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financial intelligence centre REPUBLIC OF SOUTH AFRICA

Financial Intelligence Centre Act of 2001

Presented by

Financial Intelligence Centre

04 October 2012

financial intelligence centre

REPUBLIC OF SOUTH AFRICA -2-

CONFIDENTIAL

Agenda

1. Money laundering

2. Financial Intelligence Centre – Overview and functions

3. Accountable and reporting institutions

4. Duties of AI’s in terms of the FIC Act

5. Exemptions 4 and 7

6. Financial Action Task Force

7. FIC Amendment Act

8. Questions & Answers



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Money Laundering

• Money laundering involves criminals and their associates trying to hide

the fact that their funds come from illegal activities

• In order for crime to pay, a criminal must be able to enjoy whatever it is

they have taken and are not entitled to

• Criminals channel dirty money through legitimate businesses and

institutions such as banks, casinos, estate agencies, brokers, etc

• Effects of money laundering



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Financial Intelligence Centre

• The FIC is South Africa’s national financial intelligence unit, tasked to

gather and analyze broad-spectrum financial information to generate

financial intelligence in the following areas:

Identify proceeds of crime

Money laundering and the

Financing of terrorism; and to

Generate financial intelligence about South Africa’s

Economy in order to protect South Africa’s economic integrity, its

Citizens against crime and its environment.

• To achieve its objectives, the FIC must also:

Monitor and give guidance to supervisory bodies and accountable/reporting

institutions on compliance with the FIC Act.



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Functions of the Financial Intelligence Centre

• Collect, process, analyse and interpret information

• Inform, advise and cooperate with investigating authorities, supervisory

bodies, SARS and the intelligence services

• Monitor accountable institutions, supervisory bodies and other persons

regarding FIC Act duties and responsibilities

• Give guidance to accountable institutions, supervisory bodies and other

persons regarding FIC Act duties and responsibilities

• Retain information in a manner as set out in the FIC Act



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Accountable and Reporting Institutions

• Schedule 1 – Accountable Institutions

• Schedule 2 – Supervisory Bodies

• Schedule 3 – Reporting Institutions

• Item 8 of Schedule 1:

A person who carries on a long-term insurance business as defined

in the Long-term Insurance Act

• Item 12 of Schedule 1:

Financial Services Providers – except short term and medical

scheme brokers only



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Duties of AI’s in terms of FIC Act

• Duty to establish and verify the identity of clients (section 21)

• Duty to keep records (section 22)

• Duty to report to the Centre:

Suspicious Transaction reports (section 29)

Terror property reporting (section 28A)

Cash threshold reporting (section 28)

• Internal administrative duties:

Duty to formulate internal rules (section 42)

Duty to appoint a compliance officer (section 43)

Duty to train staff (section 43)

• Duty to register (section 43B – inserted by Amendment Act)



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Duty to establish and verify the identity of clients (section 21)

• An accountable institution may not establish a business relationship or

conclude a single transaction unless the prescribed steps have been

taken to establish and verify the identity of:

The client

The person representing the client

The person for whom the client may be acting



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Duty to establish and verify the identity of clients (section 21) - continued

• The information and verification process differs depending on whether

the client is a:

Natural person

Company

Close corporate

Partnership

Trust

Legal entity

Identification and verification requirements are listed in the Money

Laundering and Terrorist Financing Control Regulations to the FIC Act



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Duty to keep records (section 22)

• Documents that must be kept

• What procedure does an AI follow in terms of record keeping?

• Who has access to these records?

• Is it documented?

• Period to keep records

• Third parties

• Are records readily available?

• Is there a policy in place that outlines the access control to these

records?



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Cash Threshold reporting (section 28)

• Introduced for all AI’s and RIs on 1 December

• Threshold amount is R24 999.99

• Different reporting options

• Report within 2 business days after becoming aware

• Accumulation

• Multiple reporting



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Terrorists need funds for their activities and property to organise and co-

ordinate them from.

Money laundering involves hiding the nature, source or location of dirty

money, terror financing focuses sometimes on legitimate income being used

in an improper way.

POCDATARA: Protection of Constitutional Democracy Against Terrorist and

Related Activities Act No. 33 of 2004



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Terror property reporting - section 28A – continued

• Section 28A – only accountable institutions report

• Section 29 – any person who carries on a business or is in charge of or

manages a business or is employed by a business

• Section 28A – pertain to property in possession of accountable institution

• Section 29 – pertain to proceeds of crime or property connected to an

offence relating to the financing of terrorist or related activities



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Section 4 of POCDATARA makes it an offence to be associated or

connected to the financing of specified offences

Section 28A of the FIC Act

Accountable institution in possession or under its control property owned or

controlled by or on behalf of, or at the direction of:

• Any entity which has committed or facilitated the commission of a

specified offence as defined in POCDATARA

• A specific entity identified in a notice issued by the President, under

section 25 of the POCDATARA Act – No list in South Africa (UN1267)



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How to report

• Complete prescribed form – on the Centre’s website

• Prefer internet based reporting

• Only in exceptional cases may report be faxed or hand delivered

• Regulation 22 – 24 of the Money Laundering and Terrorist Financing

Control Regulations

• May NOT be posted



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Section 29 - Suspicious Transaction Reports (STR’s)

• Defining a suspicion

• Who must report? This obligation applies to:

a person who carries on a business

a person who is in charge of a business

a person who manages a business or

a person who is employed by a business

• Tax evasion (section 29 b iv)

• STR’s have no cash threshold

• Time period for reporting – ASAP (not later than 15 working days)

• Continue transaction (section 33)

• Protection of person making report (section 38)



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Section 42 – Internal rules

• An AI must formulate and implement internal rules to document

procedures for:

The establishment and verification of client identities – Regulation

25

Record keeping – Regulation 26

Reporting of STR’s – Regulation 27

• The board of directors and senior management of an accountable

institution are responsible for compliance with the FIC Act.

