FICA

South African Definition of Money Laundering

• South African law defines money laundering as any action or deal involving cash from illegal activity or crime profits.
• The main goal of money laundering is to make illicit funds or property look legitimate.
• Without this process, criminals cannot utilize the money for it would link them to the criminal activity, and law officials could confiscate it.
• Measures like AML/CFT/CPF help combat money laundering, terrorist financing, and proliferation of weapons.
• Money laundering, terrorist financing, and weapon proliferation have financial and economic consequences.
• Money laundering conceals the proceeds of crimes like corruption, drug trafficking, market manipulation, fraud, and tax evasion.
• These actions divert funds away from productive uses, hurting the financial sector and economic stability.
• Effective AML/CFT/CPF controls can lessen the negative effects of illegal economic activity, increasing integrity and stability.
• A successful money launderer will separate criminal funds from their original illegal activity.
• Money laundering occurs globally, and a single scheme can transfer money across borders to hide its origins.
• Underlying crime origin is irrelevant - The proceeds of a crime remain so, irrespective of where it or when it was committed.
• Legal proceedings follow the legislation of the country in question.

"Proceeds of Crime”

• Funds from criminal activity that benefit the criminal.
• Property can include:
• cash
• movable items (e.g., a vehicle)
• immovable items (e.g., a building)
• corporeal, or incorporeal thing
• all rights, privileges, claims, securities, and any interest therein

The Financial Action Task Force (FATF)

• The FATF is a global watchdog against money laundering and terrorist financing.
• It sets international standards to prevent illegal activities and their harm.
• The FATF works to promote national legislative and regulatory reforms.
• Over 200 countries are committed to implementing FATF Recommendations or Standards.
• Ensures a coordinated global response to organized crime, corruption, and terrorism.
• Helps in targeting the money of criminals dealing in illegal drugs, human trafficking, and other crimes.
• The FATF also aims to stop funding for weapons of mass destruction.
• Continually strengthens standards to combat money laundering and terrorist financing in virtual assets like cryptocurrencies.
• Monitors countries' implementation of FATF Standards and holds non-compliant countries to account.
• South Africa became a member of FATF in 2003.

FATF Recommendations

• Serve as global standards for combating money laundering and terrorist financing.
• Many FATF member countries have existing legislation that aligns with these standards.
• Adherence promotes a stable international financial system, financial soundness, and encourages investors.

Financial Intelligence Centre (FIC)

• The Financial Intelligence Centre (FIC) applies measures from the Financial Intelligence Centre Act of 2001.
• This Act aims to make the financial system resistant to abuse by combating money laundering, terrorist financing, and proliferation of weapons.
• The FIC assists in identifying crime proceeds and combating related activities.
• Customer due diligence measures
• Risk-based approach to client identification and verification
• Implementation of financial sanctions
• Administering UN Security Council resolutions
• Sharing information with competent authorities and providing guidance
• Training on risk management, compliance, and governance to combat financial crimes
• Issuing directives and applying administrative sanctions for non-compliance

General Laws Amendment Act (2022)

• The Amendment Act (2022) addresses customer due diligence deficiencies in the FIC Act (2001) and strengthens the AML/CFT/PF regulatory framework.
• It was assented to by the President on December 22, 2022.
• Expands the Centre's power to request information, access databases held by state entities, and access registers maintained by state entities.
• Schedule 2 is amended to entrust the supervision of estate agencies and the gambling sector to the Centre
• Contains a list of supervisory bodies responsible for FIC Act compliance.
  • Objective to effectively supervise the estate agency and gambling sector

The Amendment Act also addresses several recommendations in the Mutual Evaluation Report

• Amends the Trust Property Control Act of 1988 (TPCA)
• Requires trustees to hold information on agents and service providers to trusts.
• Requires trustees to keep information up to date and accurate.
• Provides broader grounds for disqualification of a trustee.
• Provides for offences for trustees in respect of specified breaches of the TPСА.

