form of cash Therefore it can be easily mixed with the proceeds of - - PowerPoint PPT Presentation

The concepts of money laundering and unlawful activities Money laundering is a three stage process:

• 1. The first stage is placement
• The origins of the illegal money is usually mixed

with the origins of legitimate money

• The proceeds of unlawful business are in the

form of cash

• Therefore it can be easily mixed with the

proceeds of a cash business

• A further aim is to convert the nature of the

profits from cash into some other forms of assets such as property or financial instruments e.g investment policies, travellers cheques etc

• 2. The second stage money launderers try to achieve

the following 4 objectives:

• Disguise the ownership
• Disguise the origin
• Disguise the audit trail
• Disguise the profit and source of crime
• This is achieved by conducting layers of complicated

financial transactions usually using electronic transactions. The concepts of money laundering and unlawful activities

• 3. The third stage consists of a series of more

transactions, designed to make the funds available to the criminals again.

• This is achieved by accessing the funds and using

it for legitimate purposes.

• The funds are then fully integrated into the

financial system. The concepts of money laundering and unlawful activities

What are unlawful activities:

• Any conduct that constitutes a crime or which contravenes any

law whether the conduct occurred before or after the commencement of the South African legislation or in South Africa or elsewhere constitutes unlawful activity. E.g Tax evasion, drug trafficking, theft, robbery, fraud, abduction, extortion.

• Proceeds of unlawful activities are defined as
• any property or service advantage, benefit or reward which

is derived, received or retained directly or indirectly in South Africa or elsewhere at any time before or after the commencement of the POCA Act which resulted from unlawful activities.

The concepts of money laundering and unlawful activities

• The governments of the world have united in the

fight against money laundering with an international agreement setting up the Financial Action Task Force (FATF)

• The FATF was founded in 1989 by the G7 countries
• The FATF activities include combating money

laundering for criminal and terrorist purposes.

• The FATF has issued 40 recommendations for action

against money laundering that form the basis for legislation in many countries. Background to Anti-Money Laundering Legislation

• International pressure on countries to adopt

measures that met with the FATF requirements led to the Financial Intelligence Centre Act 2001

• FICA added to POCA and the removal/reversal of

certain parts of POCA meaning the two acts have to be read in conjunction with each other

• POCDATARA was only added in 2004

Background to Anti-Money Laundering Legislation

• Money laundering legislation does not act upon the

crime itself but rather deals with the proceeds of that crime.

• The three main laws dealing with money laundering

in South Africa in chronological order (arranged in the order of time) are the:

• Prevention of Organised Crime Act 1998 (POCA)
• Financial Intelligence Centre Act 2000 (FICA)
• Protection of Constitutional Democracy Against

Terrorism and Related Activities 2004 (POCDATARA) Money Laundering Legislation

The Prevention of Organised Crime Act (POCA)

• The purpose of POCA is to introduce measures to combat
• rganised crime, money laundering and criminal gang

activities.

• The objectives of POCA:
• To criminalise racketeering (Racketeering refers to

criminal activity that is performed to benefit an

• rganization such as a crime syndicate). Examples of

racketeering activity includes extortion, money laundering, loan sharking, obstruction of justice and bribery and offences relating to activities of criminal gangs

Money Laundering Legislation

The Prevention of Organised Crime Act (POCA)

• To criminalise money laundering and a number of

serious offences in respect of laundering and racketeering

• To create a general reporting obligation for

businesses coming into possession of suspicious property

• To create a mechanism for criminal confiscation
• f proceeds of crime and for civil forfeiture of

proceeds Money Laundering Legislation

Money Laundering Offences under POCA:

• The offences are as follows:
• Offences involving proceeds of all forms of crime
• Offences involving proceeds of a pattern of racketeering
• Receiving or keeping property derived from racketeering

(swindling/committing fraud) and using or investing any part of that property in the acquisition of any interest in, or the establishment or operation or activities of any enterprise

• Receiving property from an enterprise when you know or

should have known that the property results from racketeering

• Penalties may be as harsh as imprisonment for 30 years or a

fine of R100 million

Money Laundering Legislation

The Financial Intelligence Centre Act (FICA):

• The purpose of FICA is to combat money laundering activities

and the financing of terrorist and related activities.

