Money Laundering
Money Laundering is the process used by criminals to hide, conceal or disguise the nature, source, location, disposition or movement of the proceeds of unlawful activities or any interest which anyone has in such proceeds.
Criminals who have generated an income from their criminal activities usually follow three common stages to launder their money. The first stage is commonly referred to as ‘placement’. This is when criminals introduce their illegally derived proceeds into legitimate financial systems. An example of this would be splitting a large portion of cash into smaller sums and thereafter depositing the smaller amounts into a bank account.
The second stage is called ‘layering’. During this stage the launderer engages in a series of transactions, conversions or movements of the funds in order to cloud the trail of the funds and separate them from their illegitimate source. The funds might be channeled through various means, for example the purchase and sale of financial products.
The third stage is ‘integration’. This generally ensues the successful stages of placement and layering. The launderer at this stage causes the funds to re-enter the economy and appear to be legitimate. The launderer might choose to invest the funds into real estate, luxury assets, or business ventures.
Although use of all three stages is common, it is not always utilised by the criminal who wishes to launder funds. In some instances, criminals may choose to merely ‘place’ the illegally derived funds into the economy by simply depositing the money into his or her bank account, without any layering occurring. They can withdraw the money and spend it at their will.
Financing of terrorism
Financing of terrorism is the collection or provision of funds for the purpose of enhancing the ability of an entity or anyone who is involved in terrorism or related activities to commit an act that is regarded as a terrorist act. Funds may be raised from legitimate sources, such as personal donations and profits from businesses and charitable organisations, as well as from criminal sources, such as the drug trade, the smuggling of weapons and other goods, fraud, kidnapping and extortion.
Terrorists and their funders generally require anonymity and often use strategies that are similar to those employed by money launderers to hide their money flows. However, there is a key difference between the two concepts: Money laundering involves property that is tainted by its criminal origin while financing of terrorism focuses on property that is tainted by its intended application.
Terrorist activity is defined in POCDATARA. In addition, the UNSC also identifies persons and entities involved in terrorism.
Proliferation of financing of weapons of mass destruction
Proliferation financing is the provision of funds or financial services used for the manufacturing, acquisition, possession, or dealing with nuclear, chemical or biological weapons in contravention of national laws or, where applicable, international obligations.
Proliferation financing, like terrorist financing, is focused on the intended application of funds or economic support, regardless of whether or not it involves proceeds of crime.
The UNSC also identifies persons, entities and countries involved in proliferation of financing.
Domestic AML/CFT/CPF Regulatory RegimeThe FIC Act together with POCA, the Prevention and Combatting of Corrupt Activities Act, 2004 (PRECCA) and POCDATARA were introduced to combat money laundering, terrorist financing and proliferation financing.
The FIC Act introduces a regulatory framework of measures requiring certain categories of business (accountable institutions) to mitigate ML/TF/PF risks. Accountable institutions include, inter alia an authorised user of an exchange, a collective investment scheme manager and a financial services provider. Accountable institutions are required to take steps regarding customer due diligence, record-keeping, reporting of information to the FIC and governance. The FIC Act is also supported by the Money Laundering and Terrorist Financing Control Regulations.