Recommendation 8 and IO.10 - Amend the NPO Act in line with Recommendation 8 requirements

• Implement policy recommendations to improve the oversight of its broader Non-profit Organisation (''NPO'') sector;
• Apply controls of the NPO Act to all NPOs, not just NPOs that register voluntarily; and
• Provide for offences and penalties in respect of specified contraventions of the NPO Act.

Recommendation 24 and IO.5 - Amend the Companies Act

• Provides a legal framework for beneficial ownership information in respect of companies.
• Must keep securities registers on shareholding up to date.
• Require that companies keep accurate and up-to-date information on their beneficial owners.
• Provide for a comprehensive mechanism through which the Companies and Intellectual Property Commission can keep accurate and updated beneficial ownership information.
• Expand the grounds for disqualification to be a director of a company to include convictions relating to money laundering, terrorist financing or proliferation financing activities.

FSRA Amendements

• Recommendation 26 and IO.03
• Amend the FSRA to provide an enabling framework for financial sector regulators to test the fitness and propriety of beneficial owners of financial institutions as part - Provide a definition of “beneficial owner'' in respect of financial institutions;
• Provides a legal mechanism through which financial sector regulators can test the honesty and integrity of beneficial owners.
• Requires institutions to identify and verify their beneficial owners

Exchanges

• The FSCA is the supervisory body in terms of the Act (Schedule 2).
• Supervisory powers have been delegated to exchanges i.e., JSE, A2X etc.
• Licenced exchanges need to ensure the authorised users adhere to Accountable Institutions (Al's).
• FSCA remains responsible for all enforcement actions.

Money Laundering

• Methods of money laundering vary in sophistication.
• It occurs in three steps:
• cash is introduced into the financial system ("placement")
• complex financial transactions camouflage the illegal source ("layering")
• acquiring wealth generated from illicit funds ("integration")
• Some steps may be omitted depending on the circumstances.
• Non-cash proceeds already in the financial system bypass the placement step.

Stages of Money Laundering

• Placement stage where money is put into the financial system via depositing stolen money or proceeds of a crime.
• Most placements involve cash deposits at institutions like banks.
• Layering stage where money launderers engage in unnecessary transactions to make it difficult to follow the money trail.
• Actions involve maintaining multiple accounts in different names and transferring funds between them, hiding the nature and location of the money.
• Integration stage where the original funds, with the laundering costs deducted, amass under the criminal's control.
• Becomes legitimate business funds that are difficult to trace back to criminal activities.

Money Laundering Forms

• Money laundering forms are smurfing (structuring), shell companies and trusts.
• Structuring (smurfing) breaks up cash into smaller deposits to evade suspicion and anti-money laundering reporting requirements.
• A sub-component is using smaller amounts of cash to purchase bearer instruments like money orders, then depositing those in small amounts.
• Trusts and shell companies Trusts and corporate vehicles can disguise ownership.
• Trusts and corporate vehicles, depending on the jurisdiction, need not disclose true, beneficial ownership

Predicate Offence : 6AMLD

• 6AMLD expands the list of crimes that qualify as money laundering predicate offenses.
• "Predictable Offence” means crimes where money or property derived from or attempted to be laundered includes:
• corruption and bribery, counterfeiting currency/deeds/documents
• extortion, fraud, theft or robbery, dacoity, piracy, or hijacking of aircraft
• any offence declared as a predicate offence by Bangladesh Bank, with Government approval and official Gazette notification.

