Moody’s applauds R35m bank fine

Moody’s says the move by the South African Reserve Bank to fine five banks R35 million for not complying with the law is good for SA’s rating status.
SA is currently rated two notches above junk by Moody’s and one notch above non-investment grade by S&P and Fitch. S&P and Fitch have indicated they will review SA’s rating in December after the country narrowly avoided being downgraded to junk a few months ago.
Moody’s says in a statement issued on Monday that SARB’s actions are credit positive for South Africa “because implementing measures to prevent money laundering will improve transparency and accountability in the financial sector”.
The Reserve Bank last Monday fined the five South African banks a total of R34.5 million because they had weaknesses in control measures. By far the heftiest fine was levelled against Investec, at R20 million, with the Johannesburg branch of Standard Chartered next at R10 million.
The weaknesses are related to controls required by the Financial Intelligence Centre Act. This law seeks to clamp down on money laundering and cash being used for illicit purposes, such as terrorism, and requires certain transactions be reported.
The five banks that were fined are GBS Mutual Bank, Habib Overseas Bank, Investec Bank, The South African Bank of Athens and Standard Chartered Bank - Johannesburg Branch.
SARB said these fines emanated after inspections were conducted to see whether banks had appropriate measures in place as required by legislation.
“The administrative sanctions were not imposed because these banks were found to have facilitated transactions involving money laundering or the financing of terrorism, but because of weaknesses in each of the banks’ control measures.”

Needed law
Moody’s says banks that report to the Financial Intelligence Centre cash transactions of R25 000 or more, and suspicious or unusual transactions, will help keep state institutions strong and obstruct money laundering and related illicit financial flows.
“If illicit financial flows were eliminated or significantly reduced, South Africa would broaden its tax base, thereby reducing its need for public borrowing and support debt sustainability. The country would also have more funds available for private and public investment, thereby supporting infrastructure construction and economic growth or programmes aiming to reduce poverty.”
Moody’s explains that although illicit financial flows currently sap South Africa’s resources, they are a potential domestic resource.
It cites a December 2015 report by Global Financial Integrity (GFI), which said South Africa lost more than US$209 billion (R2.8 trillion) between 2004 and 2013, which amounted to 6.5% of gross domestic product.
Even in 2013, when GFI estimated the illicit outflows were 4.5% of GDP, the amount exceeded foreign direct investment and portfolio inflows combined for that year.
SARB imposed its first sanctions, amounting to R125 million, on four large banks. Moody’s says the fact that current fines are lower, and levied against smaller financial institutions than in 2014, points to South Africa’s financial sector’s progress in adhering to requirements of the law.

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