Following the inefficiencies identified in the FATF Mutual Evaluation of South Africa (October 2021), the FIC conducted a South African National Terrorism Financing (TF) risk assessment to identify and assess various vulnerable areas within the financial sector such as:
- the identification of the beneficial ownership of legal persons.
- implementing proportionate and dissuasive sanctions against those found guilty of TF; and
- preventing the raising, moving, and using of funds for TF within NPO sector.
The assessment identified integral risks to South Africa’s financial and non-financial systems and focused on the four stages associated with terrorism financing namely the raising, moving, storing, or using of funds and other assets. The report found that South Africa’s inefficiencies in combatting TF stem from substantial amounts of cash still being used, ineffective border control measures and the NPO sector being vulnerable to potential abuse by terrorist groups.
The FIC has implemented a collaborative approach between the public and private sector to detect, disrupt and prevent terrorism financing. This will assist both sectors in understanding the associated risks and vulnerabilities associated with TF and learn how to implement appropriate preventive measures. The national risk assessment process involved a range of stakeholders as part of an Inter-Departmental Working Group (IWG) consisting of:
- National Treasury
- Financial Intelligence Centre
- South African Police Service
- National Prosecuting Authority
- South African Revenue Service
- State Security Agency
- National Intelligence Co-ordinating Committee
- Department of Home Affairs
- Department of Justice and Constitutional Development
- Department of International Relations and Cooperation
- Department of Trade and Industry and Competition
- Department of Social Development
- Companies and Intellectual Property Commission
- South African Reserve Bank (and Prudential Authority)
- Financial Sector Conduct Authority.
Challenges experienced with large cash transactions
Cash remains a considerable risk for use in terrorism financing because of it being easily accessible, untraceable, and anonymous. The report identified the substantial risk associated with the cross-border movement of cash as it can be used as a channel to fund terrorist groups. South Africa has large émigré communities from countries associated with terrorism such as Somalia, Kenya, Nigeria, and Mozambique. The use cash within these communities coupled with a large informal economy in South Africa and neighbouring countries increases the risk of TF.
South Africa’s border integrity
South Africa is often viewed as the economic hub of the African continent. This, coupled with its sophisticated financial system makes it appealing for terrorists and their supporters, and vulnerable to terrorism financing. South Africa’s border integrity remains a critical point of contention as terrorists have managed to travel in and out of the country using fraudulent travel documents.
Charities and non-profit organisations
Whilst NPO’s play a critical role in providing educational, religious, and humanitarian services, they can be exploited and be used as a channel to raise, store, and divert funds towards terrorism. Despite there being no terrorism financing convictions within the South African NPO sector, the frequent use of cash by charities/NPO’s operating near conflict zones associated with terrorism pose a higher terrorism financing risk.
Virtual currencies
Virtual currencies such as Bitcoin and e-wallets, present terrorist suspects with the opportunity to raise, store, move and access money for terrorism purposes instantly and anonymously across the globe. Many online payment systems and virtual currencies are anonymous by design, making them attractive for terrorism financing. The enhanced accessibility of virtual currencies and the increased ability to conceal the destination of funds, means that the risk of terrorism financing through virtual assets in South Africa will increase.
Conclusion
The report notes that South Africa considers terrorist financing a national security priority. Although South Africa has not been affected by large scale terrorism as opposed to other regions in the world, it is not invulnerable to terrorist activities. The FIC as put measures and mechanisms in place to increase vigilance and ensure a coordinated approach between the public and private sector. One of the keys ways of combatting TF is by implementing training regimes amongst the various sectors. It is expected that a dedicated partnership between all sectors will further enhance South Africa’s effectiveness in countering terrorism financing.