South Africa hopes to be removed from the Financial Action Task Force’s (FATF) grey list this year by proving it has adequate controls to combat financial crimes, prevent illicit transactions and money laundering.
The country was grey-listed in 2023 amid concerns it was being used as a hub for illicit financing and cross-border money flows. While addressing systemic issues in the financial sector is a complex and multifaceted challenge, there is one relatively simple fix that could yield significant progress: tightening controls over Sim card registration and usage.
In today’s digital age, phones are no longer just tools for making calls; they have become essential financial instruments. South Africans use them for banking, cross-border money transfers and everyday financial transactions. Recognising this shift, telecoms companies have evolved their business models, diversifying into financial services and offering loans, insurance and mobile money payments. With the increasing convergence of telecoms and financial systems, ensuring the integrity of Sim card registration is more critical than ever.
South Africa’s grey-listing, resulting from concerns around a lack of money laundering controls, has already had significant repercussions. The increased scrutiny has driven up the cost of doing business, adding layers of compliance requirements for banks, insurers and other financial institutions. Rebuilding trust with the FATF demands a demonstrable commitment to tackling illicit financial flows. Strengthening controls over Sim cards would not only address a key area of vulnerability but also signal the country’s determination to clean up its financial ecosystem.
Around the world, countries are implementing stricter measures to regulate Sim card registration and usage. For instance, in January India introduced mandatory biometric verification for all new Sim card registrations to curb financial crimes. Nigeria, Bahrain, Bangladesh, the Philippines and the UAE have also implemented stringent controls to ensure accurate tracking of Sim card users. These policies reflect a growing recognition that Sim cards are gateways to financial systems, and proper oversight is crucial for combating financial crimes.
Consequences
In South Africa, however, it remains alarmingly easy to acquire a pre-registered (pre-Rica’d) Sim card, which can then be used anonymously. This non-enforcement of the Regulation of Interception of Communications and Provision of Communication-Related Information Act (Rica) allows criminals to exploit mobile networks for illicit transactions and money laundering.
The consequences of lax Sim card regulations are already evident. In 2023, the Sunday Times reported on R6.3-billion in suspect transactions sent abroad through a remittance provider by people using cellphones to transfer money from 56 967 different cellphone numbers. These suspect payments to Kenya, Somalia, Nigeria and Bangladesh, worth billions, were facilitated by improperly registered Sim cards. Without stronger controls, South Africa risks becoming a hub for illicit financial activities of this kind.
Read: Sim card insanity in South Africa
A major flaw in the current Rica framework is section 40, which permits registered Sim holders – designated as “customers” – to transfer their Sim cards to others. While this provision originally accommodated families with one person registering a card in their child or spouse’s name, it has been exploited by large-scale distributors. These distributors, classified as telecoms customers, purchase Sim cards in bulk, register them under generic company names or incorrect ID numbers, and resell them to ordinary consumers. This practice not only undermines the intent of Rica but also creates a massive accountability gap. It can easily be stopped if Sim cards are sold in tamperproof packaging, which automatically makes it harder for distributors to register cards incorrectly in bulk without opening each card’s packaging and later resealing them.
Parliament is currently reviewing Rica, focusing on balancing the right to privacy with the need for phone surveillance of suspected criminals. However, in late 2024 in an answer to a parliamentary question, the department of justice has acknowledged the need for a more comprehensive overhaul of Rica and has convened a task team to explore significant changes.
Key among these reforms should be stricter controls over Sim card registration. Submissions to parliament have called for measures such as biometric verification, tamperproof packaging to prevent mass registration by distributors, and penalties for entrenched noncompliance with Rica. These measures would make it significantly harder for criminals to obtain and use Sim cards anonymously.
Read: I bought a new Sim card that was already Rica’d by someone else
The stakes are high. South Africa’s grey-listing has already tarnished its reputation and imposed significant economic costs. Escaping this status will require bold action, and addressing Sim card fraud is an essential step. Implementing stricter registration requirements, closing loopholes in Rica and ensuring accountability at every level of the telecoms supply chain will not only bolster the country’s case with the FATF but also safeguard its financial system from abuse.
By taking decisive action to regulate and properly package Sim cards, South Africa can demonstrate its commitment to combating financial crime and reclaim its place as a trusted player in the global economy.
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- The author, Farhad Khan, is a telecoms industry executive who has previously served as CEO of MTN Zambia and as chief commercial officer for Airtel Africa in Kenya. He writes in his personal capacity