates that between $2 and $8 billion is laundered yearly through financial institutions in the country. AML compliance in South Africa is more important than ever for organizations looking to conduct business in the region. 

The Proceeds of Crime Act and Prevention of Organized Crime Act among others, mandate financial institutions to establish training programs and policies to combat illegal financial transactions in the country. This article simplifies the obligations for AML compliance in South Africa, discussing basic requirements and ongoing activities businesses need to adopt to stay compliant in the country. 

An Overview of Money Laundering in South Africa

South Africa is home to some of the largest startups in Africa and a major financial hub in the continent. It also boasts a sophisticated banking and finance sector and a large cash-based market, making it very attractive for criminals looking to launder money. The Financial Intelligence Center (FIC) was founded following the provisions of the FIC Act to govern and enforce compliance in regulated industries. The act operates within the earlier-mentioned Prevention of Organized Crime Act.  

According to the FIC Act, certain institutions need to proactively participate in the fight against terrorist financing and money laundering. The Prevention of Organized Crime Act makes money laundering a crime and permits the seizure and forfeiture of illegal proceeds. 

What Institutions Need to Comply with AML Regulations in South Africa?

Institutions required to adhere to AML compliance in South Africa include: 

• Banks 
• Nonbanking financial institutions and other financial service providers
• Real estate companies
• Bureau de Changes and Forex dealers
• Investment and asset management companies 
• Brokers
• Gaming and casino organizations
• Cross-border transaction and remittance companies 

Achieving AML Compliance in South Africa

Affected institutions need to adhere to the following to achieve AML compliance:

• Establish a Risk Management and Compliance Program (RMCP) and adopt a risk-based approach to customer due diligence
• Register with the FIC
• Hire a compliance officer 
• Train staff on compliance obligations and complying with the Financial Information Security Act (FIS)
• Frequently collate and submit regulatory reports

Rules are generally laid down by regulatory bodies, however, each institution is expected to evaluate its unique risks of money laundering and adopt the necessary process to combat it. 

AML Requirements in South Africa

AML requirements in South Africa generally include the following processes: 

1. Customer Due Diligence (CDD)

Financial institutions are mandated to conduct varying customer due diligence based on assessed customer risk levels. This primarily involves identifying and verifying the customer's identity for individuals and ultimately beneficial owners in the case of a business.

2. Continuous Monitoring 

Business due diligence obligations do not stop at verifying the customers. Organizations are also required to monitor customer activities (especially high-risk customers) for suspicious activities. Customer risk status could also change over time after onboarding and businesses need to be aware of when this happens to be able to put measures in place accordingly. 

3. Suspicious Transaction Reporting

This involves reporting suspicious transactions within the stipulated time frame to the Financial Intelligence Center (FIC).

4. AML Screening

Depending on the organization in question and the kind of business relationship to be established with a customer, a business may be required to conduct AML checks beyond regular customer due diligence. This is also referred to as enhanced due diligence and involves screening customers or beneficial owners of a business against Politically Exposed Persons lists, watchlists, and sanctions lists globally and making informed decisions accordingly.

5. Staff Compliance Training

Concerned organizations need to ensure that their staff receive the right AML training and have policies in place to guide them in complying with AML requirements. 

6. Reporting Obligations

Organizations also need to satisfy reporting obligations like transaction thresholds, suspicions, and more as laid out by the FIC. These obligations are discussed below.  

Read Also: KYC Requirements in South Africa

AML/ CFT Reporting Obligations for Businesses in South Africa

Businesses are required to report several information which varies depending on the industry and their industry and operating license. However, it generally includes: 

• Transactional cash threshold report - Initially, institutions were obligated to report cash transactions over R24 999.00 as a single transaction only. However, this threshold amount was increased in October 2022 to R49 999.00, with a reporting timeframe of three days. 
• Collating and submitting international fund transfer reports (IFTR) within 48 hours after the transaction
• Collate suspicious transaction and activity reports and send to relevant authorities within 15 days of the transaction being flagged as suspicious
• File Terrorist financing transaction report (TFTR) and associated transaction report within five days of becoming aware of the fact

How to Conduct AML Check

Smile ID offers comprehensive AML checks to help businesses achieve compliance in South Africa. Our empowers businesses to screen users across 1,100+ global and African sanctions, PEP, and adverse media watchlists. Businesses can easily integrate our technology into their existing workflows via APIs. Book a free demo to learn more.  

Generally, here’s how it works in 3 simple steps: 

Step 1: Provide identification details

Collect customer information. You will need an ID number, name, nationality, and DOB to complete both the KYC and AML checks.

Step 2: Image Capture

Capture live images of the user and their documents.

Step 3: Get Results

The user information is scanned across global PEPs, Sanctions, and Watchlists after which you will receive a response with the KYC information and AML results. You can review all the user details in a single view.

Businesses can perform this via our no-code platform or API integration. Book a free demo today to learn more.

What are the Penalties for Money Laundering?

The exact penalties for lack of AML compliance are administered on a case-by-case basis with guidelines laid out by the Prevention of Organized Crime Act (POCA) and (FICA). They are commonly classified into: 

a. Non-compliance Offenses 

Failure to comply with AML laws may result in administrative fines or imprisonment for key responsible individuals and entities. 

b. Seizure

Regulatory bodies on behalf of the state can seek the seizure and forfeiture of assets derived from money laundering proceeds. 

c. Criminal Offences

Parties involved in money laundering and found guilty can face hefty fines and up to 30 years imprisonment. Money laundering is classified as a criminal offense under POCA. 

d. Corporate Liability

Companies may be criminally liable for money laundering offenses which could attract hefty fines.

Recommended: How to Verify a Business in South Africa for AML Compliance

Achieving AML Compliance in South Africa

Harnessing the right technological solutions remains the easiest and most efficient way to achieve AML compliance in South Africa. Smile ID’s KYC and AML solutions offer robust anti-money laundering capabilities that empower companies to satisfy their requirements. 

With our superior technology, businesses can easily automate compliance processes, allowing them to operate seamlessly in South Africa. Learn more about how it works - Book a free demo with our experts today.