Marelize Uys | Chief Sales Executive | Managed Integrity Evaluation (MIE) | mail me |
South Africa has been enlisted on the Financial Action Task Force’s (FATF) dreaded “Grey List” for over four months – fortunately, though, the country has not been standing still.
Significant new provisions are shaking up the corporate landscape and by comprehensively implementing stricter controls, the country can transition more quickly from the Grey List to the coveted “Whitelist.”
A worrying picture
Being placed on the FATF Grey List indicates that a country should take immediate action to address deficiencies in combating financial crimes, including anti-money laundering (AML) and counter-terrorist financing (CTF) activities. However, the growing sophistication of criminals and syndicates poses a formidable challenge to doing this as their crimes and audacious attacks become more intricate.
The Association of Certified Fraud Examiners (ACFE) Report 2022 paints a worrying picture of the extent of internal fraud: 2,110 cases were reported across 133 countries, with an astonishing 29% of the fraud cases caused by lack of internal controls. Its earlier report from 2020 noted that 43% of surveyed fraud cases were committed by insiders such as employees, managers or executives.
A similar picture emerged in PwC’s Global Economic Crime and Fraud Survey, conducted in 2020, which revealed that 47% of the reported economic crimes were committed by internal actors, including employees, senior management, or former employees.
An individual employee can potentially compromise the integrity of an entire organisation in terms of AML efforts in several ways such as insider threats, negligence or lack of awareness, collaboration with external parties, weak internal controls or a failure to report suspicious activities. From Steinhoff to the recent reports of a “Gold Mafia” running riot, the actions of senior and junior staff remain a major threat to the reputation and wellbeing of businesses in Africa.
Implementing robust internal controls
These statistics highlight the importance of implementing robust internal controls, anti-fraud measures and proactive risk management strategies.
Directors also have a fiduciary duty to act in the best interests of the company and its stakeholders, which includes taking reasonable steps to prevent and address internal fraud within the organisation.
The Financial Intelligence Centre’s new Directive 8 regulation is a good example of a practical solution that helps to close an organisation’s compliance gaps. This directive is aimed at mitigating the risk of accountable institutions being abused by criminals who are either prospective employees, current employees or who may influence employees.
In order to make robust compliance changes, the directive should be implemented within companies and other accountable institutions such as banks, long-term insurers, short-term insurers, pension funds, collective investment schemes, attorneys and any other entity engaged in financial activities.
Directive 8 holds the potential to decisively combat the corruption epidemic within South Africa’s corporate sector by addressing its root causes. Unsurprisingly, renowned for our reliability in background screening, qualification verification and criminal record checks, we are experiencing a surge in client demands for Directive 8 implementation.
The urgency to act is paramount
By committing to change and steadfast implementation, South Africa’s corporate sector will be significantly fortified to triumph over rampant fraud and corruption.
An essential part of complying with the directive’s requirements are for the organisation to establish a framework of regular testing and continuous monitoring. This includes establishing a systematic and documented approach to testing, with clear procedures and schedules in place.
Regular risk assessments, monitoring of internal controls, and independent reviews should be conducted to identify any weaknesses or deficiencies in the AML/CTF framework and take appropriate corrective actions. Ultimately, how often testing is done should be tailored to the specific circumstances and risks faced by each accountable institution.
Other proactive solutions are awareness training for all relevant industries, including comprehensive AML and CTF training for financial institutions, law enforcement personnel and regulatory officials so that they can effectively identify and investigate financial crimes.
Companies should also adopt a risk-based approach to AML and CTF measures, focusing resources on high-risk areas and entities. They should conduct thorough risk assessments and implement appropriate controls tailored to the specific risks faced by the country.
In conclusion
It’s crucial for companies to establish a strong compliance culture that promotes ethical behaviour, provides regular training and awareness programs, implements robust internal controls, encourages employees to report suspicious activities without fear of retaliation, and enforces strict disciplinary measures for non-compliance with AML policies and regulations.
While accountable institutions have many considerations, a strong commitment to compliance will result in future rewards. By expediting efforts to eliminate corporate crime, corruption and fraud, South Africa can minimise its time on the Grey List.
Although the burden of red tape involved in doing so can be frustrating and inevitably means higher costs, embracing this responsibility presents a unique opportunity for South African corporates to drive meaningful change and fortify their defences against evolving threats.
