Adv Sbongiseni Khumalo unpacks the economic & social consequences of money laundering and other financial crimes.
Prosecuting financial crimes and corruption is often very difficult. The unlawful intent must be proven by inference. This requires a thorough investigation to obtain all the relevant facts and a very competent prosecution to present them convincingly. How did the culprits & beneficiaries of State Capture move, hide & obscure the origin of their loot from corrupt activities? They, like most organizations, relied on money laundering through South African & global banks. But what is money laundering? The Financial Action Task Force (FATF) was set up in 1989 to combat money-laundering through the global banking system. South Africa is one of the 36 member jurisdictions. The FATF defines money laundering as the process of concealing the proceeds of crime (dirty money) by disguising where the money came from, & making it appear to have been derived from a legitimate source. Money laundering can be broken down into 3 stages: 1. Placement – dirty money placed in financial system through bank deposits (usually money is split up into smaller amounts then deposited). 2. Layering– the process of distancing the funds from their source, often using anonymous shell companies. 3. Integration – the money is integrated into the legitimate economy by transferring them into a new bank account or buying property. Banks are traditionally measured as pillars of economic prosperity. The best banking system will be able to ensure good production in all sectors of the economy. Money laundering is the process of providing legitimate appearance to the illegally gained revenue. Money Laundering has the tradition of eroding the financial institutions and weakening the financial sectors' role in economic growth. It has the habit of facilitating corruption, crime and other illegal activities at the expense of countries development and can increase the risk of macroeconomic instability. Banks and other financial institutions are at the forefront of the battle against the money launderers (at least that's what we're led to believe). However, the shady world of banking and the way they allow themselves to be used by nefarious organisations and individuals in order to turn profit, without being subject to any customary international law or binding treaty. Banks serve the wealthy through illicit offshore flows, aiding and abetting corrupt regimes guilty of gross human rights abuses, quietly assisting State Capture, or debiting the accounts of the poorest of the poor for services they never use. The looting of the VBS Bank may be astounding to struggling South Africans, but it is merely a symptom of a banking and auditing system that skirts the law in order to fleece the poor and enrich the rich. The negative economic effects of money laundering on economic development are difficult to quantify. International society expects every bank to perform customer identification and due diligence as it is the important control measure in preventing criminals from entering into the legitimate economy. The cost involved in combating money laundering and terrorist financing transactions are increasing largely on yearly basis however unable to eradicate them.