The effectiveness of the Financial Intelligence Centre Act 38 of 2001 in combating money-laundering in South African banking institutions

Abstract

Money laundering is a clandestine financial phenomenon involving the concealment of the origins of illicit funds. It can be defined as the process of disguising illegally acquired money to make it appear legitimate. This practice negatively impacts global economies and the stability of financial institutions. Banking institutions, as financial intermediaries, are at high risk of facilitating these illicit transactions, making them accountable institutions mandated to report suspected money laundering activities. To combat money laundering, South Africa has enacted key legislation, such as the Prevention of Organised Crime Act (POCA), the Protection of Constitutional Democracy against Terrorist and Related Activities Act (POCDATARA), and the Financial Intelligence Centre Act (FICA). These statutes provide for mandatory anti-money laundering measures such as Know Your Customer (KYC), transactional monitoring, suspicious activities reporting, record-keeping, and ongoing staff training. This study examines the effectiveness of the current regulatory framework, specifically FICA, in addressing money laundering within banking institutions. The findings indicate that while the framework is effective, improvements are necessary. Issues such as operational capacity, employee training, and technological innovations impact compliance. Newer and emerging banking institutions face challenges in incorporating these requirements. This study proposes solutions to enhance the effectiveness of anti-money laundering measures in South Africa.