The G7 summit meeting in 1989 established an inter-governmental body known as the Financial Action Task Force (FATF). FATF was set up to evaluate the effectiveness of local and international money laundering control structures. In addition, the Financial Action Task Force was commissioned with setting standards and promoting effective implementation of legal, regulatory and operational measures to combat money laundering, terrorist financing and other related threats to the integrity of the international financial system.

Pressure from the FATF and the international environment to implement effective money laundering control legislation led to the development of the Financial Intelligence Centre Act. South Africa’s commitment to the implementation of TATF recommendations codified in FICA meant South Africa became the first African country to become a fully-fledged member of FATF. South Africa was accepted as a member of the FATF in June 2003 after it was evaluated and found to have developed a comprehensive legal structure to combat money laundering activities

In 2008, the Financial Intelligence Centre Amendment Act made several changes to the original Act. The Amendment Act defines or further defines certain words and expressions; clarifies the application of the Act in relation to other laws; extends the objectives and functions of the Centre; changes the name of the Money Laundering Advisory Council to the  Counter-Money Laundering Advisory Council; clarifies certain provisions; updates references to legislation; provides for the sharing of information by the Centre and supervisory bodies; provides for the issuance of directives by the Centre and supervisory bodies; provides for the registration of accountable and reporting institutions to clarify the roles and responsibilities of supervisory bodies ; provides for written arrangements relating to the respective roles and responsibilities of the Centre and supervisory bodies; authorises the Centre and supervisory bodies to conduct inspections; regulates certain applications to court; provides for administrative sanctions that may be imposed by the Centre and supervisory bodies; establishes an appeal board to hear appeals against decisions of the Centre or supervisory bodies; makes further provision for offences; and provides for matters connected therewith.

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. The act of conducting or causing to conduct two or more transactions with the intention of avoiding the duty to report such transactions is a recognised offence in terms of section 64 of the FIC Act.

A Money Laundering Offence has Three Core Elements:

• The act of money laundering.
• The presence (benefit) of proceeds of crime.
• Knowledge of the fact that a money laundering transaction is happening or has taken place.

The Purpose of the Financial Intelligence Centre Act is to: assist in the identification of the proceeds of unlawful activities; combat money laundering; and combat the financing of terrorist and related activities.

The Act does this by creating a legal framework for effective identification and verification of client identities; recordkeeping; reporting processes; staff training; compliance requirements and the establishment of the Financial Intelligence Centre and Counter-Money Laundering Advisory Council.

The term “accountable institution” is defined as a person or organisation referred to in Schedule 1 of the FIC Act that carries out business of any entity listed.

Accountable Institutions Include the Following Organisations:

• A practitioner who practices as defined in section 1 of the Attorneys Act (53 of 1979).
• A board of executors or a trust company or any other person that invests, keeps in safe custody, controls or administers trust property within the meaning of the Trust Property Control Act (57 of 1988).
• An estate agent as defined in the Estate Agency Affairs Act (112 of 1976).
• An authorised user of an exchange as defined in the Securities Service Act (36 of 2004).
• A manager registered in terms of the Collective Investment Schemes Control Act (45 of 2002), but excludes managers who only conduct business in Part VI of the Collective Investment Schemes Control Act (45 of 2002).
• A person who carries on the ‘business of a bank’ as defined in the Banks Act (94 of 1990).
• A mutual bank as defined in the Mutual Banks Act (124 of 1993).
• A person who carries on a ‘long-term insurance business’ as defined in the Long-Term Insurance Act (52 of 1998).
• A person who carries on the business of making available a gambling activity as contemplated in section 3 of the National Gambling Act (7 of 2004) in respect of which a license is required to be issued by the National Gambling Board or a provincial licensing authority.
• A person who carries on the business of dealing in foreign exchange.
• A person who carries on the business of lending money against the security of securities.
• A person who carries on the business of a financial services provider requiring authorisation in terms of the Financial Advisory and Intermediary Services Act (37 of 2002), to provide advice and intermediary services in respect of the investment of any financial product (but excluding a short term insurance contract or policy referred to in the Short-term Insurance Act (53 of 1998) and a health service benefit provided by a medical scheme as defined in section 1(1) of the Medical Schemes Act (131 of 1998).
• A person who issues, sells or redeems travellers’ cheques, money orders or similar instruments.
• The Postbank referred to in section 51 of the Postal Services Act (124 of 1998).
• The Ithala Development Finance Corporation Limited.
• A person who carries on the business of a money remitter.

In addition to the accountable institutions, the Financial Intelligence Centre Act affects all clients/consumers entering into either a single transaction or a business relationship with an accountable institution.