• Internal rules should be approved by the board of directors and senior

management and be made available to Centre and SB on request



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Section 43 – Appointment of compliance officer

• An AI has a duty to formally appoint a compliance officer

• The compliance officer should have general knowledge of the overall

operations of the institution

• Interact with all of the departments and branches to keep abreast of

changes that may require action to manage perceived risk

• The compliance officer must have access to all areas of the institution’s

operations to effect corrective action



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Section 43 – Training and monitoring of compliance

• An AI must provide training to its employees on the FIC Act and internal

rules

• A compliance officer is responsible for ensuring that training takes place

• Training manual must frequently be updated

• Training should be ongoing with regular refresher courses

• Employees may be assessed to evaluate level of knowledge and

understanding

• Employees should not deal with clients if they have not yet received

training on FIC Act and internal rules



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Section 43B – Registration

• Each AI to be registered separately

• Registration online – unless impossible

• Registration to be finalised by 1 March 2011

• Contents of online registration form

• Validation process

• No registration fees

• MLROs

• Amendments to registration information



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Exemptions in terms of the FIC Act

Exemption 4

• Applicable to business relationship or single transaction

• Two AIs involved: primary - and secondary

• Business relationship or single transaction concluded with the secondary

AI by the primary accountable institution

• Example

Broker (primary AI) sells product on behalf of Company (secondary AI)



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Exemption 4 - continued

Primary AI needs to confirm in writing to the secondary AI that:

• It has established and verified the identity of the client in accordance

with section 21 of the FIC Act; OR

• In terms of its internal rules, comply with identification and verification

requirements for every client on whose behalf it transacts with the

second AI



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Exemption 4 - Exempted from compliance with:

Section Exempted from

Section 21 Identification of clients

Section 22(1)(a) Record keeping of identity of client

Section 22(1)(b) Record keeping of identity of client if client is acting on behalf of

another person

Section 22(1)(c) Record keeping of identity of person who is acting on behalf of

client

Section 22(1)(d) The manner in which the identity of persons referred to in section

22(1)(a) to (c) was established

Section 22(1)(e) The nature of that business relationship or transaction

Section 22(1)(h) The name of the person who obtained the information referred to

in section 22(1)(a) to (c) on behalf of the accountable institution



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Exemption 7

• AIs, are exempted from compliance with the provisions of section 21 of

the FIC Act that require the establishment and verification of the

identity of a client of that institution and sections 22 to 26 that provide

for record keeping, for the following products:

A fund policy or fund member policy as defined in the LT Insurance

Act

A unit trust or linked product investment effected by a pension fund,

provident fund or retirement annuity

Compulsory living annuity. (Annuity policy taken out at retirement with

two thirds of P/F money)



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Reinsurance policies (policy between insurers to reduce liabilities)

Assistance policies (life policy with maximum benefit of R18 000)

Long-term policies providing benefits only upon death, disability,

sickness or injury (pure risk life, health and disability policies with no

surrender or paid-up value)

Long-term policies of which the annual value of recurring premiums is

R25 000 or less, on condition that the policy is not surrendered within 3

years, no loan granted with the policy as security and premiums not

increased above R25 000

Long-term policies with a single premium of R50 000 or less, on

condition that the policy is not surrendered within 3 years and no loan

granted with the policy as security



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Investments in unit trusts or linked product investments of which the

annual value of recurring payments is R25 000 or less, on condition that

the investment is not liquidated within 1 year

Investments in unit trusts or linked products with a single investment of

R50 000 or less, on condition that the investment is not liquidated within

1 year

Long-term insurance policies of which the surrender value within 3 years

of commencement does not exceed 20% of the value of the premiums

paid

Investments by pension funds, provident funds or retirement annuity

funds in securities listed on an exchange



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Financial Action Task Force

• International standard setting body for FIUs

• 40 recommendations

• Mutual evaluation done in 2008



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Summary of the FIC Amendment Act

• Extension of powers of supervisory bodies (Section 15 amending section

45)

• Conducting of formal inspections (Section 16 inserting section 45A and

45B)

• Issuing of directives (Section 14 inserting section 43A)

• Requirement to register (Section 14 inserting section 43B)

• Administrative sanctions (Section 16 inserting section 45C)

• Establishment of appeal process (Section 16 inserting section 45D)

• Establishment of appeal board (Section 16 inserting section 45E)

• Revised penalties (Section 17)



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Feedback and Enquiries

• Enquiries by e-mail: [email protected]

• Telephonic enquiries: +27 860 FIC FIC (342 342)

mailto:[email protected]







CONFIDENTIAL

Questions & Answers