FATF Recommendations and AML Laws Overview

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Questions and Answers

What is the primary purpose of ongoing due diligence in customer relationships?

To finalize customer transactions more quickly

To increase the number of customers served by the institution

To reduce operational costs associated with customer management

To ensure transactions are consistent with an AI's knowledge of the customer (correct)

Which of the following is an aspect of the continual due diligence process?

Ensuring customer loyalty through rewards

Improving marketing strategies for existing customers

Reassessment of the customer's risk profile (correct)

Monitoring customer service requests

How does effective transaction monitoring contribute to ongoing due diligence?

By accelerating the approval process for transactions

By allowing staff to review customer feedback regularly

By enhancing customer satisfaction through service quality

By identifying unusual patterns or large transactions (correct)

What is the importance of customer information re-verification processes?

To ensure accurate and relevant customer information is retained Signup and view all the answers

What does keeping up-to-date information about customers aid in?

Effectively monitoring accounts for unusual activities Signup and view all the answers

What is the primary aim of the FATF Recommendations?

To establish a coordinated global response to prevent organized crime, corruption, and terrorism Signup and view all the answers

How does the FATF address new financial risks?

By continuously strengthening its standards to include new risks like virtual assets Signup and view all the answers

What does adherence to the FATF Recommendations provide to member countries?

A stable international financial system and encourages investor confidence Signup and view all the answers

What specifically does the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act, 2022 aim to address?

Deficiencies in customer due diligence measures identified in a Mutual Evaluation Report Signup and view all the answers

What is one of the roles of the FATF in relation to countries that do not comply with FATF Standards?

To hold those countries accountable and monitor their actions Signup and view all the answers

Which aspect of money laundering does the FATF NOT explicitly address?

Prosecution of money laundering offenses Signup and view all the answers

How does South Africa relate to the FATF?

It became a member of the FATF in 2003. Signup and view all the answers

What do customer due diligence measures primarily focus on within the FATF framework?

Ensuring the identification and verification of customers Signup and view all the answers

What is the penalty for a legal person non-compliant with Section 46A's due diligence requirements?

Up to R50 000 000 Signup and view all the answers

How has the definition of 'foreign prominent public official' been amended according to the recent changes?

It is replaced by 'foreign politically exposed person'. Signup and view all the answers

What must an AI consider when evaluating a relationship with a Domestic Prominent Influential Person?

Any higher risk of abuse for money laundering or terrorist financing. Signup and view all the answers

Which penalty applies to a natural person found non-compliant with Section 46A?

Up to R10 000 000 Signup and view all the answers

What is true about the categorization of 'prominent influential persons' as per the new amendment?

It is a distinct category separate from politically exposed persons. Signup and view all the answers

Which of the following best describes the risk level associated with business relationships with Domestic Prominent Influential Persons?

They are not inherently high-risk but must be evaluated individually. Signup and view all the answers

What happens if an AI fails to perform additional due diligence measures as required in Section 21F?

They will receive an administrative sanction. Signup and view all the answers

What does Section 21G indicate about business relationships with Domestic Prominent Influential Persons?

Evaluations must consider potential money laundering risks. Signup and view all the answers

What action may an AI take if it suspects a transaction is suspicious and believes CDD will inform the client of an STR?

Discontinue the CDD process and consider filing an STR. Signup and view all the answers

What is the penalty for a natural person failing to comply with additional due diligence under Section 46A?

Up to R10,000,000 Signup and view all the answers

What must an AI do if it has doubts about the veracity of previously obtained information?

Repeat the steps in sections 21 and 21B to confirm the information. Signup and view all the answers

What type of sanction can a legal person face for non-compliance with due diligence under Section 46A?

Up to R50,000,000 as an administrative sanction Signup and view all the answers

When must an AI submit a Suspicious Transaction Report (STR)?

If there is a suspicion during due diligence that warrants it. Signup and view all the answers

Which section of the penalties relates to the duty of AIs to perform additional due diligence measures?

Section 46A Signup and view all the answers

What must happen if an AI freely acknowledges doubts about the adequacy of information before engaging with a client?

