AFC Thoughts

Tackling Money Laundering in South Africa: A Comprehensive Approach

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Tookitaki
15 Jun 2023
7 min
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As the global financial landscape becomes more interconnected and complex, money laundering has emerged as a major issue that continues to pose significant challenges to economies worldwide. With its dynamic economy and robust financial sector, South Africa is not immune to this problem. Money laundering in the country has seen an uptick in recent years, driven by technological advancements, cross-border transactions, and a diversified criminal landscape.

Money laundering, in essence, is a process where 'dirty money' derived from illicit activities is transformed into 'clean money,' giving it the appearance of having been obtained from legitimate sources. Apart from fueling other illegal activities, this crime has substantial negative impacts on the economy. It distorts economic data, fuels corruption, compromises governance, and hampers the nation's overall development.

In order to effectively tackle this pervasive problem, a comprehensive approach is required. Such an approach does not solely focus on one aspect of the issue. Still, it seeks to address it from multiple fronts - strengthening legal frameworks, leveraging technology, fostering international cooperation, and raising public awareness about the perils of money laundering.

This blog will delve into the current state of money laundering in South Africa, explore the essence of a comprehensive approach, and discuss how innovative solutions like Tookitaki's Anti-Financial Crime (AFC) Ecosystem can play a crucial role in this fight against money laundering. The need of the hour is a coordinated, comprehensive strategy, and it is time South Africa steps up its game in the fight against financial crime.

The State of Money Laundering in South Africa

The Current Situation and Prominent Cases

With its robust economy and complex financial systems, South Africa has unfortunately become a fertile ground for money laundering activities. Criminals exploit various sectors such as banking, real estate, and trade to launder money, taking advantage of the intricacies involved in these sectors to obscure the illicit origins of funds.

Prominent cases such as the infamous Gupta family scandal, where billions of rands were allegedly laundered, have highlighted the severity of the problem. In another case, South African banks were found to have facilitated transactions linked to the "Mozambique hidden debts" scandal, involving approximately $2 billion.

Prevalent Methods of Money Laundering

Criminals employ a variety of methods to launder money in South Africa:

  • Trade-Based Money Laundering: This involves over or under-invoicing of goods and services, multiple invoicing, and over or under-shipment of goods, among other methods.
  • Digital Money Laundering: The use of cryptocurrencies, online gaming, and digital payment systems can obscure the origin of illicit funds.
  • Real Estate Money Laundering: Purchasing property with illicit funds and then selling it allows criminals to legitimize the money.

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The Impact of Money Laundering

Money laundering poses serious threats to South Africa's economy and society:

  • Economic Impact: It distorts the economy, discourages foreign investment, and leads to unsustainable economic growth. The funds laundered could be used for productive economic activities rather than being stashed away or moved out of the country.
  • Social Impact: Money laundering fuels other crimes and corruption, leading to social instability. It undermines the rule of law and erodes public trust in institutions.
  • Impact on Governance: When illicit funds infiltrate the political sphere, they can compromise governance, undermine democracy, and contribute to policy distortion.

In the face of such a pervasive problem, it becomes clear that a comprehensive approach is needed to combat money laundering in South Africa effectively. This includes enhancing legal frameworks, leveraging technology, promoting international cooperation, and raising public awareness.

A Comprehensive Approach to Tackling Money Laundering

In the fight against money laundering, a siloed or narrow approach can be ineffective due to the complex, multifaceted nature of the crime. A holistic, multi-pronged strategy that addresses all aspects of the problem is needed. This is where a comprehensive approach comes in. Working on multiple fronts simultaneously can significantly enhance our capacity to tackle this pervasive issue.

Here are the key elements that constitute a comprehensive approach:

  • Legal Framework: Robust legal measures are the backbone of any effective anti-money laundering strategy. South Africa needs to continually update and enforce its legislation to counter money laundering, taking into account evolving tactics and new forms of illicit finance. Legal measures should extend to rigorous oversight and regulation of financial institutions and non-financial businesses and high penalties for non-compliance.
  • Technology: Technology has a crucial role to play in detecting, preventing, and disrupting money laundering. Advanced analytical tools can sift through vast amounts of data to identify suspicious patterns that human investigators might miss. Machine learning and AI can enhance the efficiency and accuracy of these tools, enabling real-time detection of suspicious activities.
  • International Cooperation: Money laundering is often transnational in nature, making international cooperation indispensable. Countries need to share intelligence, harmonize their regulatory frameworks, and assist each other in investigations and prosecutions. Regional bodies and global platforms can facilitate such cooperation.
  • Public Awareness: Public awareness is another important element. The more the general public understands money laundering, the less likely they are to unwittingly facilitate it. Awareness campaigns can inform people about how money laundering works, the signs to look for, and the channels to report suspicious activities.

