Selected challenges associated with the reliance on customer due diligence measures to curb money laundering in South African banks and related financial institutions

• Published date: 30 June 2021
• DOI: https://doi.org/10.47348/JCLA/v8/i1a2
• Date: 30 June 2021
• Pages: 42-66
• Citation: (2021) 8(1) Journal of Comparative Law in Africa 42
• Author: Chitimira, H.

https://doi.org/10.47348/JCLA/v8/i1a2

42

SELECTED CHALLENGES ASSOCIATED

WITH THE RELIANCE ON CUSTOMER DUE

DILIGENCE MEASURES TO CURB MONEY

LAUNDERING IN SOUTH AFRICAN BANKS

AND RELATED FINANCIAL INSTITUTIONS*

Howard Chitimira†

Sharon Munedzi‡

Abstract

Customer due diligence is a means of ensuring that financial institutions know

their customers well through know-your-customer (KYC) tools and related

measures. Notably, customer due diligence measures include the identification and

verification of customer identity, keeping records of transactions concluded between

a customer and the financial institution, ongoing monitoring of customer account

activities, reporting unusual and suspicious transactions, and risk assessment

programmes. Accordingly, financial institutions should ensure that their customers

are risk assessed before concluding any transactions with them. The regulation of

money laundering is crucial to the economic growth of many countries, including

South Africa. However, there are still numerous challenges affecting the banks

and other role players’ reliance on customer due diligence measures to combat

money laundering in South Africa. Therefore, a qualitative research methodology

is employed in this article to unpack such challenges. The challenges include the

failure to meet the identification and verification requirements by some South

African citizens, onerous documentation requirements giving rise to other persons

being denied access to the formal financial sector, and the lack of express provisions

to regulate the informal financial sector in South Africa. Given this bac kground, the

article discusses the challenges associated with the regulation and implementation

of customer due diligence measures to enhance the combating of money laundering

in South African banks and related financial institutions. It is hoped that the

recommendations provided in this article will be utilised by the relevant authorities

to enhance customer due diligence and effectively combat money laundering

activities in South African banks and related financial institutions.

* This research article was supported in part by the National Research Foundation of South

Africa (NRF), Grant Number: 112115. In this regard, the authors wish to acknowledge and thank

the NRF for its valuable support. Moreover, the article was influenced in part by Sharon Munedzi’s

Master of Laws (LLM) thesis entitled: The reliance on customer due diligence to enhance the combating of

money laundering under the Financial Intelligence Centre Amendment Act 1 of 2017 (LLM dissertation,

North-West University, 2018) at 43–61. In this regard, Sharon Munedzi wishes to acknowledge the

expert input of Professor Chitimira.

† LLB, LLM (UFH), LLD (NMMU). Research Professor and Professor of Securities and

Financial Markets Law, Faculty of Law, North-West University.

‡ LLB, LLM (NWU), LLD candidate, Faculty of Law, North-West University.

(2021) 8(1) Journal of Comparative Law in Africa 42

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SELECTED CHALLENGES ASSOCIATED WITH THE RELIANCE ON CUSTOMER

DUE DILIGENCE MEASURES TO CURB MONEY LAUNDERING IN SOUTH

AFRICAN BANKS AND RELATED FINANCIAL INSTITUTIONS 43

https://doi.org/10.47348/JCLA/v8/i1a2

Keywords: money laundering, customer due diligence, high-risk customers,

low-risk customers, banks.

Résumé

La vérification préalable du profil des clients est un moyen de veiller à ce que les

institutions financières connaissent bien leurs clients en utilisant les outils et mesures

de la procédure de Connaître Votre Client (KYC) ainsi que des mesures connexes.

De manière générale, les mesures de vérification préalable du profil du client

incluent l’identification et la vérification de l’identité du client, l’enregistrement

des transactions conclues entre le client et l’institution financière, la surveillance

continue des activités du compte du client, le signalement de toutes transactions

inhabituelles ou suspectes, ainsi que les programmes d’évaluation des risques.

En conséquence, les institutions financières devraient veiller à ce que leurs clients

soient évalués en fonction du risque qu’ils peuvent présenter avant de conclure des

transactions avec eux. La réglementation sur le blanchiment de capitaux est cruciale

pour la croissance économique de nombreux pays, y compris l’Afrique du Sud.

Cependant, il existe encore de nombreux défis affectant la dépendance des banques

et autres acteurs du secteur sur les mesures de vérification préalable du profil des

clients pour lutter contre le blanchiment de capitaux en Afrique du Sud. C’est ainsi

que la méthode qualitative de recherche est utilisée dans l’ensemble de cet article

pour mettre de la lumière sur ces défis. Ces défis incluent l’incapacité pour certains

citoyens sud-africains à respecter les exigences d’identification et de vérification; des

exigences de documentation plutôt onéreuses qui rendent impossible l’accès d’autres

personnes au secteur financier formel; ainsi que le manque de dispositions expresses

pour réglementer le secteur financier informel en Afrique du Sud. Compte tenu de

ce contexte, l’ar ticle analyse les défis associés au règlement et à la mise en œuvre

des mesures de vérification préalable du profil des clients visant à renforcer la lutte

contre le blanchiment d’argent dans les banques sud-africaines et les institutions

financières connexes. Le souhait ici est que les recommandations faites dans cet

article soient utilisées par les autorités compétentes pour renforcer la vérification

préalable du profil des clients afin de lutter plus efficacement contre les activités de

blanchiment d’argent dans les banques sud-africaines et les institutions financières

connexes.

Mots-clés : blanchiment d’argent; vér ification préalable du profil des

clients; clients à haut risque; clients à f aible risque; banques.

Introduction

South Africa has satisfactorily managed to develop a comprehensive anti-

money laundering statutory regulatory enforcement framework for its

banks and other financial institutions from 1992 to date.1 This is evidenced

1 Van Jaarsveld, I.L. ‘Mimicking Sisyphus? An evaluation of the know your customer policy’

(2006) 27(2) Obiter 228 at 229–244.

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