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Trade finance and correspondent banking amongst highest ML, TF and PF risks at South Africa’s banks

By Mark Ford on July 29, 2022

Trade finance products and services as well as correspondent banking are amongst the bank offerings at South African banks at highest risk for money laundering (ML), terrorist financing (TF) and proliferation financing (PF) according to a report by the Prudential Authority of the South African Reserve Bank (SARB).

The report assesses ML, TF and PF risk in the country’s banking sector and responds to deficiencies identified by the Financial Action Task Force (FATF). South Africa has until October to produce a plan to address the deficiencies identified by the global money laundering and terrorist financing watchdog.

Vulnerabilities and threats

Common vulnerabilities identified across the banking sector include the misuse of trade products; an inability to obtain beneficial ownership information; non-face-to-face client onboarding and interactions, and an inability to identify domestic prominent influential persons.

Threats identified across the sector include illicit cross-border flows; fraud, bribery and corruption; illegal investment scams; environmental crimes; tax-related offences or crimes, and criminals using money mules.

Client types identified as being more vulnerable to ML and TF include mining firms, trade finance customers and corporates or businesses with complex structures

TBML focus

Trade-based money laundering (TBML) and cross-border transactions in general ranked in the top ten threats identified by large banks – but nowhere near as prominently as bribery, corruption, fraud and state capture, all of which clearly concerned bankers much more.

TBML was also highlighted as a threat by smaller and foreign owned banks operating in South Africa. Bankers cited non-compliance with customs and export requirements and the use of fake or fraudulent documents related to shipping or customs, or payments to facilitate transactions or trade finance amongst those aspects of TBML that concerned them most.

The Prudential Authority’s Assessment of money laundering, terrorist financing and proliferation financing risk in the banking sector can be found here.