WELCOME Amendment of the Schedules to the Financial Intelligence - PowerPoint PPT Presentation

WELCOME

Amendment of the Schedules to the Financial Intelligence Centre Act: Consultation with the Trust Service Providers’ Industry 22 March 2017

Discussion Points • Background • Amendment of the Schedules to the FIC Act • 7 Pillars of Compliance • Case studies • Vulnerabilities of the trust and company service providers’ industry in the Schedules to the FIC Act • Benefits to regulating the the trust and company service providers’ industry for ML/TF purposes • International standards pertaining to trust and company service providers • Questions and discussion • Way forward

Background • The Financial Intelligence Centre Act (FIC Act) was passed in 2001 and FIC was started in 2003 • The FIC implements and administers the Act • FIC is South Africa’s national centre for the production of financial intelligence, responsible for identifying the proceeds of crime, combating money laundering (ML) and the financing of terrorism (TF) • The Act is a key component of South Africa’s anti -money laundering and combating the financing of terrorism (AML/CFT) regime • The Act identifies certain business sectors, called accountable institutions, as vulnerable to ML and TF activities

Background – continued • Central to implementing the AML/CFT regime, is the FIC Act’s intent of making the financial system transparent – requiring financial and other institutions to apply customer due diligence measures – the knowledge that an institution has about its customer • Institutions achieve customer due diligence measures by adequately capturing customer information in their records and sharing information for the further investigation of ML and TF, where necessary • The FIC uses the information submitted by business, including accountable and reporting institutions, as well as additional information to develop its financial intelligence reports

Background – continued • The FIC shares these reports with law enforcement authorities, the South African Revenue Service and other competent authorities. These partners of the FIC are able to use these reports for their follow up action and investigations • These competent authorities rely on the FIC as the only source of financial intelligence in the country, which is critical in assisting them with mitigating, addressing and disrupting criminal activities • The FIC also works closely with supervisory bodies, such as the South African Reserve Bank, the Financial Services Board and the Estate Agency Affairs Board – together they help identified sectors adhere to the necessary FIC Act compliance measures • Where no supervisory body exists for any sector, the FIC is the default sector supervisor

Amendment of the Schedules to the FIC Act • The FIC commenced a process of reviewing the current ML/TF legislative framework with the view to improving South Africa’s capability to combat ML and TF • The FIC Amendment Bill is one initiative in the review process • The amendments to Schedules 1, 2 and 3 to the FIC Act is another initiative in the review process • Amendments to the Schedules will improve the FIC’s ability to obtain information concerning the identities and financial activities of customers from a wider range of financial and other institutions • Widening the scope of the FIC Act will also bring South Africa’s legal framework against ML and TF in line with international standards set by the Financial Action Task Force (FATF), of which South Africa is a member

Amendment of the Schedules to the FIC Act – continued • Schedule 1 to the FIC Act contains a list of “accountable institutions” that are required to fulfill compliance obligations • Schedule 2 lists “supervisory bodies” that are responsible for ensuring accountable institutions comply with the FIC Act provisions • Schedule 3 lists “reporting institutions” that have to register with the FIC, submit reports on cash transactions of R25 000,00 and above and suspicious transactions • All business is obliged to report suspicious and unusual transactions to the FIC

7 Pillars of Compliance – for Schedule 1 institutions  Registration – section 43B of the FIC Act requires every accountable and reporting institution to register with the FIC  Identification and verification of clients – section 21 of the FIC Act requires an accountable institution to identify and verify the identity of the client  Keeping record of clients – section 22 of the FIC Act requires records of business relationships and transactions to be kept  Appointment of a compliance officer – section 43  Setting of internal rules related to compliance – section 42  Training staff on company compliance rules – section 43  Submitting reports to the FIC – among the statutory reports required of institutions are: suspicious transaction reports (section 29), cash threshold reports (section 28) – on transactions of R25 000.00 and above and terrorist property reports (section 28A) (only applicable to accountable institutions)

Case study 1 – Government the victim of fraud FOR INVESTIGATION PURPOSES FIC’s ROLE FACTS OF THE MATTER THE FOLLOWING WAS REQUIRED • Confirmation of the registration of a The FIC received a request from trust (with the registration number) the South African Police Service FIC assistance was • Names and identifiers of the to assist in obtaining information required where a trust founders of the trust associated with an inter vivos was used as a vehicle • Names and identifiers of the trust (also known as a living trust) for the laundering of beneficiaries (as well as previous which was created by attorneys the proceeds of crime beneficiaries) of the trust for the purpose of enabling where a government • Names and identifiers of the criminals to distance themselves department was the trustees (as well previous trustees) from the crime and ultimate victim of fraud of the trust proceeds of the crime • Copies of trust instrument (trust deed)

Case study 2 - VAT Fraud -Trust used as a vehicle for the laundering of the proceeds of crime The son is a chartered accountant. He used two trusts (inter vivos) to which his parents were trustees and two companies The family committed The D family from the to conduct the scam. a VAT scam Free State runs a defrauding SARS of chicken farm The proceeds from the scam were routed more than R50 million through the various accounts of the trusts and the companies. Refer to • http://www.dumelangnews.co.za/articles/family-scams-sars-r59m and • http://www.news24.com/SouthAfrica/News/couple-busted-in-massive-bloemfontein-vat-scam-20161116

Case study 3 - Theft of student fees at a university and laundering of proceeds of crime FACTS OF THE MATTER OUTCOME OF THE MATTER • • Based on information analysed in STRs This information was shared with law the FIC identified that an employee of a enforcement agencies which then took action university was unlawfully diverting against the accused. • R12 million from student loans into bank The FIC froze the relevant bank accounts, accounts under his control. securing more than R4.6 million. • FIC’s analysis reconstructed how the • The financial intelligence enabled the Asset individual laundered the proceeds of his Forfeiture Unit to obtain preservation orders for funds in the accused’s (including family crime and identified that the individual made payments into various bank members) bank accounts, including the accounts, including payments to bank family trust account and against movable and accounts of a family trust, and purchased immovable property purchased by the luxury motor vehicles. accused.

Vulnerabilities of the trust and company service providers’ industry • Trust and company service providers’ industry is exposed to potential exploitation by those looking for ways to launder criminal proceeds or raise funds for terrorist activity • This industry generally includes all those persons and entities that, on a professional basis, participate in the creation, administration and management of trusts and corporate vehicles (such as companies) • Trust and company service providers and other similar professions (such as accountants) are acknowledged as gatekeepers to the financial system • “Gatekeepers” can be described as those who provide gateways to the financial system through which potential users of the system, including launderers, can pass in order to do business with financial institutions

Vulnerabilities of the trust and company service providers’ industry - continued • In their report: FATF Money Laundering Typologies (2003 – 2004) concluded that: “ Increasingly, money launderers seek out the advice or services of specialised professionals to help facilitate their financial operations…” • The FATF typologies report “Laundering the Proceeds of Corruption” (July 2011), cites every case examined as having used corporate vehicles, trusts, or non-profit entities of some type. Generally, corporate vehicles and trusts have long been identified by FATF as posing a risk for money laundering