The regulation of cryptocurrencies to combat money laundering crimes in South African banking institutions

• Jurisdiction: South Africa
• Date: 01 June 2023
• Pages: 354-375
• Author: Princess Thembelihle Ncube,Ruddy Kabwe
• Published date: 01 June 2023
• DOI: 10.17159/2225-7160/2023/v56a22

354 2023 De Jure Law Journal

The regulation of cryptocurrencies to

combat money laundering crimes in South

African banking institutions

Princess Thembelihle Ncube

LLB LLM LLD

Lecturer, Department of Mercantile of Law, University of Pretoria

Ruddy Kabwe

LLB LLM

Attorney of the High Court of South Africa

Lecturer, Department of Mercantile Law, University of Pretoria

SUMMARY

Cryptocurrencies have become an increasingly popular means of

conducting financial transactions globally, and South African banking

institutions have not been immune to this trend. However, the

pseudonymous nature of cryptocurrency transactions has made it an

attractive tool for money laundering activities. In response, there is a

growing need for South African regulators to establish a legal framework to

regulate the use of cryptocurrency to combat money laundering crimes by

banking institutions. While the recent amendments to the Financial

Intelligence Centre Act 38 of 2001 (as amended) regarding

cryptocurrencies are commendable, it is not without deficiencies. The

purpose of this article is threefold. First, it examines the current state of

cryptocurrency regulation in South Africa. Second, it explores the

vulnerabilities that expose the banking system to money laundering using

cryptocurrencies. Third, it highlights the need for further development and

implementation of regulatory measures to address vulnerabilities

identified in this article. This article argues that the current lack of a

comprehensive regulatory framework for cryptocurrencies in South Africa

leaves the banking system open to potential abuse. The article suggests

that South African regulators should focus on three key areas to combat

money laundering activities related to cryptocurrency. First, regulatory

measures should be implemented to identify and verify the identities of

cryptocurrency traders and investors. Second, measures should be put in

place to monitor the flow of cryptocurrency transactions and detect

suspicious activities. Third, the digital wallets of crypto users should be

managed by South African banking institutions.

How to cite: Ncube & Kabwe ‘The regulation of cryptocurrencies to combat money laundering crimes in South

African banking institutions’ 2023 De Jure Law Journal 354-375

http://dx.doi.org/10.17159/2225-7160/2023/v56a22

Regulation of cryptocurrencies to combat money laundering crimes 355

1Introduction

Money laundering refers to any practice in which illicit perpetrators

conceal the original ownership and control of their criminal proceeds by

making them appear to have come from legitimate sources.1 According

to the Financial Intelligence Centre Act 38 of 2001 (as amended) (FICA),

money laundering is illegal in South Africa.2 However, very few money

laundering cases have been settled or prosecuted by the Financial

Intelligence Centre (FIC) since FICA’s promulgation. Money laundering is

a serious issue that has a negative impact on economies, societies, and

financial systems.3 The current laws and regulations in South Africa aim

to prevent and combat money laundering activities, but their adequacy

is still a matter of debate. On the other hand, cryptocurrencies have

emerged as a popular mode of payment and investment across the

globe, and South Africa is no exception. The decentralised nature of

cryptocurrencies makes them susceptible to money laundering crimes.

South African banking institutions have been at the forefront of

addressing this issue by implementing regulations to combat money

laundering crimes. The regulation of cryptocurrencies in the South

African banking sector is a crucial step toward ensuring a transparent

and secure financial system.

Cryptocurrencies have become an increasingly popular tool for

conducting financial transactions in recent years.4 However, this

popularity has also led to concerns about their use in illegal activities,

such as money laundering. In response, many countries, including South

Africa, have begun to regulate cryptocurrencies to combat money

laundering. South African banking institutions have been particularly

1 Burchell “Organised Crime and Proceeds of Crime Law in South Africa,

Albert Kruger: Book Review” 2010 SAJCJ 177. S 1 of the Financial

Intelligence Centre Act 38 of 2001 (as amended) (FICA) defines “money

laundering” as “an activity which has or is likely to have the effect of

concealing or disguising the nature, source, location, disposition or

movement of the proceeds of unlawful activities or any interest which

anyone has in such proceeds and includes any activity which constitutes an

offence in terms of s 64 of this Act or [ss] 4, 5 or 6 of the Prevention Act.”

2 S 4 of the Prevention of Organised Crime Act 121 of 1998 (POCA).

3 For example, money laundering negatively impacts the private sector by

using front companies to disguise illegal proceeds, leading to a loss of

control over economic policy as it affects 2 – 5% of the world’s GDP. It also

affects the financial system as launderers reinvest in less detectable

schemes resulting in the misallocation of resources and monetary

instability. Money laundering can cause economic distortion and

instability, exposing recipient countries to reputation risk. It also makes tax

collection difficult while reducing a country's revenue. See Fundanga “The

role of the banking sector in combating money laundering” 2003 https://

www.bis.org/review/r030212f.pdf (last accessed 29 March 2023) at 2; Van

Jaarsveld Aspects of money laundering in South African law (LLD thesis 2011

UNISA) 193-200; McDowell “The consequences of money laundering and

financial crime” 2001 Economic perspectives 6-8.

4 Erasmus and Bowden “A Critical Analysis of South African Anti-Money

Laundering Legislation with Regard to Cryptocurrency” 2020 OBITER 310.