Table 3. Strategic deficiencies and... | Emerald Publishing

Table 3.

Strategic deficiencies and media coverage of crimes

Shortcomings in South Africa combatting TBML	Quotes and extracts from media reports and publications	References
(1) The country’s inability to pursue money laundering and terrorist financing is not aligned with its risk profile
The Judicial Commission of Inquiry, headed up by Judge Raymond Zondo, investigated allegations of State Capture from 2018 to 2022. The amount lost to state capture is estimated at US$17bn. A meagre attempt has been displayed to prosecute perpetrators and recover losses associated with state capture.	South Africa "lost R1.5 trillion to corruption in five years and continues to bleed” “Past poor policy decisions, inadequate maintenance, mismanagement, and state capture have left our electricity system in a state of real disrepair”. “The president says almost R3bn has been recovered from companies that had captured the power utility, while a further R5bn is being clawed back through legal processes.” “Whilst the conviction rate is high for money laundering cases prosecuted, the number of money laundering cases prosecuted from the referrals made is relatively low, averaging 15%.”	(Andrews, 2018; Buthelezi, 2021; FATF, 2021c; Madisa, 2022)
(2 )The country’s inability to proactively seek international cooperation
During the period of state capture, funds were expatriated to various jurisdictions without consideration of the suspicious nature of the transaction. The Bank of Baroda, based in India, failed to report highly suspicious activity on the respective accounts, enabling them to continue money laundering activities crippling the South African economy. The South African Reserve Bank (SARB) subsequently detected this activity. Limited international cooperation was visible in avoiding or flagging the fraudulent crimes linked to state capture and the repatriation of illegal financial flows.	“Paul holden testified to the commission and submitted thousands of pages of evidence that tracked, in fine detail, the flow of funds out of state-owned entities through corrupt contracts, into the guptas South African money laundering vehicles, and then offshore through laundering networks in jurisdictions like Hong Kong and the UAE.” “Estina was paying companies in the United Arab Emirates with no experience in farming. Much of the money was purportedly for a Free State farming venture.” “HSBC was central in providing the banking facilities—particularly to Tequesta and Regiments Asia in Hong Kong—that facilitated laundering the kickbacks from the Transnet deal for 1,064 locomotives.”	(Ensor, 2023; Marchant, 2022)
(3) An inability and lack of transparency in identifying PEPs
The FATF found that accountable institutions have a limited responsibility to identify PEPs. Financial institutions do not consider clients’ risk profiles at onboarding. This factor, coupled with the inability to verify beneficial ownership and transparency over corporate ownership, contributes to corruption.	“Parliament failed to exercise effective oversight between 2009 and 2017, and the majority of members largely chose to ignore the many red flags and did not hold the President and Ministers to account.” “The worst legacy of state capture is that it not only changed the culture of the public service… but also weakened the state's ability to make and implement decisions.” “Vrede dairy farm project: The case against ex-minister Zwane and co-accused has been transferred to the High Court”. “Outa (Organisation Undoing Tax Abuse South Africa) has filed a criminal complaint against the Deputy President with the NPA’s Investigating Directorate. It accuses David Mabuza of being involved in an R35bn land claims scam and crimes such as theft, fraud, perjury, and intimidation.”	(FATF, 2021c; Mitchley, 2022; Momoniat, 2023; NCA, 2022)
(4 )The country’s inability to detect illicit cash flows
The FATF reported high crime in South Africa, including tax crimes, corruption, etc., as part of their Mutual Evaluation Report (MER) in 2021. South Africa’s role as a regional hub for sub-Saharan Africa places the country at the forefront of foreign proceeds of crime, providing a gateway for illicit cash flows to flow from South Africa to the rest of the world. The amount of funds lost through state capture, estimated at roughly US$100bn, is evidence of the country’s inability to detect illegal cash flows.	“How the Guptas received their billions and moved it around, especially after they became unbankable, has mostly been a mystery. An extensive investigation by Scorpio and News24 into SARS and the Guptas’ VAT debacle pointed directly to the abuse of Bank of Baroda, SARS, third-party pay agents and shelf companies to artfully dodge financial regulators… according to insiders in two of the big banks of South Africa, the Hawks have never reacted to any of these suspicious transaction reports or threshold reports filed by the bank with the unit’s offices.”	(Buthelezi, 2021; FATF, 2021c; Van Wyk and Cowan, 2018)
(5) The country’s inability to improve the transparency of beneficial ownership for companies and trusts results in criminals hiding illegal activities behind various business or legal arrangements
The FATF found that limited access to accurate beneficial ownership information hinders the identification of legal entities and PEPs, especially when using trusts, founders and beneficiaries. Another limiting factor is that only the accuracy of South African directors is verified, mainly through financial institutions and credit databases. Beneficial ownership information is not promptly accessible by authorities, delaying detection.	“The evidence to the Zondo Commission demonstrates that the President already had a plan to capture Transnet within a month of taking office and, together with the Gupta family, started to implement a systematic plan for the state capture of key state-owned entities by November 2010. Implementation was affected by the appointment of a willing Minister to oversee state-owned entities, Eskom (power), Transnet (logistics and freight), PRASA (commuter trains), Denel (defence) and SAA (airline) contracts.”	(FATF, 2021c; Momoniat, 2023)

