Compliance Awareness Road Shows Presented by The Financial - PowerPoint PPT Presentation

financial intelligence centre REPUBLIC OF SOUTH AFRICA Financial Intelligence Centre Compliance Awareness Road Shows Presented by The Financial Intelligence Centre

Agenda • The FIC • Functions of the FIC • Importance of the FIC Act • Money Laundering • How ML affects society • What is terrorism • How is terrorism financed • Terrorism model • Compliance framework • Duties of Accountable Institutions (AIs) • Reporting Statistics 2011/2012 FY • FATF financial intelligence centre -2- REPUBLIC OF SOUTH AFRICA CONFIDENTIAL

Financial Intelligence Centre  Established in terms of section 2 of the FIC Act The objectives of the FIC are:  To assist in identifying proceeds of unlawful activities and combating of money laundering and terror financing  To make information available to investigating authorities, SBs, intelligence services and SARS  Exchanging AML/CFT information with bodies in other countries that have similar objectives  Supervise and enforce compliance with the FIC Act financial intelligence centre -3- REPUBLIC OF SOUTH AFRICA CONFIDENTIAL

Functions of the Financial Intelligence Centre • Collect, process, analyse and interpret information • Inform, advise and cooperate with investigating authorities, supervisory bodies, SARS and the intelligence services • Monitor and give guidance to accountable institutions, supervisory bodies and other persons regarding FIC Act duties and responsibilities • Retain information in a manner as set out in the FIC Act • Implement a registration system in respect of all AIs and RIs • Supervise and enforce compliance with the FIC Act financial intelligence centre -4- REPUBLIC OF SOUTH AFRICA CONFIDENTIAL

Importance of the FIC Act • Preserves and enhances SA reputation for sound governance and policies • Brings SA legislation and framework in line with international standards and expectations • Complements the Prevention of Organised Crime Act 1998 ( POCA ), which defines the crime of money laundering and also anti-terror legislation ( POCDATARA), promulgated in 2005. • Objective is to remove the business element from “the business of crime” • Establishes SA as part of international efforts to combat money laundering  terror financing  financial intelligence centre -5- REPUBLIC OF SOUTH AFRICA CONFIDENTIAL

Importance of the FIC Act According to the Task Force on Financial Integrity and Economic Development: Every year, developing countries lose approximately $1.3 trillion in illicit financial outflows — the proceeds of crime, corruption, tax evasion, and trade mispricing. This loss of capital outpaces current levels of foreign aid by a ratio of 10 to 1. Curtailing these outflows is crucial to nurturing a stable and robust economic recovery in global markets, stamping out political corruption and crime, and fostering good governance … 1 1 “Message to the G - 20” Task Force on Financial Integrity and Economic Development. (13 October 2011) http://www.financialtaskforce.org/2011/10/13/2011-task-force-conference-communique-a-message-to-the-g20/ financial intelligence centre -6- REPUBLIC OF SOUTH AFRICA CONFIDENTIAL

Money Laundering financial intelligence centre -7- REPUBLIC OF SOUTH AFRICA CONFIDENTIAL

Money Laundering • Money laundering involves criminals and their associates trying to hide the fact that their proceeds and funds come from illegal activities • In order for crime to pay, a criminal must be able to enjoy whatever it is they have taken and are not entitled to • Criminals channel dirty money through legitimate businesses and institutions such as banks, casinos, estate agencies, brokers, etc • Money laundering involves the proceeds of criminally derived property rather than the property itself • Is not dependant on specific predicate crime only – all criminal activities could lead to money laundering financial intelligence centre -8- REPUBLIC OF SOUTH AFRICA CONFIDENTIAL

Money Laundering Why Launder money: • Avoid prosecution • Increase profits/reinvest in criminal activities • Avoid seizure of accumulated wealth • Appear legitimate • Enables criminal to expand and carry on with criminal activities Money laundering is NOT about cash – it’s about the PROCEEDS of crime financial intelligence centre -9- REPUBLIC OF SOUTH AFRICA CONFIDENTIAL