Clients/Consumers include:

• Natural Persons
• Natural person acting on behalf of another, or
• Foreign national
• Close corporation
• South African company
• Foreign company
• Legal Persons
• Partnerships
• Trusts

An accountable institution reserves the right to deny or terminate business relationships or transactions if the FIC Act requirements are not met. General consumer responsibilities include:

• The consumer must authorise staff and/or consultant to collect, view, collate, process and store FICA documents.
• The consumer must authorise the storage of FICA documents in the FICA database as is required by law.
• The consumer must acknowledge and accept the current privacy policy.
• The consumer must not falsely state, impersonate, or otherwise misrepresent his/her identity and/or proof of residence and/or any other information provided.
• The consumer must guarantee the accuracy, truthfulness, correctness, and validity of his/her personal information. The consumer must indemnify and hold harmless the staff, the consultant and the accountable institution against any loss, damage, or injury arising by his/her failure to comply with the FIC Act requirements.
• The customer must provide permission, when required, and authorise staff or consultants to disclose or receive his/her FICA documents to or from: any accountable institution seeking to establish a business relationship or conclude a single transaction with the customer; any legitimate third party (such as SARS, deeds office, credit bureaux, municipalities) for verifying or comparing personal information in the  FIC Act Database, and; any accountable institution or competent authority for investigation or prevention of any criminal activity and auditing of the Database.
• The consumer must ensure the FIC Act documents are kept up-to-date, notifying staff or consultants of applicable accountable institutions timeously for inclusion in the FIC Act Database.

Accountable Institutions have the Responsibility to:

• Identify and verify new and existing clients;
• Keep records of identities of clients and transactions entered into with clients;
• The following records shall be obtained and retained in instances of concluding a single transaction, concluding transactions as part of a business relationship or establishment of a business relationship:

• If the client acts on behalf of a third party, the identity of the third party as well as a copy of the mandate between the client and the third party;
• If a third party acts on behalf of a client, the identity of the third party as well as a copy of the mandate between the client and the third party;
• The method of identification and verification of particulars;
• The exact nature of the transaction or business relationship;
• The parties to a transaction as well as the monetary value thereof;
• The particulars of the employee or representative that obtained the information;
• The information, documentation or forms furnished by the client to verify the information.

In Addition, to Keeping Records:

• No person shall destroy any record, except if the destruction of such record was authorised by the responsible person.
• No person shall amend any record kept in terms of the Act.
• Report certain large or suspicious transactions to the Financial Intelligence Centre established by the FIC Act;
• Formulate and implement internal rules consistent with FICA obligations;
• ·offer compulsory FIC Act training to employees; and
• Appoint a responsible person as a compliance officer to monitor compliance.

Financial Intelligence Centre

The FIC was established in terms of Section 2 of the Financial Intelligence Centre Act (38 of 2001). The purpose of the FIC is to establish and maintain an effective policy and compliance framework and operational capacity to identify and combat crime, money laundering and terror financing in order for South Africa to protect the financial system, develop the economy and be a responsible global citizen.

The FIC collects, processes and analyses information disclosed or obtained in terms of the Act: to inform, advise and cooperate with investigating authorities, supervisory bodies, the South African Revenue Services and intelligence services to facilitate the administration and enforcement of the laws of South Africa; to exchange information with similar financial intelligence units in other countries regarding money laundering activities; to monitor and provide guidance to accountable institutions, supervisory bodies and other persons regarding the performance of their duties in relation to their respective compliance; and to retain the aforementioned information in the manner required.

The Counter Money Laundering Advisory Council

Renamed the Counter-Money Laundering Advisory Council in 2008, the organ was established to advise the Minister of Finance on best policies and practices for the identification of proceeds of unlawful activities and to combat money laundering. In addition, the Counter-Money Laundering Advisory Council will advise the FIC about the performance of its functions and act as a forum in which parties can consult one another.

Consisting of various government, accountable institutions and supervisory body representatives, the Counter-Money Laundering Advisory Council must be consulted before the Minister of Finance may create, change or repeal FICA regulations, amend the accountable institution list, supervisory bodies or reporting institutions or exempt anyone from FICA compliance.

Identification and Verification

For the money laundering control procedures to be effective, the FIC Act prescribes that accountable institutions must know who they do business with. As prerequisites for the establishment of business relationships or for the conclusion of transactions, the Act requires the identification and verification of each person or entity with which a transaction is concluded.

Identification and verification extends to new and existing clients according to prescribed procedures based on 4 categories namely natural persons, legal persons, partnerships and trusts. In Addition, in certain instances, members are exempt from compliance.