The AI must repeat the necessary due diligence steps. Signup and view all the answers

What is NOT a consequence outlined for failing to comply with the requirements set forth in Section 21C?

Legal action against the AI Signup and view all the answers

What must be conducted for high-risk customers according to the enhanced due diligence measures?

Adequate documentation in the RMCP Signup and view all the answers

What is the purpose of understanding the legal person's ownership and control structure?

To determine the natural person/s with controlling ownership interest Signup and view all the answers

Which form of ownership interest is associated with cooperative members?

Membership share Signup and view all the answers

What does the ultimate beneficial ownership concept help clarify?

The beneficiaries of all legal persons, partnerships, and trusts Signup and view all the answers

Why is it vital to have accurate beneficial ownership information?

To prevent identity of criminals from being disguised Signup and view all the answers

What is the potential consequence of inadequate beneficial ownership information?

Facilitation of money laundering, terrorism financing, or proliferation financing Signup and view all the answers

What is necessary to create a holistic view of a customer profile?

Understanding the ultimate beneficial ownership Signup and view all the answers

Which type of legal entity issues shares owned by shareholders?

Company Signup and view all the answers

What significant power was extended to the Centre under the General Laws Amendment Act regarding information access?

To request access to databases held by any organ of state Signup and view all the answers

Which sector's compliance supervision was specifically entrusted to the Centre by the Amendment Act?

Estate agency and gambling sector Signup and view all the answers

Which requirement was added regarding trustees' responsibilities under the Trust Property Control Act?

Trustees are required to hold information on agents and service providers Signup and view all the answers

What change relates to the oversight of Non-profit Organizations (NPOs) as per the Amendment Act?

All NPOs, regardless of registration, are bound to compliance Signup and view all the answers

What is a proposed requirement related to beneficial ownership within companies under the Amendment?

Companies must keep accurate shareholder registers Signup and view all the answers

What is the goal of the amendments made to the Financial Sector Regulation Act (FSRA)?

To enhance the financial sector regulators' ability to assess beneficial owners' fitness Signup and view all the answers

Which organization is primarily responsible for supervising exchanges like JSE under the amendments?

The Financial Sector Conduct Authority (FSCA) Signup and view all the answers

What does Recommendation 26 specifically aim to do within the FSRA?

Establish frameworks for assessing beneficial owners' integrity Signup and view all the answers

What is an offence highlighted in the amendments regarding the role of trustees?

Specified breaches of the Trust Property Control Act Signup and view all the answers

What is a primary characteristic of trusts and shell companies in relation to money ownership?

They can obscure the true beneficial ownership of money. Signup and view all the answers

Which of the following offenses is NOT categorized as a predicate offense under the 6th Anti-Money Laundering Directive?

Tax evasion Signup and view all the answers

What must an accountable institution (AI) establish regarding the identity of noted persons?

They must maintain a record of identity verification processes before any transaction. Signup and view all the answers

In which jurisdiction would trusts and corporate vehicles often not disclose their true beneficial ownership?

Countries that specifically allow limited disclosure of beneficial ownership. Signup and view all the answers

What is one responsibility that accountable institutions must implement according to the FIC Act?

They must determine when transactions necessitate reporting. Signup and view all the answers

Which aspect of money laundering does the 6AMLD explicitly define?

The list of predicate offenses relative to money laundering. Signup and view all the answers

Why is it essential for accountable institutions to keep accurate records?

To comply with regulatory requirements effectively. Signup and view all the answers

What type of entities are classified under Schedule 1 of the FIC Act?

Persons or organizations carrying out specified business functions. Signup and view all the answers

What is essential to confirm during the customer identification process?

The nature and intention of the transactions Signup and view all the answers

What must be included in a client profile for enhanced ongoing monitoring?

Source of wealth and source of funds Signup and view all the answers

What determines the extent of verification needed during the customer verification process?

The assessed risk and RMCP Signup and view all the answers

Under what condition must senior management approval be obtained when dealing with foreign prominent public officials?

If it is identified that the client is an FPPO Signup and view all the answers

What is the requirement regarding the completion of verification during a business relationship?

