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SARS Takes on South African Banks Over Unreported Suspicious Transactions

Published March 01, 2024
3 months ago

The South African Revenue Service (SARS) is poised to reinvigorate the legal landscape concerning the financial sector's due diligence in combating money laundering and fraud. Edward Kieswetter, the SARS commissioner, has made it clear that South African banks' obligations to disclose suspicious activities in their clients' transactions are non-negotiable, and failure to comply could lead to significant legal challenges.

Kieswetter's recent interview with Newzroom Afrika puts the onus firmly on banks, dispelling any notion that passive compliance is sufficient. Banks have the capabilities, through the lens of repeatability, nature, and volume, to detect questionable transactions. A superficial 'tick-the-box' approach to compliance does not measure up to the rigorous requirements of maintaining a secure financial ecosystem in South Africa.

According to the Financial Intelligence Centre Act (FICA), financial institutions are duty-bound to monitor and report suspect transactions. The implication is substantial; should banks turn a blind eye, they run the risk of being complicit in the broader implications of financial malpractice.

The context of SARS's unequivocal stance has been reinforced by the legal action taken against Sasfin Bank. This came hot on the heels of an Al Jazeera investigation that disclosed malfeasance involving major South African banks like Absa, Standard Bank, and Sasfin Bank. Corrupt bank officials had reportedly facilitated large-scale money laundering, resulting in significant tax revenue losses for the South African exchequer.

SARS, in its decisive response, has tabled a civil summons against Sasfin for a staggering R4.87 billion, plus interest and costs. This claim is rooted in the taxes, value-added tax, and additional charges that could not be collected due to the underhanded activities of some of Sasfin's former clients.

Sasfin's counterclaim is that such a precedent of holding them accountable for their clients' tax evasion is legally tenuous and unlikely to succeed. Their defense pivots on an adamant legal opinion underscoring that SARS's claim does not align with the boundaries of applicable law. This legal perspective suggests that the claim has a "very remote likelihood of success," a sentiment echoed by Sasfin Holdings' board of directors.

SARS' determination to clarify these principles in a court of law presents a landmark moment for South Africa's financial industry. It assumes the potential to shape how banks approach their surveillance responsibilities and could alter the landscape for financial institutional accountability.

This development stands as a testament to the agency's commitment to upholding the integrity of South Africa's financial system and its dedication to safeguarding the nation from financial crimes that undermine economic stability and growth.

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