Shortcomings in South Africa combatting TBML	Quotes and extracts from media reports and publications	References
(1) The country’s inability to pursue money laundering and terrorist financing is not aligned with its risk profile
The Judicial Commission of Inquiry, headed up by Judge Raymond Zondo, investigated allegations of State Capture from 2018 to 2022. The amount lost to state capture is estimated at US$17bn. A meagre attempt has been displayed to prosecute perpetrators and recover losses associated with state capture.	South Africa "lost R1.5 trillion to corruption in five years and continues to bleed”“Past poor policy decisions, inadequate maintenance, mismanagement, and state capture have left our electricity system in a state of real disrepair”. “The president says almost R3bn has been recovered from companies that had captured the power utility, while a further R5bn is being clawed back through legal processes.”“Whilst the conviction rate is high for money laundering cases prosecuted, the number of money laundering cases prosecuted from the referrals made is relatively low, averaging 15%.”	(Andrews, 2018; Buthelezi, 2021; FATF, 2021c; Madisa, 2022)
(2 )The country’s inability to proactively seek international cooperation
During the period of state capture, funds were expatriated to various jurisdictions without consideration of the suspicious nature of the transaction. The Bank of Baroda, based in India, failed to report highly suspicious activity on the respective accounts, enabling them to continue money laundering activities crippling the South African economy. The South African Reserve Bank (SARB) subsequently detected this activity.Limited international cooperation was visible in avoiding or flagging the fraudulent crimes linked to state capture and the repatriation of illegal financial flows.	“Paul holden testified to the commission and submitted thousands of pages of evidence that tracked, in fine detail, the flow of funds out of state-owned entities through corrupt contracts, into the guptas South African money laundering vehicles, and then offshore through laundering networks in jurisdictions like Hong Kong and the UAE.”“Estina was paying companies in the United Arab Emirates with no experience in farming. Much of the money was purportedly for a Free State farming venture.”“HSBC was central in providing the banking facilities—particularly to Tequesta and Regiments Asia in Hong Kong—that facilitated laundering the kickbacks from the Transnet deal for 1,064 locomotives.”	(Ensor, 2023; Marchant, 2022)
(3) An inability and lack of transparency in identifying PEPs
The FATF found that accountable institutions have a limited responsibility to identify PEPs. Financial institutions do not consider clients’ risk profiles at onboarding. This factor, coupled with the inability to verify beneficial ownership and transparency over corporate ownership, contributes to corruption.	“Parliament failed to exercise effective oversight between 2009 and 2017, and the majority of members largely chose to ignore the many red flags and did not hold the President and Ministers to account.”“The worst legacy of state capture is that it not only changed the culture of the public service… but also weakened the state's ability to make and implement decisions.”“Vrede dairy farm project: The case against ex-minister Zwane and co-accused has been transferred to the High Court”. “Outa (Organisation Undoing Tax Abuse South Africa) has filed a criminal complaint against the Deputy President with the NPA’s Investigating Directorate. It accuses David Mabuza of being involved in an R35bn land claims scam and crimes such as theft, fraud, perjury, and intimidation.”	(FATF, 2021c; Mitchley, 2022; Momoniat, 2023; NCA, 2022)
(4 )The country’s inability to detect illicit cash flows
The FATF reported high crime in South Africa, including tax crimes, corruption, etc., as part of their Mutual Evaluation Report (MER) in 2021. South Africa’s role as a regional hub for sub-Saharan Africa places the country at the forefront of foreign proceeds of crime, providing a gateway for illicit cash flows to flow from South Africa to the rest of the world.The amount of funds lost through state capture, estimated at roughly US$100bn, is evidence of the country’s inability to detect illegal cash flows.	“How the Guptas received their billions and moved it around, especially after they became unbankable, has mostly been a mystery. An extensive investigation by Scorpio and News24 into SARS and the Guptas’ VAT debacle pointed directly to the abuse of Bank of Baroda, SARS, third-party pay agents and shelf companies to artfully dodge financial regulators… according to insiders in two of the big banks of South Africa, the Hawks have never reacted to any of these suspicious transaction reports or threshold reports filed by the bank with the unit’s offices.”	(Buthelezi, 2021; FATF, 2021c; Van Wyk and Cowan, 2018)
(5) The country’s inability to improve the transparency of beneficial ownership for companies and trusts results in criminals hiding illegal activities behind various business or legal arrangements
The FATF found that limited access to accurate beneficial ownership information hinders the identification of legal entities and PEPs, especially when using trusts, founders and beneficiaries.Another limiting factor is that only the accuracy of South African directors is verified, mainly through financial institutions and credit databases. Beneficial ownership information is not promptly accessible by authorities, delaying detection.	“The evidence to the Zondo Commission demonstrates that the President already had a plan to capture Transnet within a month of taking office and, together with the Gupta family, started to implement a systematic plan for the state capture of key state-owned entities by November 2010. Implementation was affected by the appointment of a willing Minister to oversee state-owned entities, Eskom (power), Transnet (logistics and freight), PRASA (commuter trains), Denel (defence) and SAA (airline) contracts.”	(FATF, 2021c; Momoniat, 2023)

Source: Authors’ compilation