It must be complete before concluding a transaction Signup and view all the answers

What additional measures must be considered for high-risk customers?

Enhanced ongoing monitoring and further documentation Signup and view all the answers

Which of the following is NOT part of the customer identification process?

Conducting market analysis for competitive positioning Signup and view all the answers

What should be done if an AI has doubts about the veracity of the information obtained during identification?

Conduct additional verification measures Signup and view all the answers

What is the primary requirement established by the concept of ultimate beneficial ownership (UBO)?

To identify the beneficial owners of legal persons and partnerships. Signup and view all the answers

What is required for low-risk customers regarding due diligence?

Simplified due diligence must have approval from the appropriate head. Signup and view all the answers

Why is understanding the ownership and control structure of a legal person crucial?

It determines which natural persons exert influence over decision-making. Signup and view all the answers

What potential risk is associated with a lack of adequate beneficial ownership information?

Facilitation of money laundering, terrorism financing, and proliferation financing. Signup and view all the answers

What component remains pivotal in combating money laundering and terrorism financing?

Customer due diligence (CDD). Signup and view all the answers

How should AIs approach screening for sanctioned individuals?

Screen customers during initial transactions and continuously thereafter. Signup and view all the answers

What type of ownership interest do close corporations specifically represent?

A member's interest typically outlined in detailed agreements. Signup and view all the answers

In what year was the concept of ultimate beneficial ownership introduced formally in legislation?

2017 Signup and view all the answers

What is the consequence of failing to meet Targeted Financial Sanctions (TFS) obligations?

It is regarded as a criminal offense under specific legal provisions. Signup and view all the answers

What does Enhanced Due Diligence (EDD) involve for a high-risk customer?

Specifies a more rigorous examination of customer information. Signup and view all the answers

Which of the following accurately describes who can be considered a beneficial owner?

The natural person who derives benefits from transactions, regardless of the entity structure. Signup and view all the answers

What is the significance of documenting enhanced due diligence measures in an AI's Risk Management Control Process (RMCP)?

To provide evidence of risk assessment tailored for high-risk customers. Signup and view all the answers

Which of the following is NOT part of establishing the business relationship according to CDD?

Determining the creditworthiness of the customer. Signup and view all the answers

What must AIs specify regarding methodologies for due diligence?

The methodologies for enhanced and simplified due diligence in their Risk Management Compliance Program (RMCP). Signup and view all the answers

What function does understanding UBO serve in the context of assessing customer risk?

It creates a comprehensive view of potential financial and operational risks posed by customers. Signup and view all the answers

What is implied by identifying a customer's ultimate beneficial ownership?

Understanding the complete ownership and control structure of the customer. Signup and view all the answers

Study Notes

FATF Recommendations

More than 200 countries and jurisdictions committed to implementing FATF Recommendations (also known as FATF Standards)
FATF Recommendations aim to prevent organized crime, corruption, and terrorism
FATF works to stop funding for weapons of mass destruction
FATF reviews money laundering and terrorist financing techniques and strengthens its standards to address new risks, including the regulation of virtual assets.
FATF monitors countries to ensure they implement the FATF Standards fully and effectively and holds countries accountable that do not comply.
South Africa became a member of FATF in 2003.

General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act, 2022

Aims to address deficiencies identified in the Mutual Evaluation Report relating to customer due diligence measures contained in the FIC Act.
Does not substantially change the principles of customer due diligence provisions.
Amended Schedule 3B renamed FPPO to FPEPs (Foreign Politically Exposed Persons).
Requires enhanced due diligence measures for high-risk customers, documented in the AI's RMCP.

Ultimate Beneficial Ownership (UBO)

Legal persons must disclose their UBOs, including natural persons who benefit from businesses or transactions.
Beneficial ownership applies to legal persons, partnerships, trusts, and similar arrangements.
UBO determination is crucial for understanding the control structure and identifying natural persons exercising influence over decisions.
Lack of accurate UBO information can facilitate money laundering, terrorist financing, and proliferation financing.

