Politically Exposed Clients: The Minefield Zondo Flagged Before FATF Greylisting

South Africa’s financial institutions are walking a tightrope. Fail to properly screen a politically exposed person (PEP), and they risk crippling penalties—especially as the country battles to escape FATF greylisting. The stakes? Nothing less than the integrity of the nation’s financial system.

Why PEPs Are a Compliance Nightmare

PEPs—government officials, their families, and close associates—are high-risk clients under FICA. Yet identifying them is fraught with challenges:
No official PEP database exists in South Africa
Many don’t disclose their status voluntarily
Manual screening is error-prone and inefficient

As Justice Raymond Zondo warned in his State Capture Report, PEPs have been weapons in financial crime, citing cases like:

• Gupta-linked money laundering via state contracts
• VBS Bank looting by politically connected figures

South Africa: A Money Launderer’s Playground

The 2023 FATF greylisting exposed glaring gaps in AML controls. Key vulnerabilities include:
Weak PEP due diligence
Inadequate transaction monitoring
Slow forensic investigations

“One corrupt PEP can funnel billions through shell companies,” says Hawken McEwan, Director of Risk at nCino KYC Africa. “Technology is now the first line of defense.”

How Tech is Changing the Game

With 15,000+ PEPs tracked in its system, nCino’s solution uses:
AI-driven screening to flag political exposure
Adverse media monitoring for real-time risk alerts
Automated workflows to ensure FICA compliance

“Waiting for clients to self-declare as PEPs is like hoping criminals will turn themselves in,” McEwan notes. “Proactive tech tools are non-negotiable now.”

The Cost of Non-Compliance

FICA mandates enhanced due diligence for PEPs, including:

• Senior management sign-off before onboarding
• Ongoing transaction monitoring
• Source-of-wealth verification

Failures can trigger seven-figure fines—or worse, enable another state capture-scale scandal.

The Path Forward

As South Africa works toward FATF delisting, financial institutions must:
Adopt AI-powered PEP screening
Train staff on evolving red flags
Pressure-test compliance systems regularly

“This isn’t just about avoiding penalties,” McEwan emphasizes. “It’s about rebuilding trust in South Africa’s financial ecosystem.

{Source IT Online}

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