117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS

CURRENT SITUATION AND COUNTERMEASURES AGAINSTMONEY LAUNDERING IN SOUTH AFRICA
Ronel Van Wyk *I. INTRODUCTION
South Africa moved into an entirely new
dispensation with a new democraticallyelected government that came into power
on 27 April 1994. The return of South
Africa to the international arena, thederegulation of financial markets andadvances in communications technology
have brought a dramatic increase inorganized crime in the Republic. With agrowing awareness of the threat presentedb y d i r t y m o n e y, S o u t h A f r i c a h a s
introduced certain measures to protect
itself. Certain objectives have been reached
and a comprehensive legislative framework
to combat money laundering was developedin a fairly short period of time.
II. DEFINITION
Various definitions can be given formoney laundering, each designed to fit a
specific set of circumstances in whichmoney laundering is taking place. In its
simplest form money laundering can be
defined as the manipulation of money orproperty in order to misrepresent its true
source or nature.
III. THE FINANCIAL ACTION TASKFORCE (FATF)
South Africa is not a member of the
Financial Action Task Force. However, themajor financial centre countries of Europe,
North America and Asia are members andhave adopted the forty recommendations* National Coordinator, Project Investigations
Commercial Branch Head Office, Detective Service
South African Police Service, South Africa

as a standard for an effective money
laundering control strategy. These
countries will therefore measure South
Africa’s money laundering control strategy
against the forty recommendations.
Furthermore, the FATF has alreadyembarked on projects involving South
Africa and there is distinct possibility that
South Africa will become involved in the
FATF.
IV. DEVELOPMENT OFLEGISLATION IN SOUTH AFRICA
A. The Drugs and Drug Trafficking
Act, 1992 (Act No 140 of 1992)
The first set of money laundering
legislation in South Africa came into
operation on 30 April 1993. Moneylaundering was originally criminalized in
the Drugs and Drug Trafficking Act, 1992
(Act No 140 of 1992). The Act criminalizedinter alia the laundering of proceeds ofspecific drug-related offences and required
the reporting of suspicious transactions
involving the proceeds of drug-related
offences. It also provided mechanisms for
restraining and confiscation orders in
respect of such proceeds and forinternational assistance regarding theenforcement of foreign confiscation orders
in respect of the proceeds of drug-related
offence.
B. The Proceeds of Crime Act, 1996
(Act No 76 of 1996)
The general offence of money laundering
was later included in the Proceeds of Crime
Act, 1996 (Act No 76 of 1996). The Proceedsof Crime Act criminalized the launderingof the proceeds of any type of offence. The

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Act came into effect on 16 May 1997 andprovided, inter alia, for the confiscation of
the proceeds of crime in general. It createda general reporting obligation forbusinesses coming into possession of
suspicious property and also madeprovision for the freezing and confiscationof the proceeds of crime. The misuse of
information, the failure to comply with anorder of court in terms of the Act andhindering a person in the performance of
his or her functions under the Act was also
criminalized.
C. The Prevention of Organized
Crime Act, 1998 (Act No 121 of
1998)
Money laundering has been declared acriminal offence in South Africa in termsof the Prevention of Organized Crime Act,
1998 (Act No 121 of 1998)(POCA) whichcame into operation on 21 January 1999.
The Prevention on Organized Crime Act:
• Criminalises racketeering and creates
offences relating to activities ofcriminal gangs.
• Criminalises money laundering in
general and also creates a number ofserious offences in respect of thelaundering of the proceeds of a patternof racketeering activity;• Contains the general reporting
obligation for businesses acquiring
suspicious property;• Contains mechanisms for criminal
confiscation of proceeds of crime andfor civil forfeiture of proceeds andinstrumentalities of offences;• Allows the National Director of Public
Prosecutions to obtain information for
purposes of an investigation under the
Act from any statutory body, andcreates• mechanisms for co-operation between
the investors and the Commissionerof the South African Revenue

