FORENSIC/ ANTI-MONEY LAUNDERING
Introduction to the Financial
Intelligence Centre Act (FICA)
ADVISORY
2
Introduction to Money
Laundering
3
RECENT ESTIMATES SUGGEST THAT US$500
BILLION TO US$1 TRILLION IS LAUNDERED
WORLDWIDE ANNUALLY. IT IS ONLY THROUGH THE
VIGILENCE OF FINANCIAL INSTITUTIONS THAT THE
SYSTEM CAN BE PROTECTED FROM PROVIDING
CRIMINALS OR TERRORISTS WITH A MECHANISM
FOR CONCEALING THE PROCEEDS OF ILLICIT AND
CORRUPT ACTIVITY
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What is Money Laundering
Money laundering is the process by which criminals
attempt to hide and disguise the true origin and
ownership of the proceeds of their criminal
activities, thereby avoiding prosecution, conviction
and confiscation of the criminal funds
COMMONLY REFERRED TO AS THE
“PROCEEDS OF CRIME”
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The Three C’s of Money Laundering
Convert illicit cash to another asset
Conceal the true source or
ownership of the criminal proceeds
Create the perception of
legitimacy for the criminal proceeds
Stages of Money Laundering
Placement: Physical disposal of cash
proceeds derived from illegal activity
Layering: Separating illicit proceeds
from their source by creating complex
layers of financial transactions
designed to hamper audit trail,
disguise origin of funds and provide
anonymity to true owner
Integration: Placing laundered
proceeds back into financial system in
such a way as to appear to be
legitimate business funds
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The expanded crime of Money Laundering
September 11, 2001 changed the way
traditional money laundering
(proceeds of crime) was viewed by the
international community.
Money laundering was expanded to
include the use of legal funds for
illegal purposes (ie terrorist financing
and tax evasion)
COMMONLY REFERRED TO AS
THE “PROCEEDS FOR CRIME”
Developing Trends in Money Laundering
General Trends
Becoming more sophisticated
Concealment within business structures
Misuse of legitimate businesses
Use of false identities or documents
Exploiting international jurisdictional issues
Use of anonymous asset types
Proceeds of corruption
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International response
to Money Laundering
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Terrorist Financing Reward Program (US Treasury 03)
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International Initiatives against Money Laundering
Basel Committee on Banking Supervision – Customer Due
Diligence (CDD)
The Vienna Convention – mainly linked to drug trafficking
The Third EC Money Laundering Directive
Financial Action Task Force (FATF)
40 Recommendations
9 Special recommendations on Terrorist Financing
USA Patriot Act
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An Anti-Money Laundering
Control in South Africa
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South African Anti-Money Laundering
Legislation
Prevention of Organised Crime Act, 121 of 1998
(“POCA”)
Financial Intelligence Centre Act, 38 of 2001
(“FICA”)
Protection of Constitutional Democracy Against
Terrorist and Related Activities Act, 2004
(“POCDATARA”)
Money Laundering and Terrorist Financing Control
Regulations
B1.10
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POCA
Introduce measures to combat organised crime, money
laundering and criminal gang activities
Prohibit certain activities relating to racketeering
Provide for the prohibition of money laundering
Create an obligation to report certain information
Criminalise certain activities associated with gangs
Provide for the recovery of the proceeds of unlawful activity
B1.10
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FICA
Establishment of the Financial Intelligence Centre
(FIC)
Establishment of the Money Laundering Advisory
Council
Imposition of both administrative duties and
reporting obligations
B1.10
18
POCDATARA
Provide for measures to prevent and combat terrorist and
related activities, and the financing of terrorism and related
activities
Provide for the offence of terrorism
Provide for Convention offences
Give effect to international instruments dealing with terrorist
and related activities
Provide for a mechanism to comply with UN Security Council
resolutions
Provide for investigative measures in respect of terrorist and
B1.10
related activities
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Money Laundering Control in Accountable
Institutions - FICA
The Financial Intelligence Centre Act (FICA) imposes certain
duties on institutions and other persons who might be used for
money laundering and/or the financing of terrorist and related
activities
Institutions consist of :
Accountable institutions (includes estate agents)
Supervisory bodies (Estate Agents Board)
Reporting Institutions
B1.10
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The difference between POCA & FICA
offences
POCA
FICA
Money laundering offences
Criminals who commit
crimes
Knowing/unwitting helpers.
