The late Desmond Tutu once said, “there is only one way to eat an elephant: a bite at a time”. And if there was ever an elephant that needed eating – and fast – it is the illicit financial trade.
The United Nations Conference on Trade and Development’s Economic Development in Africa Report 2020 states that illicit financial flows rob Africa of $88 billion each year. Some estimates show that South Africa lost more than $100bn between 2002 and 2011. A 2022 joint study between the Organisation for Economic Co-operation and Development and National Treasury estimates that between $3.5bn and $5bn in illicit financial flows leave the country annually, representing some 1% to 1.5% of South Africa’s annual GDP.
The value lost to scams globally is about $55bn and is increasing at about 15% a year.
“So, the scale of the problem is huge and growing. We have to work together and work smartly to disrupt this,” says Unathi Kamlana (pictured), the Commissioner of the FSCA.
Kamlana shared these statistics during his talk on “The successful enforcement of financial sector laws as a credible deterrent in the context of South Africa’s grey-listing” at the Unisa College of Law Seminar on 24 August.
In his address, he emphasised the importance of enforcement and “unparalleled” collaboration if South Africa is to exit the Financial Action Task Force (FATF) grey list by 2025 as hoped.
This undesirable status befell South Africa on 24 February when the FATF – the global money laundering and terrorist financing watchdog – decided to include the country on its grey list, classifying it as a jurisdiction under increased monitoring.
In short, being grey-listed indicates that a country needs to address deficiencies in its anti-money laundering and counter-terrorism financing policies and frameworks.
For South Africa to be removed from the list, it must follow an action plan issued by the FATF. Central to this plan is a demonstrable and sustained increase in the number of investigations and prosecutions related to intricate and serious cases of money laundering.
“This applies specifically to cases involving professional money-laundering networks and enablers, as well as third-party entities engaged in money laundering – all of which are aligned with our country’s unique risk profile,” says Kamlana.
Enforcement and deterrence
In the previous financial year, the FSCA imposed administrative penalties of more than R100 million on 44 individuals.
Kamlana believes that at the core of enforcement is establishing the credibility of South Africa’s financial sector laws as being a true deterrent. He says this requires cultivating a belief within the industry that violations are not only punishable, but that detection is inevitable.
“It is this unyielding posture that serves to create a credible deterrent, sending a clear and strong message that improper conduct will not only be identified but will also lead to repercussions that are both decisive and resilient against appeals.”
He adds that the imposition of meaningful and appropriate sanctions forms the backbone of effective deterrence.
“There must be a real consequence for misconduct, substantial enough to discourage future violations but fair and proportionate in its application.”
The FSCA is tasked with imposing remedial actions and sanctions that are “effective, proportionate, and dissuasive” on entities and individuals who breach the provisions of the law.
“To this end, a dynamic sanctions guideline comes into play, taking into account numerous factors, including the gravity of the offence, disgorgement of ill-gotten gains, harm inflicted on investors, co-operation, past behaviour, and the depth of knowledge of wrongdoing,” says Kamlana.
Collaboration and co-operation
During the previous financial year, the FSCA referred 70 cases to the South African Police Service (SAPS). Many of these referrals found their way to the Specialised Commercial Crime Units and the Commercial Crime Courts.
Kamlana says that collaboration and co-operation between various regulatory authorities and enforcement agencies is essential. This includes sharing intelligence, co-ordinating investigations, and leveraging expertise.
“The interconnected nature of financial crimes requires a collaborative approach that transcends the boundaries of individual agencies, involving seamless co-operation between regulatory authorities, such as the FSCA, and enforcement agencies.”
But he adds harmonious collaboration does not happen by accident.
“It requires deliberate efforts to break down silos and foster strong partnerships. By forging a cohesive and determined front, we can surmount the obstacles ahead and re-establish South Africa’s standing as a secure and respected financial centre.”
Mirror Trading International
An example of “the spirit of collaborative pursuit of justice”, Kamlana says, is the Mirror Trading International (MTI) case in which the FSCA provided active support to SAPS and the National Prosecuting Authority in navigating complex commercial crime cases stemming from investigations conducted by the FSCA, as well as the Authority’s active involvement in the extradition of one of the central figures in the case.
In what would end up being called the world’s largest cryptocurrency Ponzi scam, Cornelius Steynberg, a Stellenbosch resident and the chief executive of MTI, engaged in a fraudulent international multilevel marketing scheme from May 2018 to March 2021.
According to a Commodity Trading Futures Commission (CTFC) media statement issued last year, Steynberg accepted at least 29 421 Bitcoin – with a value of more than $1 733 838 372 at the end of the period – from about 23 000 participants who were not eligible contract participants from the United States, “and even more throughout the world”.
The FSCA raised the red flag in August 2020, when the Authority warned the public that MTI was not licensed to conduct its proclaimed business.
Read: FSCA reports on investigation into Mirror Trading International (Pty) Ltd
Just over a year later, Steynberg fled to Brazil, leaving his family behind in South Africa. He was tracked down and detained on an Interpol arrest warrant in mid-2022. And this is where he currently remains – in a Brazilian jail.
Thus far, a charge of fraud, issued by the CTFC in June 2022, has resulted in Steynberg being ordered to pay close to $3.5bn in restitution and fines by a US judge. The order was handed down in April this year.
Two weeks ago, MyBroadband reported a Brazilian judge had found Steynberg guilty of using a forged identity document. According to the MyBroadband article, Steynberg’s three-year and six-month prison sentence had been commuted to an additional fine of R510 000 to be paid to a court-designated charity. He will remain in custody pending the outcome of the extradition case, the article stated.
Back home, News24 reported in April that the Western Cape High Court ruled that MTI (currently under liquidation) was an “unlawful Ponzi scheme” that generated returns for early investors with investments taken from those who joined later.
In the application brought by the company’s liquidators, acting Judge Alma de Wet ruled that all agreements concluded between MTI and its investors “in respect of the trading/management/investment of Bitcoin” were unlawful.
According to court documents, Clynton Marks, a 50% shareholder and self-proclaimed director in MTI, filed for leave to appeal on 18 August.
The matter is ongoing.