• FICA creates requirements to ensure that money laundering is
• controlled. These requirements are aimed at
• Identifying suspicious transactions
• Reporting of suspicious transactions
• People who are involved in money laundering activities will be

charged under POCA whereas people who fail to identify or report suspicious transactions will be charged under FICA

• FICA also requires accountable institutions who might be used

to launder money comply with certain legal duties relating to combating money laundering

Money Laundering Legislation

Accountable Institutions:

• The main purpose of FICA is to impose certain procedures onto

accountable institutions relating to identifying and reporting suspicious or unusual transactions

• Accountable institutions are businesses that can be used to

launder money for e.g:

• Banks
• Estate Agents
• Attorneys
• Trust Companies
• Collective Investment Schemes and
• Long term insurance companies
• FICA also establishes:
• The Financial Intelligence Centre and
• The money laundering advisory council
• To help combat money laundering

Money Laundering Legislation

Financial Intelligence Centre:

• The main objective of the FIC is to assist in the

identification of the proceeds of unlawful activities and the combating of money laundering activities.

• All accountable institutions are required by the Act

to report all information regarding money laundering activities to the FIC

• The FIC then hands over the case to the appropriate

authorities for further action. Money Laundering Legislation

Financial Intelligence Centre:

• Other objectives of the Financial Intelligence Centre are:
• To make information collected by it available to

investigating authorities, intelligence services and SARS to facilitate the administration and enforcement

• f the laws of the republic
• To exchange information with similar bodies in other

countries regarding money laundering activities and similar offences.

Money Laundering Legislation

The money laundering Advisory Council:

• The money laundering advisory council was established to

advise the minister of finance on policies and best practises to combat money laundering and to identify the proceeds of unlawful activities.

• It also acts as a forum in which associations representing

categories of accountable institutions, organs of state and supervisory bodies that report to the financial intelligence can consult one another.

• The council should also advise the financial intelligence

centre on the performance of its functions NB!! FICA requires the creation of a paper trail, with detailed records of the origins of the money placed with an accountable institution and the people involved

Money Laundering Legislation

The Protection of Constitutional Democracy against Terrorism and Related Activities Act (POCDATARA)

• Money laundering is sometimes used to fund the

activities of terrorist organisations, therefore

• POCDATARA Introduced an obligation to report

certain offences linked to terrorist activities, including terrorist financing and

• Reporting of any property associated with terrorist

and related activity to the financial intelligence centre Money Laundering Legislation

The Impact of FICA on FSP’s

• FICA creates the following four money laundering

control obligations for all accountable institutions

• The duty to identify and verify clients
• Duty to keep records of business relationships

and transactions

• Reporting duties and obligations to give and

allow access to information

• Adoption of measures designed to promote

compliance by accountable institutions

• As a result of the requirements FSP’s and

accountable institutions must have all the necessary policies, procedures and systems in place to ensure full compliance with the Act and other applicable anti-money laundering or terrorist financing legislation.

• This means that FSP’s must have adequate staff

training in place and proper systems and procedures to assist them to comply with the FICA. The Impact of FICA on FSP’s

The four money laundering control obligations in detail:

• The following obligations need to be adhered to by

accountable institutions, FSP’s and Representatives

• Identifying and verifying clients
• Reporting suspicious transactions
• Keeping records
• Training staff
• Reporting cash transactions over the prescribed

limit

• Formulating and implementing internal rules
• Lets look at these requirements a little closer to

understand the impact on the FSP and Reps The Impact of FICA on FSP’s

The FSP’s duties relating to its employees in terms of FICA:

• There are two main duties that the FICA imposes on

Accountable institutions/FSP’s relating to its employees which are:

• Training of staff

 FSP’s must ensure that staff are suitably trained in relation to the requirements of FICA and  FSP’s must put in place a reporting of suspicious transactions procedure  Penalties of non-compliance are maximum imprisonment for no longer than 5 years or a fine not exceeding R10million

The Impact of FICA on FSP’s

The FSP’s duties relating to its employees in terms of FICA:

• Formulating and implementing internal rules to

ensure  The identification and verification of a persons identity  Record keeping as set out in the Act  What steps need to be taken when deciding whether a transaction is reportable or not. The Impact of FICA on FSP’s

The FSP’s duties relating to its employees in terms of FICA:

• In addition to the above requirements accountable

institutions/FSP’s also need to be aware of the

• bligations created in
• Common law
• Industry specific and sector specific legislation
• The 40 FATF recommendations as changed from

time to time

• International best practises within the industry

The Impact of FICA on FSP’s

The Duty of the identification and Verification of clients:

• Some of the duties that FICA imposes on FSP’s are

also applicable to Representatives

• One of these requirements are know as KYC (know

your client)

• A FSP or Representative may not establish a business

relationship or conclude a transaction unless the following steps have been taken to identify and verify the identity of the client. The Impact of FICA on FSP’s

The Duty of the identification and Verification of clients:

• Obtain the clients full name, date of birth, ID

number, income tax number(where applicable) and the clients address.

