[Home] [Databases] [WorldLII] [Search] [Feedback] South African Law Commission

You are here:  SAFLII >> Databases >> South African Law Commission >> Issue Paper >> 1 >> CHAPTER 2

[Database Search] [Name Search] [Previous] [Next] [Download] [Help]

CHAPTER 2

THE PROBLEM

2. 1. Money laundering can be described as the manipulation of illegally acquired wealth in order to obscure its true source or nature.^[2] This is achieved by performing a number of transactions with the proceeds of criminal activities that, if successful, will leave the illegally derived proceeds appearing as the product of legitimate investments or transactions.

2.2. The money-laundering process can generally be divided in at least three discernible stages namely the placement stage, the layering stage and the integration stage. During the placement stage the proceeds of criminal conduct, usually in the form of cash, are moved away from the location where it was obtained and placed in the financial system. Entry into the financial system is usually gained through financial institutions.

2.3. In the second stage the money, which is now in the form of electronic funds, is distributed through the financial system. This done by layering one transaction involving these funds on top of another by means of electronic transfers, shell companies, false invoices, etc. The result of these transactions is that the laundered money becomes indistinguishable from "legitimate" money.

2.4. In the integration stage the money that was diffused into the commercial sphere is collected and made available to the offender under the guise of being legitimate earnings. This description of the money-laundering process illustrates the vital importance of the financial system to the money launderer. It is used as a device to transfer his or her proceeds of crime and to alter the appearance of such proceeds.

2.5. South African law does at present not recognise this manipulation of the proceeds of crime as an offence save for the offence of "conversion of the proceeds of drug trafficking" under the Drugs and Drug Trafficking Act, 1992, (hereinafter referred to as the "Drugs Act").^[3] In cases where the Drugs Act does not apply, no offence will be committed unless the methods used to bring about the misrepresentation constitute another offence such as fraud.

2.6. In respect of regulatory measures the Drugs Act creates a statutory obligation to report certain information relating to the proceeds of drug trafficking.^[4] This obligation applies to any director, manager or executive officer of a financial institution, and compels such persons to report any suspicion that property acquired by the institution in the normal course of business is the proceeds of a crime to an officer of the Narcotics Bureau. The Drugs Act places a similar obligation on stock brokers and traders in financial instruments.^[5] A failure to report such information is punishable by imprisonment for up to 15 years, or any fine that the court deems fit, or both such imprisonment and fine.^[6]

2.7. As regards obligations of secrecy the Drugs Act provides that no such obligation will affect a person's obligation under the Act to report his or her suspicion.^[7]

2.8. Apart from these provisions, our law does not contain any measures by which money laundering can be controlled and combatted.

[2] Rider 1996 Journal of financial crime 238.

[3] Section 14(b) read with section 1(1) and section 7 of the Drugs Act.

[4] Section 10(2) read with section 1(1) of the Drugs Act.

[5] Section 10(3) of the Drugs Act.

[6] Section 17(d) read with section 15(1) and section 10(2) and (3) of the Drugs Act.

[7] Section 10(4) of the Drugs Act.