Challenges to Implementing a Comprehensive Approach

While the importance of a comprehensive approach is evident, implementing it in South Africa is not without challenges. Some of the major obstacles include:

  • Insufficient Regulatory Compliance: Despite having robust anti-money laundering laws, compliance can be a challenge. Financial institutions and other entities may lack the necessary resources or expertise to comply with these regulations fully.
  • Technological Limitations: While technology can be a powerful tool in the fight against money laundering, its potential is often underutilized due to a lack of technical expertise, resources, or understanding of its benefits.
  • International Cooperation Issues: Achieving effective international cooperation can be complicated by jurisdictional issues, differing legal frameworks, and lack of trust or established channels for sharing information.
  • Public Apathy: Public awareness of money laundering and its detrimental effects can be low, leading to apathy or lack of vigilance.

Tookitaki's AFC Ecosystem: An Integral Part of a Comprehensive Approach

In the face of the multifaceted challenges posed by money laundering, innovative solutions like Tookitaki's Anti-Financial Crime (AFC) Ecosystem have emerged as crucial tools to support a comprehensive approach. The AFC Ecosystem is a community-based platform designed to facilitate information sharing and the application of best practices in combating financial crime.

The AFC Network and Typology Repository

The AFC Ecosystem comprises two main components: the AFC Network and the Typology Repository. The AFC Network is a global assembly of subject matter experts who contribute the latest typologies, while the Typology Repository is a vast, federated database of money laundering patterns contributed and validated by experts.

The Typology Repository, operating solely on patterns and not storing any data, ensures complete privacy protection. It is a readily accessible and exhaustive database that allows members of the network to search for typologies and integrate them into their anti-money laundering systems with a single click.

A typology representation is shown below.

Typology social media post

Features and Benefits

Some of the key features of the AFC Ecosystem include:

  • A no-code, drag-and-drop rule creation UI within the Typology Developer Studio
  • Regular updates with the latest emerging trends in money laundering
  • Ability to categorize and manage typologies under various categories for easy search and download
  • Privacy protection with no storage of customer personally identifiable information or client-sensitive data

The adoption of the AFC Ecosystem can greatly enhance the fight against money laundering in South Africa. By joining a community of experts, institutions can stay ahead of the latest developments in financial crime. The sharing of knowledge and best practices can help uncover hidden risks, and the advanced technological tools can make compliance a strategic advantage, opening up new business opportunities.

Tookitaki's AFC Ecosystem and Its Potential Impact in South Africa

Given South Africa's challenges in combating money laundering, the AFC Ecosystem by Tookitaki can offer a much-needed solution that caters to the country's specific issues. Here's how:

  • Addressing Compliance Hurdles: The AFC Ecosystem’s Typology Repository and Developer Studio can help South African institutions better understand, adapt to, and comply with local and international regulatory standards. The 'No Code' drag-and-drop rule creation interface simplifies the process of implementing and managing complex regulatory rules, which can help institutions meet compliance requirements more effectively.
  • Enhancing Technology Utilization: The AFC Ecosystem collaborates with Tookitaki's Anti-Money Laundering Suite that leverages advanced technology to detect and prevent financial crimes. By adopting this system, South African institutions can access a cutting-edge tool that can significantly enhance their anti-money laundering efforts. The constant updating of the Typology Repository ensures that the technology remains responsive to the evolving tactics of money launderers.
  • Facilitating International Cooperation: The AFC Network provides a platform for international cooperation, with a community of experts from around the globe sharing their knowledge and experiences. This global connectivity can help South African institutions better understand international trends and collaborate on cross-border investigations.
  • Boosting Public Awareness: The extensive knowledge base available through the AFC Ecosystem can also serve as a resource for public awareness initiatives. By educating the public on the various typologies of money laundering, South African institutions can help increase public vigilance and reporting.

In conclusion, Tookitaki's AFC Ecosystem has the potential to provide a major boost to South Africa's efforts to combat money laundering. By facilitating information sharing, offering advanced technological tools, and connecting South African institutions to a global network of experts, it can play a crucial role in a comprehensive approach to tackling this pervasive issue.

Stepping Up the Fight: A Call to Action

As we have seen, money laundering significantly threatens South Africa's economy and societal stability. Addressing this problem requires a comprehensive approach that combines effective legislation, technological innovation, international cooperation, and public awareness. Unfortunately, implementing such an approach has proven to be a complex challenge due to various barriers.

