“Money laundering is giving oxygen to organised crime.” Enrique Peña Nieto, President of Mexico
Money laundering is the processing of dishonest earnings to disguise their illegal origin, a process which empowers criminals to enjoy profits without exposing their source. The individuals or groups involved use workable methods to control the funds without inviting attention to the original activity.
Money laundering related activities include the drug trade, illegal arms deals, smuggling, human trafficking, illegal diamond dealings, insider -trading, embezzlement, bribery, computer fraud, real estate, shell companies and cash-intensive businesses such as a car wash, restaurants, strip clubs and casinos.
Stages in money laundering
The three stages of distributing laundered money create confusion in the money trail, thus making it difficult for investigators to track the flow of money. This is one of the reasons why the arrests and prosecution of money launders proves to be challenging.
The initial stage of money laundering is Placement, which occurs when the launderer moves their illegal profits into the financial system.
The second stage, known as Layering, occurs when the illicit money is blended with legitimate money or placed in continuous flow from one account to another, which then makes it difficult to detect the money laundering.
Having successfully produced criminal profits through the first two stages, in the third and final stage money launderers integrate the cash into the legitimate economy.
Impact of money laundering
The impact of money laundering is great. Below are some of the common consequences of money laundering.
Money laundering regulations
There are three key pieces of legislation to bear in mind when dealing with money laundering in South Africa. These Acts form the backbone of South Africa’s anti-money laundering regime which all financial institutions should know well to proactively combat money laundering and to increase the arrest and prosecution of offenders.
The Prevention of Organized Crime Act (POCA) No 121 of 1998. The purpose of POCA is, amongst others, to:
The Financial Intelligence Centre Act (FICA) No 38 of 2000. The purpose of this Act is as follows:
The Protection Of Constitutional Democracy Against Terrorism And Related Activities (POCDATARA) Act of 2004 was established to prevent money laundering by terrorist organisations to South Africa and requires the reporting of any crime linked to terrorist activities, including terrorist financing.
To combat financial corruption, KYC regulation requires financial institutions to know and keep records on the essential facts of each customer, together with identifying each person who has authority or power of attorney to act on the consumer's behalf. This will prevent financial institutions such as banks from being used by criminal elements for illegal money activities.
The South African legal system is in place to identify, arrest and prosecute money launderers.
‘You get to a point where it gets very complex, where you have money laundering activities, drug related activities, and terrorist support activities converging at certain points and becoming one,’ Sibel Edmonds.