Accountable Institutions (AIs’s)

• Section 42 of the FIC Act states an accountable institution must develop, document, maintain and implement an anti-money laundering and counter-terrorist financing risk management and compliance program (RMCP).
• It must be commensurate with the institution's size, complexity, and nature of business.
• It documents the authorised user adopts in dealing with its financial crime responsibilities and obligations.
• The RMCP documents end to end process an organisation manages its risk.
• The nature and extent of an Al's internal systems and controls depends on scale and diversity of operations, as well as its client product or services profile.
• Factors to consider:
• volume and size of its transactions
• degree of risk associated with each area of operation
• Holistic consolidation of an organization's risk assessment towards ML/TF/PF
• includes a comprehensive risk-based assessment with detailed methodology, policies, and procedures.
• RMCP should describe board or senior management accountability and appoint a person with seniority and experience to assist with FIC Act compliance.
• Provision of regular and timely information to the board or senior management relevant to the management of the institution's risks.
• Measures to ensure risks are considered in daily operations:
• the development of new products
• the taking-on of new clients
• changes in the institution's business profile
• Important for Al to communicate throughout the institution this will increase effectiveness of implementation.
• Al must review RMCP at regular intervals to ensure its relevance.
• Must provide appropriate AML/CTF/CPF training.

Compliance by Al

• The board of directors, senior management, or highest authority is responsible for maintaining an effective internal AML/CFT/CPF control structure through a RMCP.
• An Al, which is a legal person, must have -
• A compliance function to assist the board or senior management.
• A person with sufficient competence and seniority to ensure the effectiveness of the compliance function.
• If there is no legal person must ensure compliance by the employees of the Al

Risk-Based Approach in the context of FICA

• A risk-based approach means accountable institution must identify, assess, understand the money laundering and terrorist financing risk to which they are exposed.
• Allows them to take appropriate mitigation measures according to the level of risk.
• It is based upon a risk assessment - based on the risk-sensitive application of AML/CFT/CPF measures.
• Requires specific controls or systems when dealing with various situations of differing risk levels that are adequate to address the degree of risk posed.
• Institutions must be able to show what risk they have assigned to clients based on the outcome of customer due diligence.
• Can ensure that measures to prevent or mitigate money laundering and terrorist financing are commensurate with the risks identified.
• Directs resources as needed, so the greatest risks receive the highest attention.

Risk Rating

• The level of risk an Al will accept for its strategy and business objectives
• Al will consider:
• The volume and size of its transactions.
• The degree of risk associated with each area of its operation.
• The ability that money may be laundered.
• Financial crime will occur and FICA will be in non compliance.

Risk Ratings

• There are two important concepts: inherent risk and residual risk.
• Inherent risk is the potential risks and probability of risk before controls are implemented.
• Residual risk is the risk remaining after controls and mitigating factors have been introduced.
• 'Risk factors' are variables that can increase or decrease the ML/TF/PF risk posed by single or multiple relationships with a business.
• Should re-evaluate risk ratings from time to time.
• Due to changes in risk ratings, changes over time in the clients that fall under the Al and Al procedures in itself.

What is a Threat?

• A threat means a person or group of people, object or activity with the potential to cause harm.
• Includes criminals, terrorist groups and their facilitators, their funds, as well as the processes of money laundering.
• Those things that can be exploited by the threat or that may support or facilitate its activities
• Identify weaknesses that are exploited within certain products, services or areas of the institution itself
• What may happen if a certain activity causes harm or exploitation of the AI

Risk in the context of ML/TF/PF

• The risks in the context of ML/TF/PF can be thought of as the possibility and degree of impact that ML/TF/PF could occur
• This is based upon the current business operations the accountable business has established in the course of the activities they take on.

What Risk Factors That Must Be Considered?