This is where Tookitaki's AFC Ecosystem come in. With its global network of experts and vast typology repository, the AFC Ecosystem can empower South African institutions to stay ahead of financial criminals. By facilitating effective information sharing, the system can help to uncover hidden risks and update compliance processes with the latest trends in money laundering.

The potential positive impact of adopting this system is significant. It can help to strengthen the country's defences against money laundering, contribute to economic stability, and help South Africa to meet its international obligations in the fight against financial crime. Additionally, by turning compliance into a strategic advantage, it can open up new business opportunities and enhance the competitiveness of South African institutions.

We thus call on all anti-financial crime experts, regulatory bodies, financial institutions, and risk consultants in South Africa to explore the potential of Tookitaki's AFC Ecosystem. By joining this community-based platform, we can strengthen our collective capacity to combat money laundering and ensure a safer, more secure financial environment for all. The fight against money laundering is a shared responsibility – let's step up to this challenge together.

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Our Thought Leadership Guides

AFC Thoughts
18 Jul 2024
4 min
read

Typology Tales July 2024: Account Takeover Surveillance

We are pleased to share the latest edition of "Typology Tales" for July 2024. This edition highlights the new typologies that our Anti-Financial Crime (AFC) community has carefully analysed and selected. Our community's collective efforts are crucial in staying ahead of evolving financial crime threats, and we are grateful for your continued participation and contributions.

AFC Community’s Role

Each month, our dedicated AFC community comes together to analyze and evaluate newly created typologies, selecting those that can significantly enhance the ecosystem's ability to prevent and combat financial crime. The typologies chosen for publication are those that offer the most promise in terms of effectiveness and applicability across various scenarios.

Key Highlights from July 2024 

These typologies have been meticulously curated to ensure they provide robust and actionable insights, ultimately helping to safeguard the financial ecosystem.

Theme of the Month: Account Takeover Fraud (ATO)

Theme of the month

Account takeover fraud (ATO) is a type of cybercrime where unauthorised people access a user's account and use it for harmful purposes. This dangerous activity has increased significantly in recent times, posing a growing threat to both individuals and organisations. 

In this edition...

In this edition of Typology Tales, we delve into two typologies that compliance professionals can incorporate into their transaction fraud monitoring systems to proactively prevent account takeover in real time.

Typology 1: Surge in Multi-Party Transactions in Sizeable Values

Typology-multiple counterparty

A pattern of multiple parties making high-value transactions with one entity in a short period of  time suggests possible account takeover fraud. This requires a strategic review of transaction behaviours.

How It Works

  • The typology monitors transactions involving a single customer who receives or transfers funds with multiple parties within a short time span.
  • To identify potential account takeover risks, the typology groups transactions by the unique identifiers of senders and receivers within a specified time frame. By tracking these identifiers over a defined period, it can determine how many different parties have transacted with a particular entity.

  • Simultaneously, the typology aggregates the transaction amounts linked to unique senders and receivers.

  • It flags any entity that engages in transactions with a large number of different parties and exceeds a cumulative transaction threshold. This signals potential account takeover risks due to unauthorised access and high-value transactions.

Typology 2: Monitoring High-Value Transactions Across Multiple Payment Modes

15 - 2024 July Edition TT Typology tales-1-1-1-1

Financial institutions may implement advanced monitoring to detect high-value transactions between senders and receivers through various modes, aiming to uncover potential account takeover fraud.

How It Works

  • To effectively oversee the flow of funds, the typology tracks and aggregates transaction amounts based on the mode of transfer.
  • Transaction amounts, including those made through cash or alternative payments, are further aggregated by the unique identifiers of the sender and receiver over a specific period.
  • Entities showing high-value transactions across multiple payment modes over specified time frames are potentially flagged as suspicious. This increased activity may indicate that an account has been compromised and is being used to funnel funds illegally.

From the Media: Account Takeover Attacks Overtake Ransomware as Leading Security Concern

Research by cybersecurity firm Abnormal Security highlights that account takeover (ATO) attacks have become a top concern for security leaders. The 2024 State of Cloud Account Takeover Attacks report reveals that 83% of organisations experienced at least one ATO incident in the past year. 

Over 75% of security leaders rank ATOs among the top four global cyber threats, with nearly 50% facing more than five incidents annually and around 20% encountering over ten incidents. ATOs are now considered more significant than other threats such as spear phishing and ransomware.