Customer Due Diligence (CDD)

Ongoing obligation for accountable institutions (AIs) to conduct continuous due diligence throughout the customer lifecycle.
Includes transaction monitoring, customer information re-verification, and continual due diligence processes.
Requires monitoring for unusual transaction patterns and ensuring accuracy of customer information.
AIs must review the risk profile of the customer and conduct screening processes.

Know Your Customer (KYC)

KYC is a continuing obligation throughout the customer lifecycle.
It includes scrutinizing transactions to ensure they are consistent with the AI's knowledge of the customer and their business and risk profile.
Requires AIs to ensure customer information is accurate and relevant.
Regular reviews of customer information and CDD are necessary.

Penalties for Non-Compliance

Section 46A: An AI that fails to comply with additional due diligence measures is subject to administrative sanctions:
- Up to R10 000 000 for natural persons.
- Up to R50 000 000 for legal persons.

Section 21D: Doubts About Veracity of Information

When an AI doubts the veracity or adequacy of previously obtained customer information, they must:
- Repeat steps outlined in sections 21 and 21B to confirm the information.
- Submit a Suspicious Transaction Report (STR) via the FIC website.

Section 21G: Domestic Prominent Influential Persons (DPIPs)

Business relationships with DPIPs are not inherently high-risk.
AIs must assess each DPIP relationship on its own merits to determine potential risk of abuse.
If high-risk, the AI must apply the same requirements as for FPEPs.
Schedule 3A lists the roles considered as DPIPs.
DPIPs are now categorized as Domestic Politically Exposed Persons.

Definitions

FPPO is now FPEP (Foreign Politically Exposed Person).
DPIP is now Domestic Politically Exposed Person (DPEP).
"Prominent Influential Person" is a distinct category from "Politically Exposed Person".

The General Laws Amendment Act

The General Laws Amendment Act was assented to by the President on December 22, 2022.
The Act amends the Financial Intelligence Centre Act (FIC Act) to strengthen South Africa's Anti-Money Laundering/Counter Terrorist Financing/Proliferation Financing (AML/CFT/PF) regulatory framework.
The amendments are based on recommendations from the Mutual Evaluation Report.

Powers of the Financial Intelligence Centre (FIC)

The FIC's powers are extended to include the ability to request information or access to any database held by an organ of state.
The FIC also has the power to access information contained in registers kept by organs of state.

Supervisory Bodies

The FIC Act is amended to ensure effective supervision of the estate agency and gambling sectors.
The FIC will now be responsible for supervising compliance in these sectors.

Trust Property Control Act (TPCA)

The TPCA is amended to provide a framework for beneficial ownership information in respect of trusts.
Trustees are required to hold information on agents and service providers to trusts.
Trustees are required to keep the information they obtain up-to-date and accurate.
Broader grounds are provided for disqualification to be a trustee.
Offences are provided for for trustees in respect of specified breaches of the TPCA.

Non-Profit Organisations Act (NPO Act)

The NPO Act is amended to align with the recommendations of the Mutual Evaluation Report.
Controls under the NPO Act will be applied to all NPOs, regardless of whether they are registered voluntarily.
Offences and penalties are provided for in respect of contraventions of the NPO Act.

Companies Act

The Companies Act is amended to provide a legal framework for beneficial ownership information for companies.
Companies are required to keep securities registers on shareholding up-to-date.
Companies are required to keep accurate and up-to-date information on their beneficial owners.
A mechanism is provided through which the Companies and Intellectual Property Commission can maintain accurate and updated beneficial ownership information.
Grounds for disqualification to be a director of a company are expanded to include convictions for offences related to money laundering, terrorist financing, or proliferation financing activities.

Financial Sector Regulation Act (FSRA)

The FSRA is amended to provide an enabling framework for financial sector regulators to test the fitness and propriety of beneficial owners of financial institutions.
A definition of "beneficial owner" is provided in relation to financial institutions.
Financial sector regulators are given a legal mechanism to test the honesty and integrity of beneficial owners of financial institutions, requiring them to provide information on their beneficial ownership.
Financial sector regulators can require financial institutions to identify and verify their beneficial owners and obtain relevant information on them.
Financial sector regulators are empowered to take action against beneficial owners who contravene or are likely to contravene financial sector law.