420

Services.
Amendments to address certain flaws in
the Act were effected by the Prevention ofOrganized Crime Amendment Act, 1999
(Act No 24 of 1999) and the Prevention ofOrganized Crime Second Amendment Act,
1999 (Act No 38 of 1999).
Section 2 of the Prevention of Organized
Crime Act makes provision for seven (7)offences relating to racketeering activities.
This section is largely based on the RICO
(Racketeering Influenced and Corruption
Organisations) legislation of the UnitedStates. The purpose of declaring these
activities to be offences is to prevent the
infiltration and contamination oflegitimate enterprises by organizedcriminals and to prevent them fromacquiring any interest in theestablishment, operation or activities ofsuch enterprises.
Section 4 of the Act addresses the offenceof money laundering. This section applies
to any act committed in connection withproceeds of crime by a person who
appreciated or should have appreciated theillicit nature of the property, if it assists or
is likely to assist the criminal to avoid
prosecution or to hide, remove or diminish
the proceeds.
Section 5 of the Act prohibits any conduct
facilitating the retention or control of theproceeds of crime by another person, or
benefiting person. In terms of section 6 noone may acquire, use or possess theproceeds of crime unless he has reported
his suspicion to the reporting body.
The offence of money laundering, andrelated offences in terms of section 5 andsection 6 were previously dealt with by theProceeds of Crime Act, 1996 (Act No 76 of
1996), except for the fact that is now clearthat the offences can be committed
intentionally or through negligence. This

117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS
was done by substituting the phrase“knowing or having reasonable grounds tobelieve” in the Proceeds of Crime Act withthe phrase “knows or ought reasonably tohave known” in the Prevention ofOrganized Crime Act.
Section 7 of the Act imposes a reporting
duty on all persons conducting a businessor who are in charge of a businessundertaking and who suspect or oughtreasonably to have suspected (intention or
negligence) that:(i)any property which comes into his
or her possession or the possessionof the business undertaking, is orforms part of the proceeds of
unlawful activities;(ii) a transaction to which he or she or
the business undertaking is aparty will facilitate the transfer ofthe proceeds of unlawful activities;or(iii) a transaction to which he or she or
the business undertaking is aparty and which is discontinued:(a) may have brought the proceedsof unlawful activities intopossession of the person orbusiness undertaking: or(b) may have facilitated the transferof the proceeds of unlawful
activity, had that transaction
been concluded
The Act stipulates that the suspicion, as
well as all available information concerning
the grounds on which it rests, must bereported within a reasonable time to aperson designated by the Minister ofJustice. The designated person is theCommander of the subcomponent:
Commercial Crime Investigations, Head
Office of the South African Police Service.

The Proceeds of Crime Act was
problematic in the sense that businessundertakings that reported suspicioustransactions were refusing investigating
officers access to documents or records
listed in their report. These documents orrecords had to be obtained by means of anorder issued in terms of section 205 of the
Criminal Procedure Act, 1977 (Act No 51
of 1977), which, in many instances,seriously hampered and delayed moneylaundering investigations.
Section 7 of the Prevention of Organized
Crime Act, largely negates section 205
orders as a prerequisite for access to bankrecords. The Commander: Commercial
Branch can henceforth, in writing, require
the person/business making the report toprovide him with particulars “of any matter
concerning the suspicion to which thereport relates and the grounds on which it
rests”. The Commander may also instruct
the person or the business making thereport, to provide him with copies of allavailable documents concerning
particulars or further particulars. Persons
conducting a business or who are in chargeof businesses are rendered criminally liable
for failure to report their suspicions or tocomply with any other obligation
contemplated in section 7.
A person who knows or ought reasonably
to have known that a report has been made,commits an offence in terms of section 75(1)if he or she brings information to theattention of another person, which is likely
to prejudice an investigation.
No restriction on the disclosure of
information, whether imposed by any
statutory law, the common law or any
agreement, relieves the person of thisobligation, unless it can be classified under
the narrow heading of attorney-client
privilege.