Read More

Unite in the Fight Against Financial Crime

Financial crime is a pervasive issue that requires a collective, centralised approach to intelligence gathering. That's why we have created the Anti-Financial Crime (AFC) Ecosystem, a network of experts who work together to share knowledge and develop strategies for combating financial crime.

If you are an AFC expert, we invite you to join our efforts and help us grow the AFC Ecosystem. And if you know any other AFC experts, please refer them to us so we can continue to expand and strengthen our network. Together, we can make a real difference in the fight against financial crime.

Typology Tales July 2024: Account Takeover Surveillance
AFC Thoughts
01 Jul 2024
3 min
read

Account Takeover Fraud: Monitoring Entities Incorporated Long Back

In the evolving landscape of financial crime, financial institutions need to intensify their scrutiny of transactions from entities with a long history of incorporation but sporadic or recent activity. This increased vigilance aims to detect and thwart potential account takeover fraud within savings accounts, ensuring the safety and integrity of financial systems.

Given below is a typology from Tookitaki's AFC Ecosystem. It details how to ensure your monitoring system triggers alerts transactions from entities with a long history of incorporation

Understanding the Typology

Setting Up Entity Historical Profiles

Financial institutions employ a function known as the "Incorporation Date of the Entity" to track and record the incorporation dates and transaction activities of entities. This function helps identify entities that have been established long ago but have shown recent or sudden transaction activities, which could be indicative of fraud.

Function Configuration and Data Aggregation

  • Aggregate Fields: The system aggregates data on 'sender incorporation date' and 'receiver incorporation date.'
  • Aggregate Function: Using the collect_set function, the system compiles a unique set of incorporation dates for each sender and receiver, providing a comprehensive historical perspective of each entity's transaction timeline.
  • Group By: Transactions are grouped by unique identifiers like 'sender_hashcode' and 'receiver_hashcode,' linking each entity’s transaction history to specific account profiles.

Monitoring and Anomaly Detection

The system continuously monitors the transaction activities of these entities, comparing current transactions against historical data. Entities that have shown no or minimal transaction activities for a significant period since their incorporation are closely watched. A sudden spike in transactions, especially those of significant volume or frequency, triggers an alert. This scrutiny is particularly heightened if the entity's previous activity has been minimal or non-existent for years.

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Flagging and Review Process

Transactions involving long-dormant entities resuming activity are flagged as high-risk. These flagged transactions undergo a detailed review to ascertain the legitimacy of the activity and to rule out any potential account takeover or other fraudulent intentions.

Investigative Measures

For flagged transactions, financial institutions conduct thorough investigations involving:

  • Background Checks: Verifying the entity's background.
  • Transaction Legitimacy: Confirming the legitimacy of the transaction.
  • Entity Ownership: Ensuring the entity's ownership and operational status.

Preventative Actions and Customer Interaction

If fraudulent activity is confirmed, financial institutions take immediate steps to:

  • Block further transactions.
  • Secure the affected accounts.
  • Possibly reverse fraudulent transactions.
  • Contact entity representatives for further clarification and to ensure all parties are informed of the situation.

Compliance and Reporting Obligations

All suspicious activities are documented and reported in compliance with regulatory requirements. This ensures that the institution remains compliant with anti-fraud regulations and aids in broader efforts to combat financial crime.

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Enhancement of Monitoring Systems

Based on findings and trends observed from monitoring these entities, financial institutions continually refine their detection algorithms and update their monitoring systems to better identify and prevent potential fraud.

By closely monitoring the activities of entities incorporated long ago but recently active, banks can effectively spot unusual patterns that may indicate fraudulent activities, such as account takeovers. This proactive approach helps safeguard customer assets and maintain the integrity of the financial system.

Final Thoughts

Financial institutions must remain vigilant and proactive in monitoring and analyzing transaction activities, especially those involving historically dormant entities. This typology, sourced from Tookitaki's AFC Ecosystem, highlights the importance of advanced monitoring techniques in detecting potential fraud.

We encourage anti-financial crime professionals to join the AFC Ecosystem to access unique typologies and leverage community-driven insights for enhanced fraud detection and prevention. Together, we can strengthen our defenses against financial crime and protect the integrity of our financial systems.

Account Takeover Fraud: Monitoring Entities Incorporated Long Back
AFC Thoughts
22 May 2024
3 min
read

The Globalization of Fraud: The Rise of Transnational Scams

In an increasingly interconnected world, the borders that once confined criminal activities are rapidly dissolving, aided by the rise of digitalisation and the pervasive reach of online platforms. The stark reality we face today is a landscape where fraudsters exploit digital payment systems to target individuals across the globe, particularly in the Asia-Pacific region. Organised fraud syndicates are not just local threats; they operate on an international scale, executing sophisticated scams that often outpace current preventative measures.

