Construction equipment dealers and capital equipment suppliers have not suddenly become targets for money laundering in South Africa. According to Hawken McEwan, Director of Risk & Compliance at nCino KYC, they have always been in criminals’ sights - the difference now is that the spotlight is firmly on them. Wilhelm du Plessis reports.
“The risk might not be obvious at first,” McEwan explains. “Why would a criminal want a drilling rig or an excavator? But once you start thinking about money laundering not just as cash in a suitcase, but as the movement of value, it becomes clearer.”
High-value machinery provides exactly what launderers need: a mechanism to move large sums of money and change its form. A single excavator, drilling rig or generator can be worth hundreds of thousands - or millions - of rand. By converting illicit cash into tangible assets, and then reselling those assets, criminals can create the appearance of legitimate business activity while obscuring the original source of funds.
In sectors such as construction and mining - where cash transactions, particularly at the smaller end of the market, are not unusual - distinguishing between legitimate and illicit behaviour can be challenging. Add to this the fact that capital equipment tends to retain value and can be resold locally or across borders, and the sector becomes an attractive vehicle for laundering.
How the schemes work
McEwan outlines several patterns that have emerged. One common method involves purchasing equipment with questionable funds, using it briefly or not at all, and then reselling it - often at a loss. On paper, it may look like a poor business decision. In reality, the criminal has converted dirty cash into clean funds backed by legitimate sale documentation.
In some cases, the equipment itself is almost incidental - the invoice is the true instrument. An overpayment followed by a refund request can effectively “wash” illicit money through a respected supplier’s bank account, creating a paper trail that appears legitimate.
Trade-based money laundering is another risk in this sector due to the high value of machinery. A South African front company might purchase a fleet of vehicles and sell them to an overseas buyer at an inflated price. The excess payment, disguised as part of a commercial transaction, is in fact laundered money moving across borders.
In more elaborate scenarios, criminals may equip a factory floor with machinery bought using illicit funds, then sell the entire “ready-to-operate” business. The proceeds of the property sale effectively legitimise the original dirty cash.
“The creativity is remarkable,” McEwan notes. “And often, innocent companies are being abused without realising it.”
Red flags dealers should not ignore
Cash payments remain an obvious warning sign, particularly where large sums are involved. But McEwan cautions that the danger is not always blatant.
Dealers should be wary of customers who are vague about their business activities or unable to clearly explain why they need specific equipment. A buyer who appears indifferent to price, specifications or warranties should also raise concern. “Legitimate buyers tend to care about the detail,” he says.
Other red flags include newly formed companies making substantial purchases without apparent funding constraints, multiple high-value transactions in a short period, and third-party payments - especially where funds originate from unrelated individuals or foreign entities.
“If something feels off, there’s a good chance it is,” McEwan advises.
The impact of the 2022 FICA amendments
The December 2022 amendments to the Financial Intelligence Centre Act (FICA) significantly altered the compliance landscape. Previously, many vehicle dealers fell into the category of reporting institutions with limited obligations. The amendments introduced a dedicated “high-value goods” schedule.
Under the revised framework, any business that sells any single physical good valued at R100 000 or more - including vehicles, machinery, artwork or electronics - qualifies as a High-Value Goods Dealer (HVGD) and is subject to full FICA obligations.
That means verifying customer identities, understanding the source of funds, screening for politically exposed persons (PEPs) and sanctions, maintaining detailed records, and reporting suspicious transactions.
“It was a game changer,” McEwan says. “And with the level of fines now in place, compliance is not optional.”
Common compliance mistakes
The biggest mistake, he argues, is inaction. Some HVGDs still do not realise the law applies to them. Others treat compliance as a tick-box exercise.
FICA compliance is layered and detailed, supported by extensive guidance notes and directives with the same force as the Act itself. Dealers often fail to conduct proper sanctions screening or check for political exposure. Where screening is done, it may only be performed once - despite requirements to rescreen whenever sanctions lists are updated.
Another recurring weakness is failing to understand what a suspicious transaction looks like within their specific business context.
“If you’ve never had to think about this before, how do you know what untoward looks like?” McEwan asks.
Practical steps to mitigate risk
For equipment suppliers, the starting point is straightforward: verify customers properly for every transaction involving a single item priced at R100 000 or more.
This includes collecting and verifying identity documents, CIPC registration details and proof of address. Importantly, documents must be verified against reliable sources - such as Home Affairs or credit databases - rather than simply copied.
Dealers should also assess the source of funds,check for sanctions and political exposure, train staff to recognise red flags, appoint an internal compliance officer with authority to halt transactions where necessary, and maintain robust record-keeping and reporting processes.
“You can’t just do one thing and be compliant,” McEwan emphasises. “It has to be holistic.”
The danger of complex payment structures
Third-party payments, overpayments followed by refunds, and split invoicing across entities or jurisdictions can all expose dealers to regulatory risk. These structures are frequently used in laundering schemes. If a dealer cannot reasonably explain why a Mauritian company is paying for equipment purchased by a Johannesburg contractor, the Financial Intelligence Centre may view the transaction as facilitated laundering or inadequate due diligence.
The risk is far from theoretical.
Financial and reputational fallout
Non-compliance carries severe consequences. Administrative penalties can reach millions of rand. In serious cases, criminal prosecution may result in fines of up to R100-million or imprisonment.
Yet reputational damage can be even more destructive. Public association with money laundering can prompt banks to close accounts, customers to withdraw, and manufacturers to terminate supply agreements. Directors may also face personal liability.
“Your assets and your freedom are ultimately on the line,” McEwan warns.
Balancing compliance with deal velocity
In a market where speed matters, many dealers fear compliance will slow sales. McEwan disagrees. When embedded early in the sales cycle - during lead qualification, site visits and demos - customer due diligence becomes part of normal business practice rather than a last-minute hurdle.
Technology, he adds, is a critical enabler. Automated identity verification, biometric checks, digital record-keeping and real-time sanctions screening can all occur in the background while sales teams focus on closing deals.
“Compliance done properly doesn’t have to slow you down,” he concludes. “In fact, when it’s built into your processes from the start, it can make your business stronger, safer and more efficient.”