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Failure to comply with the reporting
obligation constitutes an offence for which
a person is liable to a fine or to
imprisonment for a period not exceeding
15 years. A person who is convicted of amoney laundering offence under section 4,5
or 6 of the Act is liable to a maximum fineof R100 million ($13 192 612) or to
imprisonment for a period not exceeding
30 years. Although the Proceeds of Crime
Act was repealed by the Prevention ofOrganized Crime Act, some of its provisions
may still be enforced.
D. A Proposed Financial
Intelligence Centre (FIC) BillA Financial Intelligence Centre Bill will
be tabled before the Parliament of South
Africa, probably in 2001. The object of theBill is to complement the Prevention ofOrganized Crime Act, 1998 (“POCA”) byintroducing mechanisms and measures
aimed at preventing and combating money
laundering activities. The essence of the
new legislation is that it places the
responsibility for detecting potentially
illegal activities on accountable
institutions.
The proposed Bill will inter alia provides
for the establishment of a Financial
Intelligence Centre (FIC) that will, among
other things, act as a centralised repository
and analyst of certain cash and suspicioustransactions. It will be an independent
statutory body, outside the Public Service
but within the public administration, as
envisaged by section 195 of theConstitution of South Africa, accountable
to the Minister of Finance. It will create aframework of laws and regulations tocontrol the way in which accountable
institutions conduct their business as far
as record keeping, reporting, staff, training
and compliance requirements areconcerned. The Bill will also impose certain
duties, such as the duty to identify clients,
the duty to keep records of transactions and422

the duty to report certain transaction to
the FIC, on institutions that may be used
for money laundering purposes. The FIC
will not be an investigative body. The
structure of the Centre has not been
decided on.
E. Other Legislation
Legislation which will help in the fightagainst money laundering, includes theInternational Co-operation in Criminal
Matters Act, 1996 (Act No 75 of 1996) andthe Extradition Amendment Act, 1996 (ActNo 77 of 1996). These Acts deal withmatters relating to the obtaining ofevidence from foreign states, supplying
evidence to foreign states, transferring theproceeds of crime, the carrying out of
foreign penal orders and sentences andextradition.
Apart from statutory measures, ourcommon law and existing law containcrimes and other provisions that may still
be employed by investigators andprosecutors in money laundering cases, eg:
(i)
(ii)

Fraud
Conspiracy in contravention ofsection 18(2) of the Riotous
Assemblies Act, 1956 (Act No 17 of
1956).
(iii) C o m p l i c i t y ( e i t h e r a s a n
accomplice or accessory after thefact); and(iv) Defeating, or attempting to defeat
the ends of justice.
V. TYPES OF MONEY
LAUNDERING SCHEMES IN
OPERATION
Much research is still required on money
laundering in South Africa. Statistics on
the magnitude of money laundering are notreadily available. Information on the main
methods employed by money launderers atpresent is also mainly anecdotal. However,117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS
the following tentative observations can bemade about money laundering methods inSouth Africa:(i)