Case Study: A Transnational Crackdown on Job Scams

On 20 March 2024, a significant breakthrough came when the Commercial Affairs Department (CAD) of the Singapore Police Force and the Bukit Aman Commercial Crime Investigation Department of the Royal Malaysia Police joined forces in Kuala Lumpur. This joint operation was the culmination of extensive cross-border investigative efforts aimed at dismantling a formidable job scam syndicate.

Between October 2023 and January 2024, this syndicate deceived over 3,000 individuals, accumulating illicit gains of approximately $45.7 million. These scams primarily targeted Singaporeans, promising lucrative job opportunities that required victims to make upfront payments or divulge sensitive information under the guise of securing employment. The rapid escalation of these scams prompted an intensive collaborative investigation, which eventually led to the arrest of five Malaysians involved in laundering the proceeds from these fraudulent activities.

This operation not only highlights the severity and reach of transnational scams but also underscores the urgent need for global cooperation and shared strategies to combat these crimes effectively.

Job Scam

The Imperative of a Collaborative Approach

As we witness a surge in transnational fraud, the isolation of financial institutions in their silos makes them particularly vulnerable. The complexity and rapid adaptation of fraud strategies require that defences be equally dynamic and interconnected.

Collective Intelligence and Shared Responsibility

To counteract the evolving menace of cross-border fraud effectively, a collaborative approach is indispensable. The AFC Ecosystem initiative represents a commitment to fostering industry-wide cooperation and information sharing. Through this collective intelligence, we aim to establish a robust defence mechanism that not only identifies but also anticipates fraudulent activities, ensuring safe and secure societies. This shared responsibility is vital in creating an impenetrable barrier against the sophisticated mechanisms of modern financial criminals.

Considering the Typology of the AFC Ecosystem

Drawing from the AFC Ecosystem's insights, let's delve into the typology of transnational job scams. This framework is instrumental in understanding how these frauds operate and what measures can be employed to thwart their attempts.

Detailed Analysis of the Typology

Transnational job scams represent a highly organized and rapidly proliferating threat that exploits the aspirations of job seekers worldwide. These scams are not just about deceit regarding employment opportunities but involve intricate financial manipulations that siphon funds across international borders.

Operational Mechanics

  • Initial Recruitment: The scam begins with contact through social media or other digital platforms, where victims are lured with high-return, low-effort job offers.
  • Deceptive Promises: The roles are advertised as lucrative yet simple enough to attract a wide demographic, from students to the unemployed.
  • Financial Prerequisites: Victims are persuaded to make upfront payments or provide personal information as a part of the onboarding process.
  • Expeditious Expansion: To maximize profits before any potential crackdown, these operations quickly scale and replicate across various regions.

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Granular Red Flags and Risk Indicators

To effectively monitor and prevent these scams, it is crucial to recognise the following detailed risk indicators:

  • Value: Transactions often involve small amounts that are usually perceived as low-risk by victims, making them less likely to raise immediate alarms.
  • Volume: A high frequency of transactions complicates tracking and analysis, as the sheer number of transactions can overwhelm standard monitoring systems.
  • Velocity: The rapid succession of payments, coupled with potential chargebacks or cancellations, creates a chaotic financial trail that is difficult to follow.
  • Channels: Scammers predominantly use digital payment platforms, online banking, and occasionally cryptocurrencies to maintain anonymity and complicate tracing.
  • Anonymity: There is often a mismatch between beneficiary details and the purported employer, signalling a red flag for transactions.
  • Recurrence: Victims are frequently solicited for multiple payments under various pretexts, each justified as necessary for job commencement or continuation.
  • High-risk Geos: Payments are directed to accounts in high-risk jurisdictions or to those that are otherwise unrelated or suspicious, lacking any logical connection to the job or employer.
  • Geographical Inconsistencies: The involved countries often have no direct connection to the alleged job or employer, exploiting the complexities of international law and jurisdictional boundaries.

Harnessing Collective Efforts for Enhanced Security

The fight against transnational fraud is not a battle that can be won in isolation. It requires the concerted efforts of financial institutions, regulatory bodies, law enforcement, and the public. By adopting the typology provided by the AFC Ecosystem and vigilantly monitoring the detailed risk indicators, we can forge a path towards a more secure and resilient financial environment. This collective approach is our best defense against the sophisticated and ever-evolving landscape of global fraud.

The Globalization of Fraud: The Rise of Transnational Scams