Non-compliance with duties
aimed at preventing money
laundering.
E1.2
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How FICA operates
FICA
REGULATIONS
GUIDELINES
E
X
E
M
P
T
I
O
N
S
E1.2
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FICA: Estate Agents Duties
Accountable institutions (including Estate Agents)
have a duty to:
Perform Client take-on – (KYC) (Section 21)
Perform Record-keeping (Section 22)
Perform Transaction reporting – suspicious and cash
(Section 27 – 32)
Compile Internal rules – AML compliance manual
(Section 42)
Appoint a Money Laundering Reporting Officer - MLRO
(Section 43)
Provide Formal training to all employees (Section 43)
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Screening – UN 1267 list
POCDATARA – section 25
UN has identified:
entities who commit, or attempts to commit, any
terrorist and related activity or participates in or
facilitates the commission of any terrorist and
related activity
entities against whom Member States of the United
Nations must take the actions specified in
Resolutions of the said Security Council, in order to
combat or prevent terrorist and related activities
HOW DO I ENSURE COMPLIANCE
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Screening - Politically Exposed Persons
Why a money laundering/terrorist financing risk?
PEPs as a category of high risk clients
Common Risk Mitigating Controls
Recommendation 6 (FATF), Guidance Note 3 (FICA)
Institution must
Have systems to identify a prospective client as a PEP
Senior management approval
Source of funds
Enhanced monitoring
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FICA: Estate Agents Duties
Exemptions
Managing agents who collect sectional title and share
block levies are exempted from CIV
Not exempted from reporting suspicious transactions
Managing agents who perform letting functions over
and above their levy collection tasks must comply with
FICA
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FICA - Chapter 3
Part 1
Part 2
Part 3
Part 4
Duty to CIV
clients
Duty to keep
records
Duty to
report
Compliance
duty
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Customer Identification
and Verification
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Customer Identification and Verification
(CIV)
Section 21 and Regulations 3 – 19 prescribe the CIV
requirements
Exemption 2 – relaxed/simplified due diligence - may accept a
mandate and take preparatory steps, but may not conclude a
transaction before identification and verification
Regulation 21 – higher risk customers requires additional information
to be obtained
Source of client’s income
Source of funds which that client expects to use in the course of the
business relationship
Section 46 – failure to identify persons – imprisonment for 15
years or fine not exceeding R10 million
B2.1
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Customer Identification and Verification
(CIV)
Accountable Institutions are required to follow
prescribed steps in order to:
Establish and verify the identity of the client
If the client is acting on behalf of another person, to
establish and verify:
The identity of that other person
The client’s authority to establish the business
relationship
B2.1
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CIV – What does this mean for Estate Agents
Estate Agents granted a mandate to sell or lease must
conduct CIV on their customers
If you accept a mandate from a buyer or lessee – this
is your client – conduct CIV
Need to obtain certain identification information and
documentation
Need to verify certain information
31
CIV – When must I conduct CIV procedures
Exemption 2
Prior to accepting a mandate from a client, the client’s
identity must be established
Prior to performing the mandate, the client’s identify
must be verified (before an enforceable sale or lease
agreement in respect of the property is concluded)
In addition to the above, the Source of Funds to be
used must be obtained.
32
CIV – Joint ownership
If the property is owned by 2 or more persons, must I
identify and verify all the owners?
Yes !
33
CIV – Joint sole mandate
If two agents have a joint sole mandate, who must
identify and verify the client’s identity, or must this be
done by both agents?
