What is the Law on Money Laundering in South Africa?

Money laundering is perhaps the most iconic form of white-collar crime. It includes all the hallmarks of high society wrongdoings – little to no physical violence, large sums of dirty money moving from place to place, and enough financial trickery and bureaucracy to make it all seem above board. But is it? What does the law say about money laundering in South Africa and how is it even defined?

Money laundering is considered a serious offense in South African law, although many people are not entirely sure of the definition. This is understandable as some countries include things like terrorism financing into the terminology while others do not. 

The official definition of money laundering in South Africa as noted by the Prevention of Organised Crime Act of 1998 (POCA) is fairly broad so as to cover any possible interpretations. That said, it can be roughly summed up as an attempt to hide the origins of unlawfully obtained money (dirty money) and make it appear as though it came from a legal source.

Money laundering can most easily be understood by means of a hypothetical example – Let’s imagine you have a large sum of illegally obtained cash. If the authorities investigate you too closely, they’ll realize that something’s off, so you head to an art exhibition and purchase an extremely expensive painting. Now you’ve lost the illegal money but gained its worth in the form of the artwork. Next, you sell the painting to a rich buyer with legally obtained capital and now you’ve got your original amount of cash but it’s ‘clean money’.

Obviously, this is just one way in which dirty money can be moved around to hide its shady origins but any similar action would likewise be considered money laundering and would be highly illegal. Additionally, there are provisions in place to punish individuals who may attempt to assist money launderers.

How are Money Laundering laws Enforced?

South Africa has two main legislative systems in place to combat money laundering, namely, the Prevention of Organised Crime Act of 1998 (POCA) and the Financial Intelligence Centre Act of 2001 (FICA). While there is some crossover in the jurisdiction, the Acts usually work in the following way –

• POCA – Criminalizes the act of money laundering and any associated violations such as acting as an accessory to the crime.
• FICA – Establishes a system of ‘accountable institutions’ that have a duty to report instances of money laundering or suspected money laundering. To a certain extent, this act works in tandem with the Prevention and Combating of Corrupt Activities Act of 2004 (PCCAA) which also criminalizes certain individuals who refuse to report instances of money laundering that they encounter.

Simply put, FICA (and the PCCAA to a certain extent) makes the act of reporting illegal or suspicious activity a legal duty for certain individuals and institutes. Reports are then made to the Financial Intelligence Centre at which point they may investigate the matter. If evidence of money laundering is discovered, criminal proceedings can begin to prosecute the guilty parties.

What are the Penalties for Money Laundering in South Africa?

The maximum penalty that may be imposed for the crime of money laundering involves either a fine of up to R100 million rand or a prison sentence of up to 30 years. 

Related crimes which carry the same penalties include –

• Assisting in money laundering schemes
• Acquiring, possessing, or using funds that you could have reasonably known to have come from an illegal source

Separate penalties exist for those who are found guilty of failing to comply with the standards outlined by FICA. In other words, if a bank is found to have ignored suspicious activity to an unreasonable degree or refused to report instances of money laundering it may be found guilty of a crime. Such instances can carry fines and prison sentences of up to 15 years.

Is Not Reporting Money Laundering a Criminal Offence?

Technically speaking, there is no general legal duty in South Africa that would compel an individual to report a crime. That said, FICA along with the PCCAA both make special provisions for certain individuals in ‘positions of authority’ along with ‘accountable institutes’ when it comes to making reports.

These institutions are required by law to put into place certain measures which can help identify and undermine money laundering attempts. Additionally, such specified parties are also required to report instances of money laundering or even suspected instances. When inconsistencies go unreported, investigations will often determine whether or not the agency or individual could have reasonably known of, or reasonably suspected criminal behaviour.

All in all, this means that such groups cannot just claim ignorance when evidence of money laundering is identified. If it is decided that they could have reasonably known of, or could have reasonably suspected the crime, but chose not to report it, they may still be found guilty to a certain degree.

The exact definition of ‘suspicion’ in such circumstances is hard to pinpoint and highly contextual, though investigations usually take into account the position, skills, experience, and general knowledge of the individual in question.

What is a Money Mule and What does the Law say?

A money mule is a type of go-between for criminals and fraudsters. Dirty money gained from illegal activities is transferred to a ‘mule’ who then transfers the money to another account. This helps to hide the true origins of the dirty money and allows the criminals to use it without being easily traced.

Mules are sometimes in on the scheme and are paid a certain amount by the criminals for their role in the money laundering process. Oftentimes though, individuals are scammed or tricked into receiving dirty money without being aware of the true nature of their actions. These tricks include –

• Dating scams
• False offers of employment
• Account ‘borrowing’

Money mules are considered accessories to the crime of money laundering and are thus subject to the same penalties. Unfortunately, even unaware mules can sometimes be punished on money laundering charges.

What are the Indicators of Suspicious Transactions?

As mentioned, while it may be difficult to know about instances of money laundering, many people may suspect something without being absolutely sure of the crime. Some of the hallmarks for suspicious activity which may suggest money laundering include –

• Deposits of sums of money along with requests for immediate transfers
• Purchases that are significantly higher or lower than the market price
• Unnecessarily complex transactions
• Attempts to avoid completing relevant documentation for transactions
• Use of false documents and identification
• Use of vague information
• Sudden, extremely large deposits and withdraws

It should be noted that there is no value threshold for reporting suspicious activity. These instances may be reported to the relevant authorities even if the amount in question is relatively small.

In Conclusion – What is the Law on Money Laundering in South Africa?

Money laundering is the practice of hiding or disguising the origins of illicitly gained money in an attempt to make it seem as though it has been gained through legal means. It is a serious crime that can lead to high fines and lengthy prison sentences.

Money laundering is usually accomplished by moving dirty money through multiple transactions and accounts, thereby making its original origins harder to trace.

Apart from money laundering in the general sense, it is also illegal to support or in some way aid those involved in the practice. Additionally, acquiring, possessing or using funds that you could reasonably know to have been illicitly obtained is also illegal.

Such acts are punishable with fines of up to R100 million and prison sentences of up to 30 years. On the other hand, recognised authorities who ignore such acts or refuse to report on them can also be given high fines and prison sentences of up to 15 years.

While most citizens are not legally required to report crimes such as money laundering, certain individuals in positions of authority, as well as appointed institutions, are required to report such behaviour. Such institutes are also required to put certain practices into place which are aimed at curtailing the crime.

Money mules are groups or individuals who act as a type of proxy for money launderers. They usually accept and move the dirty money without having been part of the crime which procured it, thus making its origins harder to identify. Some money mules are paid for their services while others are tricked into the role by fraudsters. Sadly, even unwitting mules can be punished for assisting said money launderers. 

Disclaimer LAW101: All of our posts are for research purposes only. Law 101 aims to assist its readers with useful information on the laws of our country that can guide you to make decisions in line with the South African Governmental Laws currently in place. Although our posts cite the constitution in many instances, they are intended to assist readers who are looking to expand their knowledge of the law. Should you require specific legal advice we advise you to get in touch with a qualified legal expert.

Found this article interesting? Leave us your thoughts below.