Is the South African effort toward reducing money laundering optimal?

Abstract

Purpose

A measure of how much money is laundered is required to determine the effectiveness of any anti-money laundering regime and the reduction of money laundering in targeted areas. In the absence of useful estimates, authorities need to look at the best quality data available to arrive at a meaningful estimate and a consequent target for reduction of money laundering. Since tax crimes are viewed as one of the top three sources of laundered money, an understanding of the underlying predicate offence – tax evasion – may be indicative of the values or volumes involved in order to facilitate a target setting process. It is suggested that a “whole of government approach”, as is advanced by the OECD, is applied between the tax administration and the financial intelligence centre in South Africa. The paper aims to discuss these issues.

Design/methodology/approach

By reviewing tax gap and money laundering estimation models and results from South Africa's first tax amnesty, it is proposed that micro analysis methodologies are applied to arrive at an estimate of the size and impact of money laundering which results from tax evasion practices.

Findings

By making basic inferences from the results of the 2003 voluntary disclosure programme, it is estimated that a potential revenue gap of between ZAR4 billion and ZAR12 billion exists for personal income tax alone and that the value of personal assets acquired from the proceeds of crime can, at any time, be as high as ZAR1.4 trillion.

Originality/value

In the absence of empirical and statistical data, it is necessary for authorities in developing countries to identify and make use of the most relevant and detailed data to assess its effectiveness in identifying, quantifying and reducing money laundering.

Citation

Schlenther, B. (2014), "Is the South African effort toward reducing money laundering optimal?", Journal of Money Laundering Control, Vol. 17 No. 1, pp. 17-33. https://doi.org/10.1108/JMLC-07-2013-0025