Agree who is going to identify and who is
going to verify. Both agents do not have
to do CIV
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Customer Identification and Verification
Prescribed identification and verification steps are set
out in the Regulations for the following client types:
SA Citizens
Foreign nationals
Close Corporations
SA Companies
Foreign companies
Partnerships
Trusts
B2.1
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KYC Requirements – SA citizens and
nationals
Full name (Identify and verify)
Date of birth (Identify and verify)
Identity number (Identify and verify)
SA income tax registration number (currently
exempted)
Residential address (Identify and verify)
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KYC Requirements – Foreign nationals
Full name (Identify and verify)
Date of birth (Identify and verify)
Nationality (Identify and verify)
Passport number (Identify and verify)
SA income tax registration number (currently exempted)
Residential address (Identify only)
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KYC Requirements – SA Companies
Registered name
Registration number
Registered address
Trade name
Business address and if operate from multiple
addresses, address of office seeking to establish the
relationship; and address of head office
Full names, Date of birth, Identity number (SA citizen
or resident) or nationality (if foreigner) of manager or
each natural person who purports to be authorised to
establish a business relationship, or natural person
holding more than 25% of the voting rights
38
KYC Requirements – SA Companies
Registered name, Registration number, Registered address,
Trade name, Business address – of each company/cc that
holds 25% or more of the voting rights;
Name, Registration number, Registered address – of each
foreign company that holds 25% or more of the voting
rights;
Name of legal person, Address from where it operates,
Legal form – of each other legal person that holds 25% or
more of the voting rights;
Name of the partnership holding 25% or more of the voting
Identifying name and number of the trust that holds more
than 25% of the voting rights
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KYC Requirements – Close Corporations
Registered name
Registration number
Registered address
Trade name
Business address and if operate from multiple
addresses, address of office seeking to establish the
relationship, and address of head office
Full names, Date of birth, Identity number (SA citizen
or resident) or nationality (if foreigner) of:
each member
each natural person who purports to be authorised to
establish a business relationship
40
KYC Requirements – Close Corporations
Residential address and contact particulars of:
each member
each natural person who purports to be authorised to
establish the relationship
SA Income tax and VAT registration numbers
(currently exempted)
Authorisation of persons acting on behalf of the close
corporation, to establish the relationship
41
KYC Requirements – Foreign Companies
Name
Registration number
Registered address
Business name in country of incorporation
Address from where it operates in country of
incorporation, or if from multiple addresses, the
address of its head office
Trade name in SA
Business address in SA and if operate from multiple
addresses, the address of office seeking to establish
the relationship
42
KYC Requirements – Foreign Companies
Full names, Date of birth, Identity number (SA citizen or resident)
or nationality (if foreigner) of:
manager of affairs in SA
each natural person who purports to be authorised to establish the
relationship
natural person holding more than 25% of the voting rights
Residential/business address and contact particulars of:
manager of affairs in SA
each natural person who purports to be authorised to establish a
business relationship
natural person or legal person, partnership or trust holding more
than 25% of the voting rights
43
KYC Requirements – Foreign Companies
Registered name, Registration number, Registered
address, Trade name, Business address of each South
African company that holds 25% or more of the voting
rights
Name, Registration number, Registered address of
each foreign company that holds 25% or more of the
voting rights
Name of legal person, Address from where it operates,
and Legal form of each other legal person that holds
25% or more of the voting rights
Name of the partnership holding 25% or more of the
voting rights
44
KYC Requirements – Foreign Companies
Identifying name and number of the trust that holds
more than 25% of the voting rights
SA Income tax and VAT registration numbers
(currently exempted)
Authorisation of person acting on behalf of the foreign
company, to establish the relationship.
