Lack of RICA enforcement drives illegal financing and money-laundering risk

The Independent Communications Authority of SA (Icasa) is concerned about how many SIM cards are freely distributed, it told Parliament last year. SUPPLIED

The Independent Communications Authority of SA (Icasa) is concerned about how many SIM cards are freely distributed, it told Parliament last year. SUPPLIED

Published Jul 10, 2024


By Siphelele Khanyile

There is an increasing risk of South Africa being used as a conduit for illegal financing, according to a report published by the Financial Intelligence Centre (FIC) in June.

This of course makes getting off the Financial Action Task Force (FATF) greylist in which South Africa is flagged as a high-risk country due to the ease of illicit financial flows and money laundering more difficult.

Last month, the FATF said SA would not be ready to be removed from the greylist.

A simple way to reduce the money laundering and illicit financing risk could be by enforcing the Regulation of Interception of Communications and Provision of Communication-Related Information Act (RICA). Another way would be a simple amendment to the existing RICA legislation, which would require tamper-proof packaging and control the spread of SIM cards by distributors.

Currently, it is too easy for unidentified people to use phones with unRICA’d SIM cards to send money across borders anonymously in small, but frequent amounts. Previous reporting on this issue has shown how improperly or un-RICA’d SIM cards have been used, in some instances to funnel money for illicit purposes.

An investigation last year by the Sunday Times revealed that from 2018, billions of rand were sent from South Africa through remittance services in the informal economy to countries like Sudan and Nigeria, raising concerns about potential illicit financing. The publication reported that almost 60 000 SIM cards were used to launder money from SA in small transactions, less than R5 000 at a time and later linked to crime.

In one case, nearly 300 SIM cards were used in 26 000 transactions to move R300 million across borders. Some of this money was linked to a 2019-terror attack in Nairobi, Kenya, that left 22 people dead including a South African-born man.

The FIC notes in its June report that one-way flows through money value transfers – a way of sending remittances – while usually legitimate can be used for dubious means.

In some cases having a cellphone and SIM card are all that is needed to send money across borders through various apps or less well-known money services that transfer small amounts and do not need to enforce RICA provisions. There are thus two factors that make anonymous transfers easier within South Africa.

One is the proliferation of SIM cards available locally, which have already been incorrectly RICA’d before sale. This is in part due to the significant number SIMs which get distributed in South Africa every year. More than 100 million SIM cards were distributed last year, over two per adult.

The structure of the mobile phone industry leads to excess SIM cards being distributed, as distributors are paid commission on airtime bought by SIM cards they sell and so are incentivised to push out as many as possible.

The Independent Communications Authority of SA (Icasa) is concerned about how many SIM cards are freely distributed, it told Parliament last year.

The distribution is prolific in part because each mobile operator needs to keep subscriber numbers up and doesn’t want to lose customers to their competition, so they too are incentivised to flood the market with SIM cards, often pre-loaded with airtime. Some of these come without tamper-proof packaging, a vital safeguard against flouting RICA registration requirements.

The second issue driving the ease of mobile money and illicit transactions is the non-enforcement of RICA. All SIM cards are supposed to be registered to a single user’s name and identity number. But many are not correctly RICA’d or can be bought having been RICA’d to someone else.

Banks have raised concerns that some SIM cards used by banking customers that are not traceable despite being RICA’d, Icasa told Parliament last year.

The ease of being able to access hundreds of unregistered or improperly registered SIM cards makes anonymous money transfers across borders possible and creates a significant vulnerability in SA.

Regulation as part of an amendment to RICA can play an important role here. It can ensure that the sensitive information on each SIM card is not available without secure packaging. This makes enforcement, which is currently lax easier.

Sellers who have improperly packaged SIMs would be in clear violation of such an amendment. Regulations could also encourage mobile operators to distribute fewer SIMs, many that are used only once for the airtime they are sold with and then disposed of.

South Africa could follow the example of Nigeria and Kenya, which have both successfully clamped down on unregistered SIMs. This would not only make tracing illegal financial flows easier, but also contribute to a broader fight against crime. Often mobile phones used in organised crime like kidnapping and robbery cannot be traced to the specific user involved.

By enforcing RICA regulations more effectively, South Africa can take a significant step towards a more secure financial and digital landscape, and the new government could record easy wins against crime and money laundering.

Siphelele Khanyile is executive manager of SecuriTech