An extensive investigation into illegal debit order scams involving the country’s major commercial banks has revealed the existence of organised crime syndicates seemingly operating on a massive scale.

This extensive and broad investigation involves the entire financial industry, the Hawks, the police and SARS, Fin24 understands.

The probe has uncovered that at least R1.6bn a year is being fraudulently debited from the bank accounts of ordinary South Africans. Around 55 million debit orders to the value of R80bn are processed by the country’s banks every month.

Fin24 understands that the investigation has uncovered at least three organised crime syndicates behind the illicit debit orders. It is said to be at an advanced stage, according to two sources close to the investigation.

The investigation spans a number of financial sector regulators, including the Financial Sector Conduct Authority (FSCA), the South African Reserve Bank (SARB), Payment Association of South Africa (PASA), the Financial Intelligence Centre (FIC), and the South African Revenue Service (SARS).

The banks have handed over information to the regulators and the Hawks.

Two criminal court case linked to one of these scams is underway in KwaZulu-Natal.

Tim Masela, head of the National Payments System at the South African Reserve Bank (SARB), said that he could not confirm the details of the investigation. However, he did confirm the involvement of the SAPS.

Industry-wide effort

For now, Masela said, the much talked-about DebiCheck system, which was designed to curb the widespread illegal deductions and to tackle "rogue elements" committing fraud, is being rolled out and implemented by the banks.

DebiCheck is industry-wide effort to curb fraudulent debit orders. It allows consumers to approve debit orders before they are deducted. The system will be operational at the end of the year.

PASA CEO, Walter Volker, told Fin24 that due to a directive by SARB in 2013, the entire debit order system was changed, and a world-first system was built from scratch.

DebiCheck has cost about R5bn to engineer, making it the biggest single payment project South Africa has undertaken.

According to Volker, DebiCheck will prevent illicit debit orders by seeking permission from customers to approve any deductions from their accounts.

"Instead of signing a paper debit order or doing a voice mandate on a call centre, the user (or service provider) will send an authentication request to your bank electronically and [the bank] would get a request [from you] for a mandate detailing who the collecting party is, how much you want to collect, what date you want to collect, and so on," he explained.

"Typically, this message will come through on your cell phone and then you can approve or reject it."

If enough mandates are rejected by consumers (half a percent), the bank will blacklist the company who requested the debit order. So far, about 500 companies have been blacklisted for failing to provide mandates for their debit orders.

Switcheroo

But blacklisting companies has not proved effective so far, as the directors often switch to another company and continue the scam.

As a result, according to Volker, DebiCheck will help regulators target directors.

"What we are doing is starting to vet the users coming in more tightly, so apart from looking at the company name we are starting to look at who the directors are so that if they register another company, if it’s the same director, we will just decline it."

Volker added that debit order scams have gradually increased. While 55 million debit orders are processed every month to the value of R80bn, PASA have received about 1.5 million disputes every month, of which about 60% are ‘cash flow management’ issues and legitimate debit orders.

Major banks have come under increasing fire from consumers over the now-infamous R99 deductions.

This saw mystery debits from ordinary South African bank accounts in the amount of R99 from unknown companies. At the time, these debits did not warrant a notification to consumers and flew under the radar as companies profited off the fraudulent transactions.

The banks say they have taken steps to ensure DebiCheck is implemented. Fin24 understands that all major financial institutions are cooperating with the investigation.

Banks' reaction

Earlier this year, Absa released a statement, saying: "Absa Group Limited has stepped up efforts to combat a recent spike in illicit debit orders and will file criminal charges against those suspected of being responsible. This will be done in conjunction with the PASA and the South African Banking Risk and Information Centre."

Communications manager at Nedbank, Danielle Square, said the bank is being proactive in preventing debit order scams.

"It is the sponsoring bank’s responsibility to ensure that the debit instructions coming into the system are trustworthy. As a sponsoring bank, Nedbank has taken proactive steps towards detecting likely fraudulent debit orders. We have also developed the investigation capability to determine if flagged companies are likely to be fraudulent," Square said.

Capitec Bank Marketing and Communications Executive, Francois Viviers, said while DebiCheck is being rolled out, the bank has taken its own measures to ensure the safety of customers. "We are focusing on creating awareness with clients to review and dispute potential fraudulent debit orders on the app or at a branch. These debit order originators are then investigated and referred to PASA if the bank suspects fraud. On approval debit orders and fees will be refunded to all affected clients.

"In addition, to protect our clients from these companies that put through invalid debit orders, Capitec has reduced the minimum value that triggers an SMS notification from R100 to R30 so that clients are informed of smaller debit orders on their accounts."

Christoph Niewoudt, CEO of FNB Consumer, also confirmed it has submitted "evidence of suspected unlawful conduct or abuse of the debit order system to law enforcement authorities".

"FNB takes the matter of unauthorised debit orders very seriously and continues to educate and engage with customers in this regard. Our customers are becoming more savvy and alert to unauthorised debit orders on their FNB accounts. The increased awareness and accountability in identifying and taking action against unauthorized debit orders by all parties in the National Payment System may be a contributing factor to the increased vigilance among customers," Niewoudt said, adding that FNB had developed systems available on its online banking and banking apps for consumers to track debit orders.

While investigations are ongoing, PASA has urged all those affected by the illicit debit orders to file a case with the police to strengthen their cases against rogue companies.