The 2017 amendments to the FIC Act introduced a risk-based approach to customer due diligence. This means that Accountable Institutions should conduct enhanced due diligence for higher risk clients and simplified due diligence for lower risk clients. The FIC Act was most recently amended through the General Laws (Anti-Money Laundering and Combatting Terrorism Financing) Amendment Act, No 22 of 2022, published on 29 December 2022 in Government Gazette 47815 (
www.gpwonline.co.za). These most recent amendments were required to remediate technical compliance deficiencies identified in South Africa’s AML/CFT/CPF regime during the mutual evaluation of South Africa by the Financial Action Task Force (FATF) and all accountable institutions are required to be knowledgeable of and accordingly comply with these amendments. See below the link to the media statement issued by the National Treasury on 06 January 2023 in respect of these amendments:
On a high level, the most recent amendments to the FIC Act relate to, inter alia, the following:
• Definition of beneficial ownership (section 1 of the FIC Act)
• Definition of domestic politically exposed person (section 1 of the FIC Act)
• Definition of foreign politically exposed person (section 1 of the FIC Act)
• Definition of prominent influential person (section 1 of the FIC Act)
• Definition of proliferation financing / financing activity (section 1 of the FIC Act)
• Provide for additional and ongoing due diligence measures (sections 21B and 21C of the FIC Act)
• Provide for the process followed where there are doubts about the veracity of information (section 21D of the FIC Act)
• Align provisions of schedule amendments (schedule 3A and 3B) as distinct from prominent influential persons (schedule 3C) (sections 21F, 21G, 21H, 79A, 79B and 79C of the FIC Act)
• Provide for provision related to United Nations Security Council (UNSC) Resolutions (sections 26A, 26B, 26C, 28A, 34 and 35 of the FIC Act)
• Risk management and compliance programme (section 42 of the FIC Act)
• Offences and provisions to impose administrative sanctions (sections 49A, 50, 52, 57, 59 and 64 of the FIC Act)
Refer to the link below for access to the General Laws Amendment Act No 22 of 2022:
The Schedules to the FIC Act were also amended in December 2022. New sectors previously not designated as accountable institutions are now included. Accountable institutions must ensure that they are appropriately registered with the FIC on its goAML system under the correct Schedule items and that in some instances, an accountable institution is required to register under more than one Schedule item. Refer below to the media release issued by the FIC in this regard as well as the latest FIC Act Schedules:
Financial Intelligence Centre
The FIC uses financial data reported to it and other available data to develop financial intelligence, which it is able to make available to the competent authorities i.e. law enforcement agencies, South African Revenue Services and supervisory bodies for follow-up with investigations or to take administrative action.
Refer to the link below for access to the official website of the FIC:
https://www.fic.gov.za/Pages/Home.aspx
The Financial Sector Conduct Authority
The FSCA is responsible to supervise and enforce compliance with the FIC Act by authorised users of an exchange, collective investment scheme managers and financial services providers. The FSCA has delegated its obligation to supervise authorised users to the licensed exchanges. The FSCA may, however, still take enforcement action against authorised users. The FSCA conducts FIC Act supervision and enforcement on a risk-based approach. Supervisory activities include offsite supervision such as issuing directives to provide information and compliance returns as well as onsite supervision such as scoped onsite inspections and thematic reviews. The FSCA is also required to assist accountable institutions to improve their level of compliance through raising awareness. Awareness is raised by the FSCA through, for example, webinars, issuing communication and surveys.
The FSCA established a dedicated AML / CFT Supervision department to carry out the responsibilities of the FSCA as a supervisory body.
Contact the AML/CFT Supervision Team:
Financial Action Task Force
The FATF is an inter-governmental body that focuses exclusively on combatting money laundering and funding terrorism. FATF is essentially a policy-making and standard setting body that promotes policies to combat money laundering and terrorist financing. South Africa is a member of FATF. In addition, it is also a member of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), a regional body of the FATF which aims to support countries in the region to implement the global AML/CFT standards. The FSCA forms part of South Africa's delegation that attends FATF and ESAAMLG plenaries and aims to align its policies and process with the standards set by the FATF.
Refer to the link below for access to the official website of the FATF:
https://www.fatf-gafi.org/en/home.html
Refer to the link below for access to the official website of ESAAMLG:
https://www.esaamlg.org/
Grey listing
FATF issues statements where it identifies countries that are actively working with the FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing. When the FATF places a jurisdiction under increased monitoring (also known as grey listing), it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring.
The FATF published their decision to include South Africa on its grey list on 24 February 2023. On even date, the FSCA and other supervisory bodies published related communication. The FSCA stands firm in its efforts to ensure a swift resolution of remaining deficiencies identified by the FATF and to help expedite the country's exit from the grey list. The FSCA will continue to develop and publish tools to assist the relevant sectors to improve their level of compliance. The FSCA will use the following methods to achieve this:
- Review and publish the AML / CFT Body of Knowledge
- Publication of CPD-accredited webinars and newsletters
- Presentations at face-to-face engagements with the industry
- Facilitating think-tanks where the industry can discuss complex matters to find solutions by the industry, for the industry
- Conducting offsite supervision
- Conducting onsite inspections in terms of a risk based approach
- Conducting supervisory engagements, particularly with groups
- Frequent engagements with industry bodies to share information and discuss matters of mutual concern
- Stay abreast of international AML / CFT developments
- Collaborate with the FIC and SARB:PA on AML / CFT matters
- Issue dissuasive and proportionate sanctions for non-compliance with the FIC Act
Communication
issued in relation to the grey listing:
PRESS RELEASE - FATF GREYLISTING FSCA
