Multiple benefits to mitigating money laundering risks

By Hedley Hurwitz, MD of Magix Security

Whether it’s via real estate deals, ‘fixed’ gambling, poor record keeping at a Bureaux de Change, double or inflated invoicing in a company, or transferring money to an unknown party regularly for a commission, money laundering is as serious an issue in South Africa as it is in the rest of the world.

To understand the global magnitude of money laundering, it is important to consider the results of a study conducted by the United Nations Office on Drugs and Crime (UNODC) to determine the size of illegal funds generated by organised crime and to investigate how much of this is laundered. According to the UNODC, criminals laundered about 2.7% of global GDP (or $ 1.6 trillion) in 2009 alone. [1]

In South Africa specifically, corruption on a grand scale and the lack of transparency make money laundering in its various forms a profitable business, and this is only exacerbated by the ease with which foreign criminals can enter the country, says Hedley Hurwitz, MD of Magix Security.

South Africa has taken great strides to set up a variety of different legislations and acts to tackle money laundering's growing threat to business and the government. This includes establishing the Financial Intelligence Centre in February 2002 under the FIC Act No. 38 of 2001, to help combat the threat posed by money laundering and to identify the proceeds of certain unlawful activities.

However, the challenge is the ability to accurately and quickly identify when money laundering is occurring, who is responsible, and what methods they are using to get their ‘dirty money’ into the banking and business systems without being identified.

Unlike fraud, which is basically stealing money that belongs to someone else, money laundering is the process of legitimising illegally gained funds via ostensibly legal methods. And while money laundering is rightfully associated with crime syndicates, terrorism and drug trafficking, it is often innocent companies and people that are caught in a web of complexity as unwitting accomplices in these transactions.

“The problem with money laundering activities in organisations is that the individual transactions in the process are generally perfectly ordinary and legal, making identifying the crime difficult, costly and time-consuming,” says Hurwitz. “Successful anti-money-laundering (AML) solutions must therefore focus on the context and behaviour surrounding these activities instead of individual transactions.”

To identify the context for money laundering, Hurwitz says organisations need to look beyond the “what” of transactions, to the “how” and under what conditions they are conducted. This can only be achieved if user and system activities are monitored in real time; slicing and dicing ‘valid’ transactions ‘after the fact’ to look for anomalies is likely to identify only a small percentage of the misdemeanours.