It appears that the informal
business sector is often abused formoney laundering. Front
businesses that are often
conducted include shabeens, taxi
operations and micro-lending
businesses.
(ii) Casinos were used extensively inthe past and some instances oflaundering still occur in thegambling industry.
(iii) Gold, jewellery, real estate, luxury
vehicles and furniture are oftenbought to wash money.
(iv) Professionals are sometimes
involved in money laundering
schemes. An investigation which
was conducted by an appointed
commission, showed an increase in
the use of attorneys’ trust accounts
for money laundering purposes.
(v) Cases are still often encountered
where hot money was deposited inbank accounts or washed bybuying insurance or other financial
instruments.
(vi) Electronic wire transfers to andfrom South Africa.
VI. NUMBER OF MONEY
LAUNDERING CASES IN SOUTH
AFRICA (EXCLUDING CASESREGISTERED AS ENQUIRIES)
A. Cases In Terms Of The Drugs And
Drug Trafficking Act
Although cases were investigated interms of this Act there has been noconvictions for money laundering.
B. Cases in terms of the Proceeds ofCrime Act
Four (4) cases were registered in termsof this Act. Three cases are still underinvestigation.
C. Cases in Terms of the Preventionof Organized Crime Act
Three (3) cases were registered in termsof this Act. One case is still underinvestigation. In two cases that are before
the court at present the suspects arecharged with fraud and with
contraventions of section 4 of thePrevention of Organized Crime Act, 1998
(Act No 121 of 1998). There has, however,not been any conviction for money
laundering in terms of the Prevention ofOrganized Crime Act.
VII. TRANSNATIONAL ORGANIZEDCRIMINAL GROUPS AND THEIRACTIVITIES
Gangsters have identified South Africa
as a fresh innocent market for money
laundering and international crime. The
opening of South African borders has
spurred dramatic growth in crime. With
globalisation, launders now have theability to manipulate financial systems tomove large sums of money across the world.
It is estimated that R200bn ($26 billion)
in drug money finds its way into thefinancial system annually.
VIII. ASSETS CONFISCATION
Chapter 5 of the Prevention of Organized
Crime Act, 1998 (Act No 121 of 1998) deals
with the confiscation procedures that haveto be followed to confiscate the proceeds of
unlawful activities. Apart from thecriminal confiscation procedure, thePrevention of Organized Crime Act also
introduced a civil forfeiture procedure.
Important differences between the criminal
confiscation procedure and the civil
forfeiture procedure include the following:(i)

The criminal confiscation
procedure focuses on the criminal
benefit that a person obtained

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through unlawful activities. The
civil forfeiture procedure can also
be used to forfeit such criminal
benefit, but, in addition, allows theforfeiture of property that aided
the commission of an offence.
(ii) T h e c r i m i n a l c o n f i s c a t i o nprocedure follows upon theconviction of a person for an offence
that gave rise to criminal benefit.
No conviction or even prosecutionof any person is required fortainted property to be forfeited.
(iii) A successful criminal confiscation
procedure results in a court order
requiring the defendant to pay a
specific amount to the State, whilea successful civil forfeitureprocedure results in an orderforfeiting the specific property to
the State.
In terms of civil forfeiture the State may
seize and forfeit property merely byshowing that there are reasonable grounds
to believe that the properties concerned isan instrumentality of an offence referred
to in Schedule 1 or is the proceeds of
unlawful activities. Proceeds or the
instrumentality of an offence can,therefore, be confiscated and forfeited
without a conviction being a prerequisite.
Civil recovery of property does, however,not imply that the State can seize andforfeit property at will. The National
Director of Public Prosecution may apply
to a High Court for an order forfeiting to
the State.
The Act provides for two mechanisms todeprive the criminal of his ill-begotten
gains. These mechanisms are the so-called“restraint order” and the “confiscation
order”. A restraint order is a proactive
measure to conserve property, thereby
prohibiting a person from dealing in any
manner with any property to which theorder relates. A restraining order can only424

