The Sunday Times this past weekend revealed how terror funding got funnelled through locally owned money transfer systems. The two-month long investigation into the intricacies of the money flows exposed glaring holes in our financial vigilance systems. As a result, at least R400m in suspicious transactions took place between January 2020 and March 2021. Some of the money is believed to have gone to Isis leaders who orchestrated a series of bomb attacks in Kampala, Uganda two years ago that killed 11 people and wounded 39.
All this directly links back to the Financial Action Task Force’s decision to add South Africa to its greylist. A raft of recent interventions from the Financial Intelligence Centre (FIC) is aimed at improving measures to combat money-laundering and the financing of terror activities. However, as an expert pointed out on Sunday, none of our stringent regulations apply to non-monetary financial institutions — and this is how the terror funds are believed to flow out of the country.
Mama Money, for example, a remittance provider set up to allow low-cost money transfers between African countries, has no way of checking whether the cellphone numbers used to transfer the money are registered in terms of Rica and Fica regulations. The money transfer operator does not have access to the home affairs database to verify information such as identity documents regarding foreign nationals in South Africa. Also, Mama Money does not have access to the Rica database to check if a phone number provided by a customer matches the mobile network operator’s records.
To make it even easier for the criminals, there are also no regulatory requirements for money transfer operators to check whether a customer’s cellphone number is Rica compliant.
Adding fuel to the fire, anti-money laundering regulations do not require origin of funds declarations for transactions below R5,000. In the Sunday Times investigation, our reporters found that between January 2020 and March 2021 a total of R6.3bn moved out of the country through the use of 56,967 cellphone numbers. Some of this money was moved as small amounts to avoid detection.
Mama Money used Selpal, a fintech company now owned by First National Bank, as its pay-in-provider. While Selpal is owned by FNB, the bank told Sunday Times that Selpal was not required under the FIC Act to register as an accountable institution and that FNB was not involved in its day-to-day operations.
Neither the FIC nor the SA Reserve Bank responded in detail to questions from the Sunday Times on the money flows and if these were being investigated. Mama Money said it reported red flags to the FIC in 2020 but we do not know if this was acted upon.
All the factors above should be taken up urgently by our regulators and lawmakers. It is clear from the Sunday Times investigation that even though SARB’s regulatory regimes around financial institutions are very tight, there is an informal economy running in parallel which is unregulated and often unchecked. There are many other third-party remittance providers such as Mama Money, but still, the most widely used are the informal remittance systems such as the Hawala money transfer system. Until we can plug the loopholes in these systems, SA will remain on the greylist, which could ultimately place more restrictions on financial interactions with other countries. And by implication, it makes SA a party to terror financing, the last place on earth we want to be.
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