Several local and international banks have been slapped with administrative fines by the South African Reserve Bank, for weak anti-money laundering and combating of financing terrorism controls.
The banks include Investec, Absa, Standard Chartered, as well as Habib Overseas Bank.
Overall, banks were fined a total of R46.5-million.
Absa was fined R10-million for weaknesses related to their transaction monitoring. Investec received the largest fine of R20-million. This was due to their failure to implement adequate processes to screen the related parties of customers.
Meanwhile, Habib bank was fined R1-million for “inadequate controls and working methods pertaining to the reporting of suspicious and unusual transactions”, the Reserve Bank said in its banking supervision report released on Friday.
The decision to pose the penalties was not as a result of evidence that any of the banks had facilitated illegal activity the SARB said, but rather because of the weakness of their control measures.
These banks have been issued with a directive to take remedial action.
Habib Overseas Bank was the target of a fraught acquisition bid by a company with links to Gupta family associate Salim Essa.
In March, Vardospan went to court to try and force the Reserve Bank, the registrar of banks and the finance minister to clear its purchase of Habib.
Vardospan accused the regulators and treasury of dragging their feet in authorising the purchase.
The Mail & Guardian has previously reported how Vardospan concluded a share purchase deal to become the majority shareholder in Habib Bank in August last year.
The deal came shortly after the country’s four major banks closed the accounts of the Gupta family and their related companies.
Vardospan is owned by CINQ Holdings and Pearl Capital Holdings. Vardospan director Hamza Farooqui owns 100% of the shares in Pearl Capital, which has a 33.33% stake in Vardospan. Essa owns 100% of CINQ, which holds the other 66.67% in Vardospan.
The court struck down Vardospan’s attempts to force the authorities hand. Incidentally, the court’s decision came hours after President Jacob Zuma axed former finance minister Pravin Gordhan in a major Cabinet reshuffle late on March 30.
The decision on the application now rests with new finance minister Malusi Gigaba.
By Lynley Donnelly for www.mg.co.za
Many South Africans have lost money through Internet banking fraud, with victims blaming their mobile operator for not protecting them against illegitimate SIM-swaps.
News reports emerged in 2016 that a crime syndicate had infiltrated the mobile operators and was performing SIM-swap and Internet banking fraud.
The banking Ombudsman has released its annual report, revealing which South African bank drew the most customer complaints in 2016.
According to the ombud there were a total of 5,219 cases opened against 17 different banks, over 74% of which were officially closed during the calendar year.
The majority of complaints (over 50%) were fraud related in some way. In these complaints, the complainant is overwhelmingly the victim of a scam. There is no maladministration on the part of the bank, according to the report.
Similarly, with debt-stressed complainants, the ombud found that there wass also no maladministration on the part of the bank, and complainants are simply looking to their banks to ameliorate their debt repayment obligations.
Most complained-about bank
As the biggest bank in South Africa by number of clients, it stands to reason that Standard Bank drew the most complaints during the year. However, when looking at the complaints as a portion of its banking clients, Standard Bank still takes the top spot.
Standard Bank boasted 11.8 million customers in December 2016, up from 11.6 million the previous year. More interesting is that the country’s second biggest bank (8.8 million clients) was only the 4th most complained about bank finishing behind both FNB (7.7 million) and Capitec (8.3 million).
How many complaints are resolved?
There was a slight drop in the number of cases found in favour of complainants for the year under review.
In the majority of cases (75.8%), the ombud found in favour of the bank, compared to 16.6% that were held in favour of the client, while just 0.2 withdrew their complaints completely.
In 2016 the ombud received 205 more internet banking complaints than in 2015. Interestingly, the majority of the internet banking complaints were related to cellphone banking, which increased by 7%. This suggests increased cellphone banking activity, but also a need for greater security, said the report.
There was also a 3% increase in credit card complaints. A staggering 36% of all credit card disputes were charge back disputes, where some element of fraud was alleged. This equates to a 16% increase year on year for this subcategory.
Unhappy banking clients have instituted legal action against the banking ombudsman and a number of South African banks due to the manner in which they handle Internet fraud cases, according to a report by the Rapport.
20 Absa and Standard Bank clients, who have each lost between R1 million and R2 million to Internet banking or SIM swap fraud, want the banks to be held accountable for fraudulent action.
The ombudsman meanwhile, will not open a case of fraud against a bank unless clients can prove that the bank’s acted negligently. If no negligence can be proven by the bank, it unfortunately means that the complainant is negligent.
In 2016, only 22% of cases of Internet fraud in South Africa was ruled in favour of the customer, while the remaining 940 cases of Internet banking-related complaints went in favour of the banks.
According to the report, the banks and the ombudsman argue that where a PIN or a password is fraudulently obtained, the client must be responsible as they are the only persons privy to that information.
However the 20 clients claim they never acted negligently nor did they give out personal information that could have compromised their accounts. They also argued that they have no way of proving a breach took place through the banks or via a cellular provider meaning it was next to impossible to prove who was at at fault.
They pointed to a recent case in which one of the 20 customers instituting the action had to take both Absa and Vodacom to court in order to determine who authorised a SIM swap on her cell number and therefore had access to her Absa bank account.
It was only after the court ruled in her favour and ordered that the client be given access to the records and was able to build a case that she was not liable for the fraud, said the report.
South Africa’s major banks implicated for price fixing by the Competition Commission could face heavy financial penalties as the Competition Tribunal can impose administrative fines of up to 10% of their turnover for collusive conduct.
“In a world of substantial and ever-increasing fines, as well as the potential for private damages actions, it would be critical for the banks to show that they have stringent compliance policies in place.
“This would assist in providing accurate data and reports to the authorities to show that the conduct complained of was that of a deviant employee/s, and not common practice,” says Anthony Crane, competition law partner at law firm, Dentons SA.
The commission said last week that it has been investigating a case of price-fixing and market allocation in the trading of foreign currency pairs involving the rand since April 2015. It has now referred the case to the tribunal for prosecution against 17 banks, including three of South Africa’s big banks.
Last year six banks in the United Kingdom were ordered to pay $6-billion for manipulating foreign exchange markets in 2013. Coupled with the fact that our courts are now getting to grips with private damages claims as indicated in the recent SAA/Comair matter, this could end up being an extremely expensive exercise.”
In addition, the banking sector was criticised in the State of the Nation Address for its highly-concentrated nature and so the timing of the referral is unfortunate for the banks. However, they now have an opportunity to formally respond to the allegations before the tribunal.
The banks being prosecuted are Bank of America Merrill Lynch International Limited, BNP Paribas, JP Morgan Chase & Co, JP Morgan Chase Bank NA, Investec Ltd, Standard New York Securities Inc, HSBC Bank Plc, Standard Chartered Bank, Credit Suisse Group; Standard Bank of South Africa Ltd, Commerzbank AG; Australia and New Zealand Banking Group Limited, Nomura International Plc, Macquarie Bank Limited, ABSA Bank Limited (ABSA), Barclays Capital Inc, Barclays Bank plc.
Edcon Holdings, South Africa’s biggest clothing retailer by sales, named Goldman Sachs Group and Houlihan Lokey as advisers as it started talks with bank lenders and 2019 noteholders on capital restructure plans.