45
KYC Requirements – Other Legal Persons
Name of legal person
Address from where it operates
Legal form
SA income tax number (currently exempted)
Full names, Date of birth, Identity number (SA citizen
or resident) or nationality (if foreigner) of each natural
person who purports to be authorised to establish the
relationship
Residential address and contact particulars of each
natural person who purports to be authorised to
establish the relationship
Authorisation of person acting on behalf of the other
legal persons, to establish the relationship
46
KYC Requirements – Partnerships
Name
If partner is a natural person and SA citizen or resident:
Full names
Date of birth
Identity number If partner is a natural person and foreigner–
Full names–
Date of birth– Nationality[reg 13(b)(i)]
If partner is a natural person and foreigner–
Full names–
Date of birth– Nationality[reg 13(b)(i)]
If partner is a South African company or close corporation:
Registered name
Registration number
Registered address
Trade name
Business address
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KYC Requirements – Partnerships
If partner is a foreign company
Name
Registration number
Registered address
If partner is an other legal person
Name
Address
Legal form
If partner is a trust
identifying name
number
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KYC Requirements – Partnerships
Full names, Date of birth, Identity number (SA citizen
or resident) or nationality (if foreigner) of the person
who:
exercises executive control over the partnership
each natural person who purports to be authorised to
establish the relationship
Authorisation of person acting on behalf of the
partnership, to establish the relationship
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KYC Requirements – Trusts
Identifying name and number
Address of the Master of the High Court where trust is registered, if
applicable
SA income tax registration number (currently exempted)
Natural person
Full names
Date of birth
Identity number (if SA citizen or resident) or nationality (if foreigner) of
each trustee
each natural person who purports to be authorised to establish a relationship
Beneficiaries referred to by name in the trust deed or other founding instrument
founder
Where the beneficiaries are not referred to by name, it should be noted
how the beneficiaries of the trust are determined [reg 15(e)(ii)]. This
information can be verified with reference to the trust deed or other
founding document in terms of which the trust is created [reg 16(1)(a)].
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KYC Requirements – Trusts
SA Company or Close Corporation
Registered name
Registration number
Registered address
Trade name
Business address of
each trustee
beneficiaries referred to by name in the trust deed or other
founding instrument
founder
51
KYC Requirements – Trusts
Foreign company
Name
Registration number
Registered address of
each trustee
beneficiaries referred to by name in the trust deed or other
founding instrument
founder
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KYC Requirements – Trusts
Other legal person
Name of legal person
Address from where it operates
Legal form of
each trustee
beneficiaries referred to by name in the trust deed or other
founding instrument
founder
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KYC Requirements – Trusts
Partnership
Name of the partnership of
each trustee
beneficiaries referred to by name in the trust deed or other
founding instrument
founder
Trust
Identifying name and number of the trust of
each trustee
beneficiaries referred to by name in the trust deed or other
founding instrument
founder
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KYC Requirements – Trusts
Residential address and contact particulars of
each trustee
each natural person who purports to be authorised to
establish a business relationship
each beneficiary of the trust referred to by name in the
trust deed or other founding instrument
the founder
Authorisation of persons acting on behalf of the trust,
to establish the relationship
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Record keeping
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Duty to keep records
Keep all offer to purchase
documents for a period of 5
years after sale has been
concluded
Keep records accessible
Store electronically or on
paper.
Section 47 – Criminalises
non-compliance – 15 years
imprisonment and fine not
exceeding R10 million
B2.2
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Reporting obligations
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Duty to report suspicious & unusual
transactions
In general:
Report all suspicious
transactions
What is a suspicious
transaction?
Report via internal rules &
procedures.
Continue with transactions
Don’t tip off
Institution to decide whether or
not to report to the FIC
Failure to report suspicious
transactions – 15 years
imprisonment and R10 million
B2.3
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Reporting Obligations
In force:
Suspicious and unusual transactions
S 29 FICA: Person who carries on a business or is in charge of or
manages a business or who is employed by a business
FIC
15 days
Terrorist property
S 28A FICA: Accountable institutions only
FIC
5 days
Suspected terrorist or whereabouts
S 12 of POCDATARA: All persons
SAPS
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Reporting Obligations
Not yet in force (FICA):
Cash transactions above limit
S 28: Reporting and Accountable institutions
Cash across borders
S 30 - All
Electronic transfers
S 31 – Accountable institutions
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Protection for reporter ito POCA & FICA
Not compelled to testify in
court
Identity secret unless you
agree to testify
Breach of confidentiality is not
punishable
Protection from prosecution
for ML offence.