• If the client is represented by another person

then verify the identity of the other person as well as their authority to act on behalf of the client.

NB!! The Act requires an accountable institution to identify and verify clients not only with single transactions but also when the client intends to establish an ongoing business relationship

The Impact of FICA on FSP’s

The Duty of the identification and Verification of clients:

• If an accountable institution established a business

relationship before the commencement of FICA it has to take steps to verify the identify of the existing clients before a new transaction is concluded

• Refer to page 232-234 of the Inseta manual for

additional information regarding KYC (know your client) The Impact of FICA on FSP’s

Exemptions applicable to identification and verification of Clients:

• FICA allows for certain exemptions relating to

circumstances where accountable institutions need to identify and verify clients. The Impact of FICA on FSP’s

• Accountable institutions/FSP’s do not need to identify

and verify clients when

• A transaction or business relationship is established or

concluded with a second accountable institution when the first accountable institution already identified and verified the client.

• Dealing with long term insurance policies that only

provide benefits upon death, disability, sickness or injury of the insured.

• Dealing with long term policies that are fund policies
• r fund member policies such as pension funds,

provident funds or retirement annuity funds approved in terms of the Income Tax Act

The Impact of FICA on FSP’s

Exemptions applicable to identification and verification of Clients:

• Accountable institutions/FSP’s do not need to identify and

verify clients when

• Dealing with long term insurance policies, unit trust or

linked product where the recurring premiums / contributions amount to R25 000 or less annually

• However
• If the recurring premiums / contributions increase and

exceed the R25 000 per annum limit or

• The policy/investment is surrendered/liquidated within 3

years after commencement or

• A loan is granted against the policy within 3 years after

commencement

• THEN - NB!! The client would need to be identified and

verified

The Impact of FICA on FSP’s

Exemptions applicable to identification and verification of Clients:

• Accountable institutions/FSP’s do not need to identify and

verify clients when

• Dealing with long terms policies, unit trusts or linked

products where a single premium or contribution is R50 000 or less

• However
• If the single premium or contribution exceeds the

R50 000 limit or

• The policy/investment is surrendered/liquidated within 3

years after commencement or

• A loan is granted against the security of such a policy within

3 years after commencement then

• THEN - NB!! The client would need to be identified and

verified

The Impact of FICA on FSP’s

Exemptions applicable to identification and verification of clients:

• Accountable institutions/FSP’s do not need to

identify and verify clients when

• Dealing with any other long term policy where

the surrender value of the policy is not more than 20% of the first 3 years premiums combined.

• However
• If the surrender value of the long term policy is

more than 20% of the first 3 years premiums combined

• THEN - NB!! The client would need to be identified

and verified

The Impact of FICA on FSP’s

The Impact of FICA on FSP’s – The recording function

• FICA requires the following records be kept

whenever an accountable institution establishes a business relationship or concludes a transaction with a client.

• The identity of the client
• If the client is acting on behalf of another person then, the

identity of the other person and the clients authority to act

• n behalf of the person
• If another person is acting on behalf of the client then, the

identity of the other person and their authority to act on the clients behalf.

• The manner in which the identity was established
• The nature of the business relationship or transaction

• FICA requires the following records be kept

whenever an accountable institution establishes a business relationship or concludes a transaction with a client.

• In the case of a transaction, the amount and the parties

involved in that transaction

• All accounts that are involved in transactions concluded by

that accountable institution in the course of that business relationship and the single transaction

• The name of the person who obtained the information on

behalf of the accountable institution

• Documents used to identify and verify the client or the
• ther person

The Impact of FICA on FSP’s – The recording function

• The records mentioned above may be kept in

electronic form.

