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South Africa

The judicial commissions of inquiry into allegations of corruption and other forms of white collar crime have dominated the South African media cycle. The State Capture scandal remained a key issue in South Africa in 2020, with a number of enforcement actions commencing in 2020.

At the same time, the Covid-19 pandemic has seen a wave of new corruption allegations, particularly regarding the procurement of personal protective equipment. In 2021, we expect to see further prosecutions and enforcement action, as well as civil recovery action in respect of misappropriated public funds.


Investigations trends/developments

Bribery and corruption

In the context of the State Capture scandal, the South African government declared that it would prioritise increased enforcement against white collar crime and the recovery of funds misappropriated from state coffers.

Over the course of 2020, a number of persons implicated in State Capture were arrested and charged. In addition, Eskom, the state power utility, along with the Special Investigations Unit have instituted civil action against a number of individuals for the recovery of approximately ZAR3.8 billion allegedly siphoned from the power utility though dubious means. Further arrests, prosecutions and civil recovery actions are expected in 2021.

Anti-money laundering

The Prudential Authority concluded its first Anti-Money Laundering and Combating the Financing of Terrorism risk assessment within the banking and life insurance sectors.

The Prudential Authority’s assessment rates the banking sector as representing a medium-to-high risk and notes a number of vulnerabilities in the sector’s ability to monitor and address money laundering and terrorism financing risk, including:

  • the use of cryptocurrencies, specifically persons using the system to convert digital currency to legal tender, and susceptibility to cybercrime;
  • poor functioning of systems, which limits the ability of a bank to have a single-client view, and systems which do not enable continuity and stability;
  • a lack of automated controls to address money laundering and terrorist financing risks;
  • products and services offered which are linked to a cash-based economy;
  • difficulties in obtaining beneficial ownership information and identifying the source of funds;
  • inadequate information-sharing between financial institutions; and
  • incorrect risk profiling of persons.

The Prudential Authority’s assessment rates the life insurance sector as a medium risk due to the absence of mitigating controls to address the following deficiencies, such as:

  • inadequate processes to identify reportable cash transactions;
  • inadequate management information systems for detecting patterns of unusual or suspicious activity, particularly in relation to higher-risk accounts;
  • inadequate training of staff members responsible for reviewing customer transactions; and
  • in some cases, lack of enhanced due diligence reviews and/or inadequacies in automated transaction monitoring.

We anticipate additional measures and/or guidance from the South African Prudential Authority to address these shortcomings in 2021. In addition, the Financial Action Task Force (FATF) will likely release an updated report following the mutual evaluation of the Anti-Money Laundering and Combating the Financing of Terrorism standards in South Africa.

Significant law reforms impacting corporate criminal liability

Significant amendments to the Prevention and Combating of Corrupt Activities Act have been in the pipeline for at least three years and were expected to be introduced in 2020. Unfortunately the reforms remain in draft form and have not yet been tabled before Parliament. We expect to see developments in this space in 2021.

In the interim, amendments have been proposed to the schedules to the Financial Intelligence Centre Act (FICA). The proposed amendments include expanding the list of accountable institutions (who are subject to the obligations imposed by FICA) to include additional financial and non-financial businesses, including crypto asset services providers, and enabling the FIC to take over responsibility for oversight and enforcement of compliance with FICA in respect of the non-financial sector activities involving estate agents, gambling institutions, trust and company service providers and legal practitioners.

Internal investigations – key developments

The long-awaited Protection of Personal Information Act (POPIA) commenced on 1 July 2020 and gave effect to the constitutional right to privacy and provided a framework for the lawful processing of personal information in South Africa. POPIA is modelled largely on the predecessor of the General Data Protection Regulation, EU Directive 95/46/EC, however a key difference is that POPIA also applies to the processing of personal information of juristic persons. Responsible parties (controllers) are afforded a 12-month grace period to ensure compliance; therefore, enforcement of the protections contained in POPIA will commence on 1 July 2021. In-house legal and investigations teams would be well advised to review internal compliance programmes and ensure that personal information is processed in accordance with POPIA.

In March 2020, the Financial Intelligence Centre (FIC) finalised the Public Compliance Communication to provide guidance in respect of the usage of an Automated Transaction Monitoring Systems. Furthermore, in November 2020, the FIC published a draft Public Compliance Communication to elaborate on how to review a particular geographic area as an indicator to assist in the formation and application of the risk-based approach to money laundering, terrorist financing and proliferation financing. Public Compliance Communications constitute authoritative guidance and set out the FIC’s view on a particular issue and the practical application of FICA. Corporates should therefore familiarise themselves with these documents to ensure compliance with FICA obligations.

Sectors targeted by law reforms or enforcement action

The State Capture commission’s focus continues to be on the IT, accounting and consulting sectors. However, the financial sector has increasingly become an area of focus and we expect this sector to be a key focus for 2021.

Cross-border coordinated enforcement activity

Despite South Africa being party to a number of mutual legal assistance treaties and cross-border cooperation agreements, there has been no new significant cross-border enforcement activity this year. The antitrust regulator continues its enforcement action against global banking institutions pursuant to allegations of currency manipulation.

In the second half of 2020, South Africa announced that it will be investing in border security by introducing new border management legislation and establishing a border management authority. The efficacy of these measures in preventing illegal immigration and human trafficking and providing for enhanced regulation of goods moving across borders remains to be seen.

Financial crime issue predictions for 2021

We expect to see an increased focus on data protection. The term of office in respect of the current members appointed to the Information Regulator will terminate in December 2021, therefore we would not be surprised to see a flurry of enforcement activity between July and December 2021.

In addition, the fallout from the State Capture inquiry will continue to be a concern for entities that conduct business with the South African government, as will white collar crime emanating from the private sector. With regard to the latter, the Johannesburg Securities Exchange has levied a ZAR 13.5 million fine against Steinhoff International for failing to comply with listing requirements and has noted that its investigations into individuals at the company are ongoing. We anticipate additional fines, increased civil recovery action and criminal prosecution activity.

This article is part of the Allen & Overy Cross-border White collar Crime and Investigations Review. Please visit the review homepage for our overviews and insights in other jurisdictions. 

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