Finance Minister Trevor Manuel yesterday bemoaned that fact the Financial Intelligence Act made it difficult to combat money laundering. His comments were made during the National Treasury budget vote in parliament. (Click on the heading to read more.
Wikipedia defines money laundering as "the metaphorical 'cleaning of money' with regard to appearances in law, as the practice of engaging in specific financial transactions in order to conceal the identity, source, and destination of money. It is a main operation of the underground economy."
Manuel told parliament that "The way in which the Financial Intelligence Act is presently formulated does not provide either the designated supervisory bodies or the centre [with] express provisions to enable administrative enforcement of the Act."
He also noted that the shortcomings in the Act "undermined efforts to properly administer the Act and the effectiveness of the anti-money laundering and financing of terrorism regime, especially in the areas of compliance and enforcement." Manuel noted that he would remedy the shortcomings by proposing various change to the Act in the coming year.
Reliance on the financial services sector to police the Act
Another problem with the Act is its reliance on whistleblowers in the financial services industry to report suspicious financial transactions to the Financial Intelligence Centre (FIC). The fine for failing to report suspicious transactions is as much as R10 million and individuals found guilty of neglect in this regard can face up to 15 years in prison. Proving negligence in such cases is extremely difficult though.
As an example of this requirement of the Act not being met we site a recent property transaction in which Arthur Brown (of Fidentia) purchased a building in Century Hills for a consideration of R24.5 million. There were a number of irregularities in the deal, including the fact that guarantees for the purchase price were provided by a party not involved in the transaction.
The attorney firm that handled the transfer was Cliff Decker. It should be noted that the transfer attorney is appointed by and acts on behalf of the seller. This prompted Mike Collins, the lawyer who handled the transfer to tell Moneyweb that, as far as he was concerned, the Act required him to know his client (the seller) and not to focus on where the funds for the transaction came from.
The Fidentia scandal has raised a number of other questions about the effectiveness of the Act. A number of banks are being questioned about the roles they played in moving billions of rand between Fidentia and various other bank accounts.
Money is the root of all evil
Money is the root of all evil. South African businesses remain more concerned with making the sale than about where the funds used for the transaction come from.
Nowhere is this more evident than at year-end, when many small business owners are forced to use imaginative ways to dispose of the wads of cash they have accumulated in their businesses. Declaring the cash means extra taxes on larger turnovers, so the best alternative is to spend it. Of course, spending this suitcase full of cash is supposed to be virtually impossible these days
Consider an individual who decides to purchase a couple of 'toys' with this year's business profits. His cash purchase comes to more than the required FICA minimum in terms of which the dealer would have to report the transaction. We suggest it would not take long for the salesman in question to propose a solution...
"It is quite simple sir we will sell one item to you and one item to your spouse!" If you're in the business of making money from selling big ticket items, you don't want to go out of your way to question where the funds come from. Doing so might lose you the sale.
Editor's thoughts:
There are so many examples of individuals and businesses flouting the law and getting away with it, that those of us who try to do the 'right' thing could be excused for becoming despondent. While choosing the illegal option is frequently more financially rewarding than the honest route, there is definitely more to life than accumulating wealth. Do you think that a greater focus on morality will assist in law enforcement in this country? Send your thoughts to gareth@fanews.co.za
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