The Extent and Security Implications of Money Laundering in South Africa
Moodley, Maiendra, Strategic Review for Southern Africa
Money laundering presents challenges to legislators, both in South Africa and globally, considering that its use ranges from criminal syndicates profiting from criminal activities, to financiers of terrorist activities. By using South Africa as an example, it is indicated how the extent and security implications of money laundering undermine the legitimate private sector and lead to increased criminal activity and corruption. In order to effectively address the problem of money laundering, legislators must understand how confiscation and seizure, intended to discourage criminal syndicates and terrorist financiers, are treated as 'operational costs'.
A critical challenge to understanding the impact of money laundering is that its clandestine nature makes it difficult to observe. In certain instances, this distinctive feature of money laundering requires that the casual relationship or consequences thereof be identified by means of inference. Based on these inferences, it is possible to identify the extent and the security implications of money laundering in South Africa.
1.1 Definitions of money laundering
Money not associated with criminal activity can be freely spent without any fear of incriminating the spender or the recipient as being party to any criminal misdeeds. With the possible exception of minor crimes where criminals steal for sustenance or instances when collectors of rarities purchase stolen antiquities for their private collections, it remains inherent in any criminal undertaking that the proceeds of the criminal activity will have to be carefully disguised. The process of meticulously applying this disguise forms the basis of money laundering.
Money laundering has been defined as the "transferring (of) illegally obtained money or investments through an outside party to conceal the true source". (1) In South Africa, money laundering is more broadly defined in legislation as being "virtually every actor transaction that involves the proceeds of crimes, including the spending of funds that were obtained illegally". (2) This implies that the definition of involvement in money laundering can be extended to include participation in suspicious transactions, or even the failure to implement money laundering countermeasures.
The variations that exist in the definitions or interpretations of money laundering pertain not to the actual meaning of the term 'money laundering' itself, but rather to the transactions that could be indicative of money laundering. In practice, these variations and related transactions are stipulated in the relevant legislation which varies across different jurisdictions. For example, the Bahamas or the Cayman Islands are "usually cited as money laundering havens" because of their "tax regimes that are structured differently". (3) Money laundering therefore becomes easier when poorly structured legislation creates loopholes that can be exploited by criminal syndicates and sponsors of terrorism to disguise the sources of the funding of these illegal activities.
1.2 The process of money laundering
The process of money laundering has the following unique stages, namely placement, layering and re-integration. (4)
Placement is the initial stage in the money laundering cycle in which the funds obtained from illegal activities are introduced into the legitimate financial market. (5) Some of the more common ways of placement are the exchange of currency for smaller denominations that will make it easier to utilise, transport or conceal, or the use of multiple deposits involving small amounts in different bank accounts. (6) Other money laundering strategies include the use of representative offices of foreign banks, international 'houses' or 'sub accounts'--that are maintained by banks on behalf of their clients--for the funnelling of funds through casinos or unregulated Asian games such as Pai-Gow. …