Banking confidentiality with reference to anti-money laundering and terrorist financing measures in South Africa and Lesotho

Abstract

Money laundering and terrorist financing negatively affect the global economy. This has worsened in the dawn of globalisation and technological advancements as the origin of money becomes more difficult to track. Banks are the hub of money laundering and terrorist financing activities owing to the duty of confidentiality that banks owe to their clients. As a result, the global fight against money laundering and terrorist financing activities is premised on the lifting of banking confidentiality. This allows for the disclosure of confidential client information that is relevant in the investigation, prosecution and conviction for money laundering and terrorist financing activities to money laundering authorities, without the consent of the client. Lifting banking confidentiality was enunciated under the common law and is codified by AML/CFT statutory law. In South Africa, it is codified by FICA 38 of 2001 while in Lesotho it is codified by MLPCA 4 of 2008 as the main AML/CFT laws in the respective countries. At the core of their framework in efforts to combat money laundering and terrorist financing, is the obligation vested in financial institutions to apply intense risk- based CDD standards to clients and the keeping of records of their affairs. Ultimately, a duty falls on these institutions to report any suspicious transactions encountered thereafter, contrary to banking confidentiality. The study seeks to determine the extent to which the AML/CFT framework in South Africa and Lesotho incorporates these measures in line with international instruments like the FATF Recommendations of 2003, the Palermo Convention (2000) and the Vienna Convention (1988). It finds that South Africa and Lesotho have both experienced challenges in the fight against money laundering and terrorist financing in line with these international standards. However, South Africa was able to address all its challenges through the implementation of the FIC Amendment Act 1 of 2017 and is now fully compliant with international anti-money laundering standards. On the other hand, Lesotho was unable to address its challenges despite the implementation of the MLPC Amendment Act 7 of 2016 and remains not in line with international anti-money laundering standards. It therefore concludes that Lesotho needs to draw lessons from the South African AML/CFT framework in order to strengthen its own, in line with international standards.