Records

Accountable institutions are required to keep records of all character identification and verification documents and/or copies obtained before establishing a business relationship, as well as the nature of the business relationship or transaction and the parties to the transaction. Information on clients shall be updated if additional products are purchased by clients or amendments are made to existing products. Records may be kept physically or in electronic form and must be kept for a minimum of 5 years from the date on which the transaction is concluded or relationship is terminated. The accountable institution may appoint a third party to keep records on their behalf if free and easy access to the records is available. However, the accountable institution remains liable for failure of specified record storage.

Authorised Centre representatives, only by virtue of a warrant issued in chambers by a magistrate or regional magistrate or judge of an area of jurisdiction within which the records or any of them are kept, or within which the accountable institution conducts business, have access to records to examine, make extracts or copies of, any such records. These records or part thereof are admissible in court as evidence.

Reporting

In terms of the FIC Act, all accountable institutions are obliged to report certain financial transactions of a specific threshold or frequency of occurrence. Several exceptions relating to long-term insurance such as life, disability or medical policies and investment in unit trusts or on the stock exchange such as pension funds, retirement annuities or provident funds are exempt from reporting.

In addition, accountable institutions are to report any suspicious or unusual transactions to the Centre. These include business receiving, transferring or laundering money or the proceeds from unlawful activities or property connected to financing of terrorist and related activities, has no apparent business or lawful purpose; is conducted for the purpose of avoiding the FIC Act requirement. Other reporting includes the evasion or attempted evasion of a responsibility to pay any tax, duty or levy imposed by the Commissioner for the South African Revenue Service.

Internal Rules and Training

Accountable institutions must formulate and implement internal rules to identify and verify identity, develop record management and storage systems, methods of identifying reportable transactions and other prescribe matters. In addition, accountable institutions must provide training to their employees and appoint a Compliance Officer to ensure compliance with the provisions of the FIC Act. Failure to comply is an offence that may result in penalties.

Offences and Penalties

Accountable institutions are guilty of an offence if they fail to identify persons and keep records; destroy or tamper with records; fail to give assistance to representatives of the Centre; fail to advise Centre representatives of client history when requested; fail to report cash transactions above prescribed limits; fail to report suspicious or unusual transactions; discloses information contained or to be contained in a report to the Centre; fail to report conveyance of cash in or out of the Republic; fail to send a report to the Centre; fail to report electronic transfers; fail to comply with a request by the Centre or investigating authority; fail to comply with a monitoring order; misuses, discloses, tampers with or destroys confidential information; fail to formulate and implement internal rules; fail to provide training or appoint a Compliance Officer; obstructs an official in the performance of their duties; conducts transactions to avoid reporting duties; or; wilfully accesses or modifies an application, data or computer system under the control of the Centre.

Certain offences carry imprisonment up to 15 years or fines up to R100 million. 

According to the FIC Act, a supervisory body is an entity or functionary which performs supervisory or regulatory functions in relation to any category of accountable institutions. The supervisory bodies are responsible for the monitoring of compliance, guidance and onsite visits of accountable institutions.

Supervisory Bodies Include:

• The Financial Services Board established by the Financial Services Board Act (97 of 1990).
• The South African Reserve Bank as defined in the South African Reserve Bank Act (90 of 1989).
• The Estate Agency Affairs Board established in terms of the Estate Agents Act (112 of 1976).
• The Independent Regulatory Board for Auditors established in terms of the Auditing Professions Act (26 of 2005).
• The National Gambling Board established in terms of the National Gambling Act and retained in terms of the National Gambling Act (7 of 2004.).
• A Law Society as contemplated in section 56 of the Attorneys Act (53 of 1979).
• A provincial licensing authority as defined in the National Gambling Act (7 of 2004).

The Financial Intelligence Centre is responsible for strengthening measures to combat money laundering, and the financing of terrorism through policy development, implementation of effective compliance standards, and the production of quality financial intelligence in collaboration with the private sector and public agencies. An important outcome of compliance is accountable institutions’ submission of cash threshold reports (CTRs) and suspicious transaction reports (STRs). The FIC collects, processes and analyses data to generate and distribute financial intelligence products to domestic investigating agencies, intelligence services and SARS for investigation or action.

Contact details from the Financial Intelligence Centre:

Financial Intelligence Centre

Mail: Private Bag X177

Centurion

0046

South Africa

Street: 2nd Floor Lakeside Building A

53 Embankment Street

Centurion

0157

Gauteng

Tel: +27 12 641 6000

Fax: +27 12 641 6215

Website: www.fic.gov.za

Compliance and Prevention

Tel: +27 86 022 2200

Fax: +27 86 033 3336