Where there is money…. there will always be fraud and corruption!

Money laundering by terror organisations and organised crime syndicates is one of the biggest challenges facing governments world wide.

In South Africa this has led to the implementation of the following Acts:

Background to anti-money laundering legislation:

Money Laundering is considered to be the third biggest industry in the world which in addition makes one realise how vast the problem really is. Financial Action Task Force (FATF) has an agreement with governments all over the world. Governments especially united in the fight to combat money laundering and crime. FATF was founded in 1989 by the World’s largest countries known as the G7 countries. Today its activities are to combat money laundering for criminal and terrorist purposes. It also represents most countries around the world who have money laundering legislation in place. FATF has issued 40 recommendations for action against money laundering.  Therefore it also forms the basis of legislation in many countries. These recommendations are regularly being reviewed and updated, for legislation worldwide to keep it on track.

International pressure on countries to adopt measures that meet with FATF requirements has led to the Financial Intelligence Centre Act (FICA) 2001.

FICA added to POCA and repeated certain parts of POCA. This meaning the two Acts have to be read in partnership with each other. POCATARA was added in 2004.

The money laundering legislation

First of all the money laundering legislation, does not act upon the crime itself  it deals with the process of the crime.

There are 3 main acts to consider when dealing with money laundering in South Africa

  1. The prevention of organized Crime Act (POCA) No 121 of 1998;
  2. The financial intelligence Centre Act (FICA) No 38 of 2000; and
  3. The Protection of Constitutional Democracy Against Terrorism and related activities. (POCDATARA) Act 2004

Let us look at each of these acts for a better understanding:

1. POCA (The Prevention of Organised Crime Act) No 121 of 1998.

Purpose

To introduce measures to fight organised crime, money laundering and also criminal gang activities.

Objectives

  • Create a general reporting obligation for businesses therefore getting hold of suspicious property.
  • Criminalize racketeering and also offences relating to activities of criminal gangs.
  • Criminalize money laundering and a number of serious offences in respect of laundering and racketeering.
  • Create a mechanism for criminal confiscation of proceeds of crime and civil loss of proceeds.

Offences under POCA

  • Offences involving proceeds of all forms of crime and therefore all pattern of racketeering.
  • Receiving property copied from racketeering and using that property.
  • Receiving property from an enterprise, knowing that the property results from racketeering.

Penalties under POCA:

  • A maximum fine of up to R100 million,
  • and / or imprisonment of up to 30 years.

2. FICA (The Financial Intelligence Centre Act)No 38 of 2000.

Purpose

  • To combat money laundering activities and also the financing of terrorist and related activities.
  • In 2001 the FICA Act creates the requirement to ensure that money laundering is controlled.
  • The aim is to identify suspicious transactions so that people who engage in money laundering activities can consequently be charged under POCA.
  • Suspicious transactions must be reported under FICA, that will also provide the infrastructure to curb money laundering activities.
  • The Act also requires “Accountable Institutions” that could serve as a pipeline for “dirty money” to comply with certain legal duties relating to combat money laundering.

Accountable Institutions

The main purpose of FICA is to require a long list of accountable institutions and in addition to follow certain procedures and reports. To see suspicious activities or unusual transactions relating to combat money laundering. Accountable businesses themselves are not necessarily statutory bodies, but include people and business that can be used for money laundering purposes.

The list of accountable institutions define in FICA includes the following:

  • Banks
  • Estate Agents
  • Attorneys
  • Trust companies
  • Collective Investment Schemes
  • Long Term Insurance companies

FICA provides for a Financial Intelligence Centre (FIC) lending its name to the Act and a money laundering Advisory Council to help combat money laundering.

FIC ( Financial Intelligence Centre)

Purpose

FIC has to establish and maintain an effective policy and compliance framework. They provide high quality and timely financial intelligence to help South African authorities fight against crime, money laundering and terrorist financing.

Objective

  • To assist in the identification of unlawful activities and therefore combating money laundering activities.
  • These institutions are therefore required by the Act to report, all information in regards to money laundering activities to the FIC. It is then handed over to the appropriate authorities and as a result to further the recourse.
  • To make information collected by them available to investigating authorities. The intelligence service and SARS can then facilitate the administration and enforcement of the Laws of South Africa.
  • To exchange information with similar bodies in other countries because of money laundering activities and similar offences.