be made by the High Court of South Africa.
Only the National Director of Public
Prosecutions may apply to the High Court
to have a restraining order imposed.
Property which was instrumental in thecommission of a Schedule 1 offence or
which are the proceeds of unlawful
activities may only be seized by a police
official if the High Court has made a
specific order authorising the seizure of theproperty concerned by a police official.
Such an order may only be made once theHigh Court has made a preservation ofproperty order which is a freezing order,
prohibiting any person from dealing in any
manner with such property. The order can
only be granted following an application of
the National Director of Public
Prosecutions to the High Court.
If the court finds that the defendant
benefited from crime, the value of theproceeds of the defendant’s unlawful
activities is determined. Section 9 of the
Act provides that the value of a defendant’s
proceeds of unlawful activities is the sumof the values of the payments or otherrewards received by him or her at any time,
whether before or after the commencementof the Act. Section 15 of the Act prescribes
how the value of specific property, otherthan money, must be determined. Chapter
7 of the Prevention of Organized Crime Act
makes provision for the establishment of a
Criminal Assets Recovery Account to which
all moneys derived from the execution ofconfiscation and forfeiture orders will be
paid.
Civil recovery is undertaken by the Asset
Forfeiture Unit. The Unit was created interms of the National Prosecuting
Authority Act, 1998 (Act No 32 of 1998).
This Unit is headed by a Special Director
and is located in the Office of the National
Director of Public Prosecutions. The
mandate of the Unit is to:117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS(i)develop detail policy guidelines forforfeiture proceedings;(ii) institute forfeiture proceedings;
and(iii) co-ordinate the management ofassets subjected to restraining
orders.
Assets that have been confiscated thus
far in terms of the Act include, among other,several houses, luxury vehicles andfurniture that amounts to millions of rand.
Criminal investigations are pending
against the persons from whom theseassets were confiscated.
IX. THE REPORTING OFSUSPICIOUS TRANSACTIONSThe Prevention of Organized Crime Act
creates a general reporting obligation in
respect of suspicious transactions. A
suspicious transaction will often be one,which is inconsistent with a customer’s
known legitimate business or personal
activities or with the usual business forthat type of account. Whether that
suspicion is reasonable will depend on theparticular context and circumstances andthe client’s profile.
A. Prescribed Form of the Report
The report must be in writing and mustcorrespond substantially with the form
prescribed in the Prevention of Organized
Crime Regulations, 1999. The report must
contain the full particulars of:
(i)
(ii)

the person making the report;
the person against whom thesuspicion has been formed, in so far
as such particulars are available;(iii) the transaction or other action
whereby the property concerned
has come into the possession of theperson making the report; and(iv) the property concerned.

It must also set out the grounds on which
the suspicion rests and indicate what
documentary proof is available in respectof the transaction or action and in respectof the grounds for the suspicion. The reportmust be accompanied by copies of
documentation that are directly relevantto that suspicion and the grounds on which
it rests. The report must be handed or
faxed to the designated person or any
official of the subcomponent.
The Commander of the Commercial
Crime Investigations may, in writing,require the reporter to provide him withparticulars or further particulars on any
matter concerning the suspicion and thegrounds on which it rests, as well as copiesof all available documentation concerning
such particulars. If the person has therequired information or documentation, hemust comply with the request within areasonable time.
B. Analysis of the Reports
Analysis of the reported transactions is
the responsibility of the South African
Police Service. Reports made to Head
Office are analysed by designatedpersonnel. A reference number is allocatedto a report and an acknowledgement ofreceipt is sent to the reporting institution.
If the report meets the requirements interms of the Act and the regulations, thereport is sent to the Commercial Crime
Units of the Commercial Branch of theSouth African Police Service forinvestigation. The units concerned arerequested to provide Head Office with areference number and the particulars of theinvestigating officer within ten days after
the report has been received at their unitsr e s p e c t i v e l y. T h e o u t c o m e o f t h einvestigation must be reported to Head
Office after completion.

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C. A Case Involving the Cooperationof a Financial Institution in
Providing Information on
Suspicious Financial
Transactions
1. The State versus Jumnalalall
Bantho and Parshan Bantho
In 1997, a bank in South Africa reported
a suspicious transaction in terms of thethen Proceeds of Crime Act to the South
African Police Service. Further
investigations revealed that a person was
regularly depositing large sums of cash into
his private banking account and that
another person was depositing someconsiderably smaller amounts into the
trading bank account of a close corporation.
One of the suspects was requested to givean explanation of the deposits. He
informed the investigating officer that hehad a secondhand clothing business. He
said that he bought clothing stock from acompany in Swaziland and that he sold his
stock to hawkers and persons from theTranskei, a former homeland. He statedthat his turnover did not exceed R40 000,00($5 333) a month and did not have anyother source of income. He admitted that
he did not have an import permit from
Swaziland.
When the bank documents wereperused, it transpired that the accused had
deposited a sum of R 580 930,00 ($77 457)
in cash into his own bank account in August
1997. The suspect could not give an
explanation, as this amount had not been
deposited into his business account which
was held at another branch. It was further
established that the accused had a second
private account held at another bank inwhich he held R 901 000 ($120 133). He
withdrew money and transferred themoney to other accounts.
It was further established that Parshan
Bantho also had a number of vehicles and426