B2.4
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Internal Rules
63
Duty to implement internal measures
Develop and implement rules &
procedures
Make rules & procedures available
to all
Train employees
Appoint a MLCO
Section 62: Criminalises noncompliance – imprisonment not
exceeding 5 years and fine not
exceeding R1 million
B2.5
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FICA: Internal Rules
Internal Rules – Section 42 – must formulate and
implement: Manual
Concerning:
Identification/verification of persons
Record keeping
Reporting transaction
Available to employees
Train employees
Prosecution – utilise to determine “reasonable conduct”
Section 61: Criminalise - imprisonment not exceeding 5
years and fine not exceeding R1 million
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Amendment of FICA
66
Financial Intelligence Centre Amendment Act (2008)
Application of FICA when in conflict with other laws
Section 3 - giving supervisory bodies enforcement powers
Section 40 – information sharing
Section 43A – FIC Directives
Section 43A(2) – FIC or Supervisory Body may issue directive to
any category of accountable institutions/reporting institutions
Section 43A(3) – Specific directive to produce information, refrain
from doing something, perform act to remedy non-compliance with
FICA.
Costs
Section 43A(6)(b) – supervisory body may issue directive
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Financial Intelligence Centre Amendment Act (2008)
(cont)
Section 43B – Register of Accountable and Reporting Institutions
Section 45 – Enforcement powers to supervisory bodies
Costs incurred to be paid by member
Chapter 4
Section 45A: appointment of inspectors
“suitable person may be appointed by the Director of the FIC or
head of supervisory body as an inspector”
Section 45B – inspections
Costs incurred to be paid by member – “expenses necessarily
incurred”
No warrant required – open strong rooms, access computers etc
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Financial Intelligence Centre Amendment Act (2008)
(cont)
Section 45C – administrative sanctions
Issued by either the FIC or supervisory body, irrespective of
criminal proceedings
Section 45C(3) - Examples of administrative sanctions:
A caution not to repeat misconduct
A reprimand
Directive to take remedial action
Suspension
Financial penalty max R10m in respect of natural person and
R50m in respect of legal person
Section 45C(4)(b) – personal liability – payment of financial penalty
Financial Penalties paid into Criminal Assets recovery Account
(CARA)
Section 45C(7)(b) – failure to pay penalty/lodge an appeal, notice
has effect of civil judgement lawfully given in court
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Financial Intelligence Centre Amendment Act (2008)
(cont)
Section 51A – offence for not making a Section 28A
report – rectify previous omission
Section 61A – failure to register with the FIC, guilty of
an offence
Section 68 penalties:
Sub-section 1: Fine increased to R100 million from R10
million (general Chapter 3 offences)
Sub-section 2: Fine increased to R10 million from R1
million (specific offences)
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An Anti-Money
Laundering Program
71
Elements of an Anti-Money Laundering
Compliance Programme
C
O
M
P
L
I
A
N
C
E
AML
Policy
KYC
Procedures
RECORD
KEEPING
ACCOUNT
MONITORING
TRAINING
ANNUAL REVIEW OF AML PROGRAMME
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The three dimensions of AML
Know your customer
“Know your process”
Workflow management
“K
n
c us ow
tom you
er” r
Cl
Ris ient
k C Pro
ate file
go
rie
s
ur
yo n”
w o
no acti
K
“ ns
n
tra
tio
ac ring
s
an o
Tr onit
M
„
Text mining
„
Client identity and background
„
Beneficial owner and background
„
Source of funds
„
Monitoring over time
Know your process
„
Policies, procedures and controls
„
Roles and responsibilities
Know your transaction
„
Data mining
„
Trace complex, large transactions
„
Spot unusual behaviour
„
Large volume of transactions
„
The needle in the haystack
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A model money laundering
framework
Senior management
Internal audit reviews
Reporting
Legal and
regulatory
requirement
Policies
MLRO*
Procedures
Monitoring
Verify
identity
Client
Training and
awareness
Monitoring
for
suspicious
transactions
Internal
reporting
to MLRO
External
reporting
to
authorities
Local and
international
pronouncement
s
Record Keeping
*Money Laundering Reporting Officer
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Presenter’s contact details
Kevin West
KPMG South Africa
+27 12 431 1521
[email protected]
www.kpmg.com
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