• Records relating to the establishment of a business

relationship should be kept for 5 years from the date

• n which the business relationship is terminated
• Records relating to transactions should be kept for

five years from conclusion of the transaction

• FICA allows for third parties to keep records on

behalf of the accountable institutions provided that

• The accountable institutions has free and easy

access to the records. The Impact of FICA on FSP’s – The recording function

• Should the third party fail to keep proper records the

accountable institution is liable for that failure

• If an accountable institution decides to make use of

a third part to keep its records then the following particulars of the third party need to be provided to the Financial Intelligence Centre

• Name or business name
• Address
• Individual who exercises control of the third party
• Details of the person who liaises with the third

party on behalf of the Accountable institution The Impact of FICA on FSP’s – The recording function

Accessibility of information:

• Authorised Representatives of the financial Intelligence Centre

have access to records kept by an accountable institution during ordinary working hours and may

• Examine or
• Make extracts or
• Make copies of such records
• Where such records are not available to the general public, a

warrant issued by a judge or magistrate of the region in which the accountable institution conducts business is required by the representative of the FIC

• Such a warrant will only be issued if there are reasonable

grounds to believe that the records will assist in identifying the proceeds of unlawful activities.

The Impact of FICA on FSP’s

Accessibility of information:

• An accountable institution which fails to provide assistance to

the FIC can be found guilty of an offence which is punishable with imprisonment for a period of not more than 15years or a fine not exceeding R100 million. The duty to report certain transactions:

• Any person dealing with a client on behalf of the business is

required to report any suspicion regarding receiving proceeds

• f unlawful activities from clients.
• Any person who has reported a suspicious transaction may not

inform the client that such a report has been lodged , i.e no tipping off allowed.

• In practise this process is mostly handled by the money

laundering reporting officer of an institution.

The Impact of FICA on FSP’s

The Role of the Money Laundering Officer:

• Employees of an accountable institution will need to report

suspicious or unusual transactions to the money laundering

• fficer within the institution.
• The procedure for making the report must be laid down in the

internal rules that the institution has put in place to ensure compliance with FICA

• The reporting officer will investigate the transaction to

determine whether in fact it was suspicious or unusual.

• If the transaction is infact unusual or suspicious then the

reporting officer must report the transaction to the FIC within 15 days working days since learning of it or from when the suspicion first arose

• The FIC may also ask for additional information on the matter

The Impact of FICA on FSP’s

Indicators of suspicious transaction:

• Payments made to third parties
• Transfer of funds to other product providers
• Constant movement of money among different business

entities

• Transactions that have no apparent business purpose
• Transactions involving large cash amounts
• Surrendering of policies and second hand policies shortly after

they have been purchased

• Loans against new generation products

The Impact of FICA on FSP’s

FIC Guidelines to assist with the identification and verification process:

• The following are high risk factors relating to suspicious clients
• Clients that have multiple bank accounts with various

banks

• Clients making cash deposits to a general account of a

foreign correspondent bank

• Clients requesting delivery of credit and debit cards to

destinations other than his address

• Clients that have numerous accounts and makes or receives

cash deposits in each of them amounting to large aggregated amounts

• Clients that frequently exchange currencies
• Clients that wishes to have unusual access to safe deposit

facilities

The Impact of FICA on FSP’s

FIC Guidelines to assist with the identification and verification Process:

• The following are high risk factors relating to suspicious clients
• Clients accounts that show virtually no normal business

related activities but are used to receive or disburse large sums of money.

• Clients who have accounts that have a large volume of

deposits in bank cheques, postal orders or electronic funds transfers.

• Clients that are reluctant to provide complete information

regarding these activities.

• When clients financial statements differ noticeably from

those of similar businesses .

• Clients that make large volumes of cash deposits from a

business that is not normally cash intensive.

The Impact of FICA on FSP’s

Period for reporting suspicious or unusual transactions:

• Suspicious and unusual transactions must be reported no later

than 15 days after the person became aware of the suspicious

• r unusual transaction.
• The FIC can force an accountable institution to not proceed

with a transaction for a maximum period of 5 working days. Reporting cash transactions:

• The Act requires accountable institutions to report cash

transactions above the prescribed limit of R24 999,99 or

• Where there are smaller linked amounts that add up to an

aggregate that exceeds the above limit.

• This applies to deposits or withdrawals.

The Impact of FICA on FSP’s

The Consequences of Non-Compliance:

• Failure to identify a client
• R100 million or 15 years imprisonment
• Failure to keep records
• R100 million or 15 years imprisonment
• Destroying or tampering with records
• R100 million or 15 years imprisonment
• Failure to give assistance to the FIC
• R100 million or 15 years imprisonment

The Impact of FICA on FSP’s

The Consequences of Non-Compliance:

• Failure to report suspicious and unusual transactions
• R100 million or 15 years imprisonment
• Failure to train staff or to appoint a compliance
• fficer, or to implement internal rules
• R10 million or 5 years imprisonment

The Impact of FICA on FSP’s