SA's largest banks are at "high risk" of falling foul of money laundering, terrorism and proliferation financing activity, according to a new report by the Prudential Authority (PA), a division of the Reserve Bank that regulates financial institutions.
The PA released its second banking sector risk assessment on Tuesday. It surveyed 34 lenders active in SA, including five large banks, nine medium to small locally controlled banks, 17 foreign-controlled banks and branches of foreign banks, and three mutual banks.
The assessment focused on the money laundering, terrorist financing and proliferation financing risks identified in the banking sector between October 2018 and December 2020.
"The nature and extent of money laundering, terrorist financing (TF) and proliferation financing threats the banking sector in SA is facing is assessed to be a high risk," the PA said in its report.
"The banking sector is exposed to possible terrorism and TF risks due to a lack of understanding of TF vulnerabilities and how terrorist financiers operate. SA's proximity to terrorism prone countries such as Mozambique, Nigeria, Kenya and the Democratic Republic of Congo could potentially increase the terrorism risk and terrorist financing risk for SA banks."
SA is at risk of being added to a so-called grey list of countries deemed as having insufficient measures in place to combat money laundering and terrorist financing by the Financial Action Task Force (FATF), an intergovernmental body that sets standards for combating illicit financial activity.
The UN panel reports also referenced the importation of electrical equipment from North Korea to SA in 2020, and the use of diplomats at the North Korean embassy in Pretoria for conducting prohibited activities in neighbouring countries.
While the PA report found that at least one bank had a confirmed client relationship with two diplomatic or consular staff from North Korea or Iran, it also revealed that only 19 out of the 34 banks it surveyed had even taken note of the UN reports.
No fewer than 28 of the 34 banks surveyed by the PA confirmed they maintained client relationships with North Korean or Iranian financial institutions.
Both North Korea and Iran are sanctioned by the UN, EU and the US.