Money Laundering Advisory Council

Section 17 of FICA establishes the Money Laundering Advisory Council, an advisory body on fighting money laundering.

 Purpose

  • The Money Laundering Advisory Council advises the Minister of Finance on policies and best practices therefore fighting money laundering. Furthermore it also identifies the proceeds of unlawful activities.
  • The Council acts as a forum and in addition to association representing categories of accountable institutions and supervisory bodies it can report to FIC to consult with each another.
  • Finally the Council should  advise the FIC on the performance of its functions.

3. POCDATARA (The Protection of Constitutional Democracy Against Terrorism and Related Activities) Act 2004.

The anti-money laundering measures has been broadened because of money laundering by terrorist organisations.  In South Africa this led to the 2004 POCADATARA Act. In section 28A of FICA it requires the reporting of any offence linked to terrorist activities, including terrorist financing.

SARB (South African Reserve Bank)

Purpose

The South African Reserve Bank is the country’s central bank and therefore fulfill the role of managing the national money and banking system. This includes supervision and bank regulations.

Objectives

SARS monitors the activities of Financial Institution operating in South Africa to ensure that they adhere to regulations and laws, including Bank Act and also the Mutual Bank Act.

Money Laundering Control Obligations

The main duties of accountable institutions includes the following:

  • Identifying and also verifying clients
  • Reporting any suspicious transactions
  • Keeping records
  • Training staff
  • Reporting cash transactions over the prescribed limit
  • In conclusion formulating and implementing internal rules

Accountable institutions must have all the necessary policies, procedures and systems while ensuring full compliance with the FICA Act and other applicable money laundering or terrorist financing legislation.

The duty of the identification and verification of clients

An essential element in combating money laundering is therefore, getting to know your customer (KYC).

Objectives of KYC

To prevent banks from being used by criminal elements for money activities. Related procedures also enables banks to better understand customers and their financial dealings. This helps them manage their risks skilfully. Banks usually frame their KYC policies to cover the following four key elements:

  • Customer Acceptance Policy
  • Custom Identification procedures
  • Monitoring of Transactions
  • Risk Management

KYC controls

Kyc controls typically include the following:

  1. Collection and also analysis of basic identity info –  ID Document.
  2. Name matching against list of known parties or PEP
  3. Determination of , terrorist finance or identity theft
  4. Creation of an expectation of a customer’s transactional behaviour
  5. Monitoring of customer’s transaction against expected behaviour and also recorded profile and that of the customer’s peers.

KYC Procedures

Most of all these procedures are critical functions to access and monitor customer risk and legal requirement to also comply with Anti-money laundering (AML) laws.

KYC requirements for businesses and financial institutions

  • Establish customer identity
  • Satisfy yourself that the source of the customer’s funds is legitimate
  • Assess money laundering risk

Special exemption (for accountable institutions)

  • DO NOT have to identify and verify clients
  • Any long term insurance policy which also provides benefits and only upon the death, disability, sickness or injury of the life insured
  • The policy holder is a pension fund, or retirement annuity fund approved in terms of Income Tax act of 1962

The consequences of Non-compliance

Penalties for offences range from 5 years imprisonment or consequently a fine of up to R10 million. 15 years imprisonment and / or fine of R100 million.

Penalties in terms of FICA:

Offences subject to penalties includes the following:

  • Failure to identify persons will therefore result in R100 million or 15 year imprisonment.
  • Failure to keep records will therefore result in R100 million or 15 years imprisonment.
  • Destroying or tampering with record will also result in penalties.
  • The failure to give assistance to FIC.
  • Failure to report cash transactions as prescribed.
  • The Failure to report suspicious and unusual transactions will therefore also result in penalties.
  • Failure to train staff or to appoint a compliance officer or also implement internal rules.

The introduction of these acts has therefore gone a long way in aligning SA with the rest of the International community.

YOU AND I HAVE A RESPONSIBILITY!

  • We are required by law to be vigilant and honest.
  • We have to protect ourselves against prosecution by reporting our suspicions of a money laundering offence.
  • Know the different Acts and Laws and adhere to it!
  • Know your clients and as a result combat crime.

In conclusion:

WE as citizens are the heart of where it all happens, and managing the vast economies and currencies of the world requires all of us to carry a little bit of the responsibility.

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