WHILE banks doing business across Africa have to be careful with regard to their compliance with SA's Financial Intelligence Centre Act (Fica), they also have to be watchful to ensure that the other banks or agents with whom they engage are also complying with at least the same level of "knowing your customer" (KYC) as FICA requires of South African banks.

This requirement comes out of international efforts to combat money laundering and banks that have employed noncompliant banks as their agents could face significant fines and their reputations could be tarnished.

Bridget King, director: finance and banking at Cliffe Dekker Hofmeyr, says often when the bank is part of a global banking group, the reputational damage can be more consequentially harmful than just the large fine.

"The knock-on effect for the group is significant as even local infringements will be reported all the way up the line," King says.

"A while ago most of the major South African banks got large fines for not meeting certain FICA requirements and the Reserve Bank seems to be scrutinising banks more thoroughly than before as was seen from the levying of administrative fines and penalties under the act."

She says if a bank appoints a local agent such as another bank to do the KYC process it has to be responsible for that third party's actions.

"If, as your agent, they have not done the proper KYC you are as liable as if you had done it yourself. You cannot point to the other bank or agent."

Most of the anti-money laundering legislation around the world is focused on KYC regulations such as SA's FICA. At the same time, it is necessary for banks and their lawyers to know the KYC regulations for all the jurisdictions in which they do business. A bank in another African country may be compliant with its own domestic KYC regulations but the regulations themselves may fall short of the standards set in the US and EU.

King says in the past it was enough to be an expert on South African regulations but today, more than ever, banks and their lawyers have to also be experts on US and EU law.

"KYC or client verification and identification in Africa can be an issue that the developed world simply does not grasp. For example, verifying addresses in Africa is often a particular challenge as many people lack what would be seen elsewhere in the world as a formal address," King says.

She says a bank in Africa may have an offshore parent that has a KYC regime that complies with US or EU law and the parent creates internal policies that are required to be met by all their branches, including the ones in Africa.

"The bank branches and subsidiaries in Africa not only need to comply with their local KYC regime, but are also being held to the same standard as the offshore parent. Therefore, banks doing business via other banks need to double check the KYC standard in that country is high enough to meet FICA'S requirements."

This areticle was published on 19 May 2016 in the Business Day