• Products and Services Risk
• Delivery Chanel Risk
• Client Risk
• Geographic risk
• Business Risk

CDD and Risk Mitigation

• Institutes should implement CDD as a measure to mitigate ML/TF/PF
• CDD process provides the Al with:
• Knowing who they are doing business with
• Knowing who benefits from the business and the associated processes of what the company is doing
• When the associates should be considered unusual and/or suspicious to report for exploitation by money laundering or terrorism financing
• Further the Al must have dynamic internal exercises in place in excess of the required law

CDD Entails the Following

• Obtaining a broad scope of information related to the customer
• Obtaining information during the customer in-take/on-boarding process
• Understanding the intentions and nature of transactions
• Understanding the source of wealth and how it is used by the customere customer
• The level of information to obtain to assign to a customer
• Establishing the identitentity of the customer entails the following:
• Utilizing further sources to confirm/validate the information
• The degree of assessed risk of RMCP, due diligence, and what that will ential for the Al to put into place
• Obtain customer to relevant documents

High-Risk Customers (FPPO)

• Business relationships with Foreign Prominent Public Officials (FPPOs) are considered with high-risk
• Senior management approval is obtained establish business with FPPOs
• Take reasonable measures to establish source of wealth and source of funds of the client
• Conducting ongoing monitoring of associates
• Conduct enhanced due diligence measures

Ultimate Benificial Ownership (UBO)

• When establishing who has a natural way of controlliolling the power in the hands of a person and/or association, and it must understand all types of legal people associated
• Identifying shareholders who who hold more than 25% of the total shareholding
• Understanding due diligence and what that entails of those persons association
• Identifying those persons who exercising effective control over the entity
• If there is no persersonnel execuexecuting more thatn %25, it is determined by senior management
• Section 21 will alos apply to clients who are not natural persons in their capacity

Legal Person

• Any person other than a natural person
• Corporations, CC's, forieng and local companies, or any type any association or arrangement A legal person must set out measures to identiidentifying a client
• What the nature of clients business
• The control structure and beneficial ownership
• To taek reasonable steps to idetifidentofy

Penalties for Non- Compliance

• Failure to identify
• 21(1)22 or !a or 21(2): Administrattive Sanction, 10 000 000 to an individual and/or to a 3rd party/Corporation to 50 000 00

Section 21C: Ongoing Due Dilligence

• A continuing obligation where the accountable institution is required to conduct on an continues basis to continue
• Transactioanl monitoring of business operations
• Customer Information processes
• Screenings and due diligence of the customer

Inability to Conduct CDD, ADD, ODD

• What must be preformed if a company is not able to perform due diligence or obtain more information by:
• Not establish business
• terminate exisiting business
• suspicious and unusual preformed from Section 29

Veracity of information: Section 21D

• What the Al must go back and repeat is there are questions that need to adressed
• Steps in Section 21 must be adressed
• Suspcios Transcation Report must be submitted

Section 21E

• Al may not operate/perform and functions if they cant complete CDD
• The Al in setad must terminate contact and re evaluate the risks and file a report via Section 29

High-Risk Costumers

• High-Risk: FPPO are automatic high risk and must to be transacted with unless: senior management approve business relations and wealth established is determined

Record Keeping

• Section 22: means Al msut keep recodrs of all information that have has occured

Transactions

• 22A must be kept
• must be kept for a transaction that entails for the future
• must be kept with security in a electronic format
• must be kept for 5 years
• Penalities come into affect to the Al
• with client opening
• with the client information
• and the record

Reporting Obligations: What Is A Good Report?

• Who: What is their relationsships, association, and the subject
• What, When, Where, How and Wyu
• A Suspisous reort can be reported
• via sectinon 29 if youy think the law has bean broken
• Suspisous actovort/tranadction can be created The center must be informed with sectins 27 with penatilies
• 10 million and 50 million from non complaint for section 50
• A CTR threshold must be reported wihtin setion 28
• A terrorist report is created from 28A

Penalties for Csh THresholds:

Section 51

• To Reprot cash for adiminstrarive santion wiht a fine 10 Million and .50,0000,000 fromnon complaints

Reporting obligations for a the terrorist act and a suspectus act

• Penalties for NOn complaints for 5A report
• For suspicious Section 29
• To report actity with fines

Training: Section 43

• Provide ongoing training so people comply
• The training entails to the Al so they can reduce the exposure that could arrises.