The principal objective of the Financial Intelligence Centre Act, 38 0f 2001 (FICA) is to assist in the identification of the proceeds of unlawful activities, the combating of money laundering activities and the financing of terrorist and related activities. The Financial Intelligence Centre Amendment Bill 2015 was designed to boost South Africa’s ability to fight financial crimes, by proposing measures to address threats posed by money laundering and terrorism financing. This Bill has recently been passed by Parliament and was referred back to Parliament by the President as there are concerns regarding the constitutionality of certain provisions. Since then the Bill has been slightly amended by Parliament and resubmitted, awaiting presidential signature.

According to an article published in The City Press on 16 March 2017, during the financial year 2015 – 2016, nearly 2490 transactions to the value of R58.94 billion constituted an illicit outflow of money from the country.

Improvements to the current FICA seek to enable accountable institutions to satisfy client due diligence processes. It will assist institutions to reinforce their internal compliance regimes and focus their resources more effectively to reduce the risk that their products and services are abused for illicit purposes. In addition, the improvements seek to create prospects for accountable institutions to explore more inventive ways of offering financial services to a broader range of clients, and to bring previously excluded sectors of society into the formal economy.

The Bill furthermore aims to improve the due diligence requirements, such as the determination of the customer’s identity, the duty to keep records, identifying the beneficial owner, identifying the source of funds from the client, and understanding the purpose and the intended nature of the business relationship.

The Bill also provides for the application of a risk-based approach to customer due diligence, which entails that an accountable institution should identify, assess, and understand it’s AML (Anti-Money Laundering) and CFT (Combating of Terrorist Financing) risks. The Bill places a responsibility on accountable institutions to develop, document, maintain and implement AML and CFT Risk Management and Compliance Programmes. The responsibility for complying with FICA and the Risk Management and Compliance Programme is placed on the board of directors and the senior management of said institutions.

The concept of “money laundering and terrorism financing risks” refers to the possibility that an accountable institution’s products or services may be abused, by its clients, to carry out money laundering or terrorism financing activities. These risks originate from a combination of factors, such as the type of clients, countries, products, delivery channels, etc. involved in a given scenario. An accountable institution should apply its knowledge and understanding of its money laundering and terrorism financing risks in the development of control measures to prevent or mitigate the risks identified.

Client due diligence refers to the information that an accountable institution has about its customer and its understanding of the business that the customer is conducting with it. A properly implemented client due diligence programme enables an accountable institution to improve management of its relationships with its customers and to better identify possible attempts by clients to abuse the accountable institution’s products and services for illegal purposes.

Accountable institutions also have an obligation to keep transaction records (Section 22A of the Bill). This will ensure that adequate information will be available captured to assist investigators when performing their investigative functions.

From the above it is clear that risk analysis is an essential function of  accountable institutions. A Risk Management and Compliance Programme is essential to ensure an efficient and effective risk-based approach to customer due-diligence.

RMI4law members enjoy the benefit of legal advice from an attorney 24 hours a day. If you would like to join RMI4law, kindly contact 0861 668 677. This article was written by Natasha Truyens, a junior associate at Barnard Incorporated Attorneys in Centurion.

Legalex (Pty) Ltd, registration number 2003/003715/07, is an authorized Financial Services Provider (FSP 5277) and underwritten by Guardrisk Insurance Company Limited (FSP   26/10/75).

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