South African experts bet on tech to end FATF greylisting
South Africa recently strengthened regulations to address concerns that recently saw the country greylisted by the Financial Action Task Force (FATF), a global intergovernmental body.
As of Saturday, changes to the regulations came into effect through the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act, No. 22 of 2022.
The Amendment Act, agreed to on 29 December 2022, aims to address the areas highlighted in FATF's mutual evaluation report.
In February, South Africa was placed on the FATF greylist of countries under increased monitoring.
In addressing the concerns raised by the FATF, South Africa is punting technology as the means to reach compliance in the shortest possible time.
The FATF identified serious deficiencies in South Africa’s regulatory systems and the effectiveness of its anti-money laundering and counter-terrorism regime.
South Africa fell short in fulfilling the 11 recommendations made by the FATF in 2019, which sought to prevent and combat terrorism financing and money laundering.
The country is now under increased monitoring by the FATF, due to certain deficiencies in its anti-money laundering (AML) and combating the financing of terrorism (CFT).
The FATF wants South Africa to introduce regulations and practices that provide for transparent ownership and control of legal structures and entities.
Senior tech executives, and legal experts believe technology is the potential saving grace the country needs as it can be used effectively to mitigate the impact of greylisting by improving compliance and risk management processes.
Such technologies will enhance due diligence, providing real-time access to relevant data and enhancing transparency and security in financial transactions, the experts say.
Hallam Ford, chief operating officer of Cape Town-based software firm Locstat, says local companies can mitigate the impact of the FATF greylisting by taking a proactive stance to strengthen their AML and CFT measures in combination with new technology.
Locstat is an advanced analytics company, whose technology assists with functions such as fraud detection; customer journey mapping, including customer segmentation; rules engine and geospatial analytics, all in real-time.
Ford says: “We all need to do our bit in shoring up changers in anti-money laundering and countering the financing of terrorism mitigatory measures and compliance to avoid the negative impact of greylisting so that we are ultimately removed from the list.
“By leveraging technology in these ways, companies can better navigate the regulatory challenges associated with greylisting and continue to do business effectively.”
One such technology is graph databases, he says.
"The capacity of a graph to connect data points and surface hidden relationships creates a transparent transactional space to identify patterns that indicate illegal activities.”
Ford says additional context can be assigned to these relationships and analysed using graph (specific) algorithms to detect and investigate shifts in trends and relationship patterns so these activities can be tracked further up the chain.
"Graph technologies and analytics are game changers in AML and CFT operations and solve many of the problems created by using legacy technologies," says Ford.
"Add in the rapid sense-making of graph visual analytics to display the connections and flow between entities, parties, customers, accounts and transactions and it is also user-friendly for AML / CFT analysts.”
Herbert Kawadza, banking, finance and corporate law lecturer at the University of the Witwatersrand, says: “Money launderers use the financial institutions as a conduit in accomplishing the laundering process.
"Several types of software can be used at the initial stages to foil this.
“For instance, mule accounts are used in the money laundering process and detecting these accounts is a complex process as cybercriminals employ various methods to launder stolen funds.
"Software, such as BioCatch, can be used to identify five persona types to look out for when detecting mule accounts.
“Understanding these personas and common behaviors associated with each one can help prevent mule accounts at account opening, as well as detect mule activity within existing accounts.”
The government says like other countries on the greylist, South Africa is committed to working with the FATF to put the necessary measures in place to address identified deficiencies.