Bradley Elliott
Regarding Eswatini’s scandal, Know Your Customer checks for Schofield, Mathias, and their businesses could have involved adverse media checks (such as the former’s earlier legal issues) and enhanced due diligence, considering the high risks they posed to financial institutions.
- Increased cooperation
South Africa’s financial sector is bringing together multiple public and private organisations to address AML and compliance gaps. The National Prosecuting Authority has established Bradley Elliott
Special Economic Zones (SEZs)—despite their intentions to boost employment, sustainability, and free trade—may create loopholes for financial criminals to exploit. A case in point is the “Swazi Secrets” scandal of 2018, when the Eswatini Financial Intelligence Unit (EFIU) found evidence of serious cross-border financial crimes.
This case and others like it highlight how important it is for nations and financial institutions to take special care when managing SEZ transactions and clients. This is doubly the case for South Africa as it strives to move out of the Financial Action Task Force’s (FAFT’s) grey list. Let’s take a closer look at this particular scandal and the lessons it holds.
Eswatini’s exposed SEZ
SEZs have become popular across Africa since the 1970s, with nations like Kenya, Nigeria, and South Africa championing them to attract investment and incentivise industrialisation. For example, South Africa operates multiple SEZs and over 180 were reported across Africa in 2020.
SEZs aim to ease doing business with tax incentives and a more relaxed regulatory environment. However, as the Organisation for Economic Cooperation and Development (OECD) outlined, they reduce barriers for launderers as they do for legitimate businesses.
In the Eswatini case, two individuals planned to open a gold refinery in the SEZ to develop metal trading. One was Keenin Schofield—son-in-law to Eswatini’s King Mswati III and a jeweller with previous smuggling convictions—and the other was Alistair Mathias, an alleged friend of the king, who posed as a businessman out of Dubai.
Following several suspicious payments between the two men and their related companies, the EFIU filed a suspicious transaction report to the Anti-Corruption Commission. An investigation revealed that the operation used gold to launder cash for clients in Zimbabwe and illegally smuggled gold to the UAE via Eswatini.
Millions of rands were funnelled from South Africa into Eswatini and the Middle East. This was made easier by the SEZ’s low-touch regulation and the close economic integration of South Africa and Eswatini. Both countries are members of the South African Common Monetary Area.
South Africa’s role in the evolving landscape
Since the greylisting and the Swazi secrets case, South Africa’s institutions and regulations have worked hard to strengthen the Anti-Money Laundering (AML) framework to address the FAFT’s recommendations. This framework lays the groundwork for South Africa cooperating with Eswatini and other neighbours to fight financial crime.
By taking the following steps, South Africa can help reduce similar incidents to Swazi secrets in the years ahead:
- Understanding the risks
A compliance-first culture goes beyond treating AML as a checkbox exercise. Best practises include updating global watchlists daily to identify sanctioned or politically exposed people, continuous screening of high-risk clients, and transparency around company structures, their beneficial owners, and connections between named firms.
an expert-led digital evidence unit, while the Prudential Authority is working to increase supervised inspections for AML, build awareness in financial institutions, and deploy supervisors in cross-border subsidiaries. This level of cooperation across the financial ecosystem enhances compliance and helps prevent illicit flows between jurisdictions while easing legitimate cross-border transactions.
- End-to-end platforms
Disparate data sources and systems make it difficult for investigative teams to track suspicious customer behaviours and send timely reports to authorities. FATF says that AML should be performed regarding immediate risk. RegTech solutions should allow for real-time detection of abnormal transactions that raise money laundering flags and immediate matching of names against watchlists and trusted news sources.
In the Swazi Secrets case, the offenders smurfed their cash deposits over time, transferring money in small increments. AML systems designed to pick up such patterns would have helped banks identify the risks more rapidly. An AML platform’s risk monitoring will streamline the submission of suspicious activity reports to the Financial Intelligence Centre (FIC).
AML protocols and the future of SEZs
The Swazi Secrets case harmed the reputations of all nations and institutions involved. It highlights the role of tight AML protocol and policy in ensuring SEZs promote economic progress. The right people and platforms can ensure the financial system’s integrity and identify potential financial criminals sooner rather than later.
Bradley Elliott, CEO of Anti-Money Laundering (AML) platform RelyComply He writes in his personal capacity.
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