Exchanges

The Financial Sector Conduct Authority (FSCA) supervises exchanges in terms of Schedule 2 of the FIC Act but has delegated supervisory powers to exchanges such as the JSE and A2X.

Predicate Offence

The 6th Anti-Money Laundering Directive (6AMLD) defines and expands the list of crimes that qualify as money laundering predicate offenses.
Predicate offenses include corruption and bribery, counterfeiting currency, counterfeiting deeds and documents, extortion, fraud, theft, robbery, dacoity, piracy, hijacking of aircraft, and any other offence declared as a predicate offence by Bangladesh Bank with the approval of the Government.

Accountable Institutions (AIs) - Risk Management Compliance Program (RMCP)

Accountable institutions (AIs) are defined as individuals or organisations listed in Schedule 1 of the FIC Act who carry out business for any entity listed.
AIs must report to the FIC Act supervisory body.
AIs must formulate and implement internal rules regarding the establishment and verification of the identity of their clients.
They must keep records of this information and determine when a transaction is reportable.

Establishing and Verifying a Customer's Identity

AIs must establish a customer's identity by obtaining information from them during the take-on stage of the customer engagement process.
Understanding the nature and intention of transactions, identifying the source of funds, and obtaining information from the customer is required.
This information should allow for the creation of a customer profile and assigning a risk rating.
Verifying a customer's identity requires using other sources to confirm the information obtained from the customer.
The nature and extent of the verification are determined by the assessed risk and the AI's RMCP.
Verification must occur during a single transaction or business relationship and be complete before concluding a transaction.
Relevant documents from the customer must be obtained.

High-Risk Customers

Business relationships with foreign prominent public officials (FPPOs) are considered high-risk.
Senior management approval is required to establish a business relationship with an FPPO.
AIs must determine the source of wealth and funds for FPPOs and conduct enhanced monitoring of the business relationship.
Requirements also apply to FPPOs' immediate family members and close associates.
The term FPPO has been changed to Foreign Politically Exposed Persons (FPEPs) in Schedule 3B.
Enhanced due diligence measures must be conducted for high-risk customers and documented in the AI's RMCP.

Ultimate Beneficial Ownership (UBO)

The concept of ultimate beneficial ownership was introduced as a formal requirement in 2017.
UBO applies to legal persons, partnerships, trusts, or arrangements between natural persons.
Identifying the natural persons who stand to benefit from the activities, business relationships, or transactions of legal persons is crucial.
The lack of accurate and timely beneficial ownership information can facilitate money laundering and terrorist financing by:
- Disguising the identity of known or suspected criminals.
- Hiding the true purpose of an account or property held by the legal entity.
- Concealing the source or use of funds or property associated with the legal entity.
Understanding the UBO is essential for assessing risk, including by:
- Identifying the beneficial owner and control structure of the customer.
- Understanding the purpose and nature of the business relationship.
- Establishing the source of income or funds.
- Determining the intended purpose of the business relationship.
Enhanced due diligence is required for high-risk customers, and simplified due diligence is permissible for low-risk customers with approval from the appropriate head of the business.
AIs must specify their methodology for Enhanced Due Diligence and Simplified Due Diligence in their RMCPs.

Monitoring and Enforcement

Ongoing screening for Politically Exposed Persons (PEPs), beneficial ownership, and United Nations Security Council resolution (UNSCR) Targeted Financial Sanctions Lists (TFSs) are essential.

Screening

AIs must identify if they have a sanctioned person or entity as a customer or if a prospective customer is sanctioned.
Screening must be performed during the customer-take-on process and ongoing due diligence.
Failure to comply with TFS obligations is a criminal offense under section 49A of the FIC Act.

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Description

This quiz explores the FATF Recommendations and their role in combating organized crime, corruption, and terrorism. Additionally, it covers the General Laws Amendment Act of 2022 and its implications for customer due diligence measures. Test your knowledge on these important regulations and their impact on financial governance.