How Money Laundering affects society • The economic and political influence of criminal organisations can weaken the social fabric • Decimates collective ethical standards & the democratic institutions of society • Corrupts public officials and governments • Countries that attract money launderers and criminals may find it difficult to create conditions for sustainable development and achieve long-term economic growth • Enables criminal activity to continue • Any business or person who aids money laundering can suffer immense damage to their reputation financial intelligence centre -10- REPUBLIC OF SOUTH AFRICA CONFIDENTIAL

What is terrorism • A criminal act that influences an audience beyond the immediate victim • Might have as its aim(s) to:  Produce widespread fear  Create doubt that the government can provide for and protect its citizens  Attract media attention to obtain recognition for their cause  Weaken, or embarrass government security forces  Free prisoners  Satisfy vengeance  Influence government decisions  Discourage foreign investment & tourism financial intelligence centre -11- REPUBLIC OF SOUTH AFRICA CONFIDENTIAL

How is terrorism financed? • Legitimate income sources • Small sums in comparison to money laundering • Disguise and transfer funds through charities & non-profit organizations • Money in terrorist financing is the means not the end Monthly debit orders from employed individuals  Proceeds from legal businesses or investments  Collection of membership levy and/or subscriptions  Voluntary donations by individuals & businesses to legitimate/sham  charitable, religious and non profit organisations Direct contributions by governments or government agencies  financial intelligence centre -12- REPUBLIC OF SOUTH AFRICA CONFIDENTIAL

How is terrorism financed? • Sources are robust and low-key • Use of illegitimate & legitimate funds • A wide variety of crimes may be used to finance operations: drug trafficking  identity theft  credit card theft  social grant theft  personal & commercial vehicle hijacking  organised shoplifting gangs  reselling of stolen property  contraband cigarettes  sale counterfeit watches, textiles DVD’s, CD’s & software  underground banking  financial intelligence centre -13- REPUBLIC OF SOUTH AFRICA CONFIDENTIAL

Terrorism financing model financial intelligence centre REPUBLIC OF SOUTH AFRICA Aggregation – pooling of smaller amounts into larger ones Acquisition of funds Movement from various sources – not everyone aware of intended purpose Transmission - Movement of funds to central terrorist Organisation / Conversion representative Funds exchanged for end use goods & services to carry out terrorist activities Transmission to cells financial intelligence centre Allocation of funds to REPUBLIC OF SOUTH AFRICA different terrorist cells

Compliance Framework Applicable Applicable guidance Applicable Administrative Duty Section Criminal sanction Regulations notes or exemptions sanction PCCs GN 1, 2, 3 Establishment of R50 million for legal PCC03 & R100 million or 15 years identity of clients and 21 3 to 19 & 21 2 to 16 person R10 million for 03A, 11, 14, imprisonment other persons natural person 15 R50 million for legal R100 million or 15 years Duty to keep records 22; 23 & 24 20 & 26 PCC02 3 TO 17 person R10 million for imprisonment natural person 22; 22A; 22B; R50 million for legal 28; 28A & 22C; 23; 24; GN 4 & 5 R100 million or 15 years Reporting duties N/A person R10 million for 29 27A; 27B & PCC04 imprisonment natural person 27C Formulating and R50 million for legal R10 million or 5 years implementing of internal 42 25; 26 & 27 PCC12 N/A person R10 million for imprisonment rules natural person Training of employees R50 million for legal R10 million or 5 years regarding the FIC Act 43(a) N/A PCC12 N/A person R10 million for imprisonment and internal rules natural person R50 million for legal Appointment of the R10 million or 5 years 43(b) N/A PCC 12 N/A person R10 million for compliance officer imprisonment natural person GN05 R50 million for legal Registration with the R10 million or 5 years 43B 27A N/A PCC05 , person R10 million for Centre imprisonment PCC06 natural person financial intelligence centre -15- REPUBLIC OF SOUTH AFRICA CONFIDENTIAL

Duties of AI’s in terms of FIC Act Duty to establish and verify the identity of clients (section 21) • An accountable institution may not establish a business relationship or conclude a single transaction unless the prescribed steps have been taken to establish and verify the identity of:  The client  The person representing the client  The person for whom the client may be acting (beneficial owner/person who has ultimate control) financial intelligence centre -16- REPUBLIC OF SOUTH AFRICA CONFIDENTIAL