a house, of which the market value is R380000 ($50 666). There was a bond on thehouse to the value of about R220 000,00($29 333). Parshan Bantho only had thebusiness for about two years, and it would
not have been possible to accumulate theabove assets in a legitimate way. It was
believed that the assets were the proceedsof crime. Although the case was also
investigated in terms of the then Proceedsof Crime Act, the accused was found guilty
on charges of contraventions of the Importand Export Control Act, 1963 (Act No 45 of
1963).
X. COOPERATION BY BANKS AND
OTHER FINANCIAL INSTITUTIONS
Reporting institutions have identified asingle reference point within theirorganisation to which their staff must
report suspected money launderingtransactions promptly. These reports areevaluated by a qualified person within theinstitution and suspicious activities arereported to the South African Police
Service. The banks in South Africa haveacknowledged the fact that they have todevelop their own defence mechanisms
against money laundering activities. This
involves knowing the customer and his or
her business, refusing to act for customers
in suspicious transactions and determiningof the true ownership of all their accounts
and safe-custody facilities. The staff ofinstitutions are encouraged to co-operate
fully with the law enforcement agencies
and provide prompt information on
suspicious transactions.
In 1996 the Money Laundering Forumof South Africa was set up to createchannels of communication between
organisations in the private sector and thepolice. Matters of mutual importanceconcerning money laundering are
discussed during meetings.

117TH INTERNATIONAL SEMINARPARTICIPANTS’ PAPERS
XI. OTHER ANTI-MONEY
LAUNDERING SYSTEMS/STRATEGIES
A. Intelligence Gathering and the
Capturing of Information on
Database
Information on suspicious activities andpersons is fed to a database of the South
African Police Service. The Individual
Structuring Information System (ISIS) isa database on which records and storesinformation in respect of suspect gangs,
syndicates, organisations and activities of
persons for enquiry purposes and thecombating of organized crime. Informationon persons against whom suspicions havebeen formed and their activities, in so far
as particulars are available, is fed to thisdatabase.
B. Establishment of an
Investigating Unit to Combat
Financial Crimes
It is envisaged that an Investigating
Unit that will be responsible for theinvestigation of reported suspicioustransactions and all money launderingcases, which may flow from the information
received will be established in 2001. The
Investigating Unit will be included under
the structures of the Commercial Branchof the South African Police Service. This
team will gather information on suspicioustransactions and proceed with further
investigations in this regard.

XII. INVESTIGATION OF MONEY
LAUNDERING IN SOUTH
AFRICA (METHODS OF
CONTROLLED DELIVERY AND
UNDERCOVER OPERATIONS)In the investigations which have thus
far been conducted in South Africa in termsof money laundering methods of controlled
delivery and undercover methods have notbeen used.
XIII. CONCLUSION
The most dangerous consequence ofmoney laundering schemes is that it places
vast amounts of money in the hands ofcriminals and enables them to put suchamounts to further illegal use. Regulatory
measures must be introduced to combat
money laundering by means of proactive
and preventive action. However, the key
to effective money laundering prevention
is recognition. It is important for financial
institutions to recognise those situations
in which money laundering might actually
be occurring. It is further a truism to saythat legislation is only effective as its
enforcement.

C. Sharing of Information
Section 73 of the Prevention ofOrganized Crime Act provides that theCommissioner of the South African
Revenue Service must be notified of any
investigations in terms of the Act,notwithstanding secrecy provisions inincome tax legislation, with a view tomutual cooperation and the sharing of
information regarding possible money
laundering activities.

427