Your business might unwittingly be a laundromat for financial crimes

South Africa’s battle against crime isn’t just fought on the streets — it is waged in online meetings, boardrooms, banks and businesses nationwide. As our crime rates surge, so does the urgency for criminals to “clean” their ill-gotten gains.

Recent South African crime statistics paint a grim picture. Kidnapping cases have skyrocketed by 183% over nine years, with 10 826 cases recorded in 2021-22. Drug-related crimes and illegal firearm possession have surged by more than 15%, while cash-in-transit heists and truck hijackings continue to plague our communities. These are not just numbers — they are a stark reminder of the criminal undercurrent threatening our society.

But here’s what many do not realise — these crimes are just the beginning. What follows is often an elaborate dance to disguise the proceeds, a process we call money laundering. It is not about facilitating the initial crime; it is about making the profits appear legitimate afterwards. Money laundering, while often perceived as a victimless crime, is intrinsically linked to the criminal activities that endanger not only the economy but also the lives of the citizens and wildlife of South Africa.

Think of it like this — a criminal gang pulls off a major heist. They now have millions in cash, but they cannot exactly walk into a dealership and buy a fleet of luxury cars without raising eyebrows. This is where money laundering comes in — a three-step waltz of placement, layering and integration.

First, they might deposit small amounts into various bank accounts or mix it with legitimate business income. Then, they’ll move these funds around, splitting and recombining them, perhaps converting them to different currencies or purchasing and reselling goods. Finally, the now “clean” money re-enters the economy as seemingly legitimate funds.

It’s important to understand that criminals don’t just use banks to launder money. They exploit businesses, particularly those in high-risk sectors such as financial service providers, estate agents, attorneys and vendors dealing in high-value goods. For instance, individuals might insist on paying for a high-value item, such as a vehicle or a diamond ring, in cash — in one lump sum or smaller fractionated amounts to conceal the large cash payment.

Perpetrators often use the professional status of certain industries to make their illicit business, financial or property transactions appear legitimate. They might target financial institutions and legal services to legitimise their transactions. 

Law firms, in particular, are seen as attractive targets due to their involvement in large financial transactions and the potential misuse of trust accounts for illicit purposes. Attorneys could be approached to assist with creating companies and trusts, as well as perhaps estate agents and conveyancers to facilitate property purchases and sales, all to obscure the true source of funds.

The scale of this problem is astounding. Estimates suggest South African businesses launder between R16 billion and R64 billion annually. That is not just criminal money — it is a cancer eating away at our economy, distorting markets, funding criminal syndicates and undermining legitimate businesses.

What’s more alarming is how sophisticated these operations have become. Gone are the days of simple cash businesses being the only fronts for laundering. Today, criminals exploit everything from real estate and luxury goods to complex corporate structures and digital currencies. They are adept at finding the cracks in our financial system and widening them for their benefit.

This means know your customer (KYC) protocols are more important than ever. It is not just about ticking boxes or complying with regulations. It is about protecting your business from becoming an unwitting accomplice to crime. Every time you onboard a new client or process a large transaction without proper due diligence, you can open the door to illicit funds.

The consequences of being involved, even unknowingly, in money laundering can be severe. Beyond the legal ramifications and potential fines, there’s the devastating blow to your reputation. In an age where trust is currency, can your business afford to be associated with criminal activities?

But here’s the silver lining — we’re not powerless in this fight. By implementing robust KYC procedures and staying vigilant, businesses can become the first line of defence against money laundering or at the very least make it harder for criminals to gain from their illegal activities. It is about asking the right questions, verifying information and being alert to red flags such as unusual transaction patterns or overly complex ownership structures.

While the methods used by criminals can vary, common indicators include large cash transactions and payments made by unknown third parties, which are often a sign of illicit funds being introduced into the financial system. 

Unusual interest in verification processes or a reluctance to provide necessary information can also be telling. 

Transactions involving inflated or deflated invoices can signal attempts to launder money through commercial deals. 

The purchase of high-value goods or financial products with subsequent requests for refunds or rapid resale might suggest that the primary goal is to launder money rather than conduct legitimate business.

Technology is our ally in this battle. Advanced KYC solutions can help streamline the verification process, making it easier to conduct thorough checks without bogging down your operations. These tools can cross-reference data, flag potential risks and help you build a clearer picture of who you are really doing business with.

South African businesses can no longer afford to be naïve. The prevalence of crime in our country means that the risk of encountering money laundering attempts is a matter of “when” not “if”.

The fight against money laundering is not just the responsibility of law enforcement or financial institutions. It is a collective effort that requires every business to play its part. By staying informed, implementing strong KYC practices and fostering a culture of vigilance, we can make South Africa a harder target for financial criminals.

Money laundering is not just a financial crime — it is the lifeblood of the broader criminal activities that tear at the fabric of our society. By cutting off this flow, we are not just protecting our businesses, we are striking a blow into the very heart of organised crime in South Africa.

Hawken McEwan is the director of risk and compliance at DocFox.