The concepts of money laundering and unlawful activities Money laundering is a three stage process: 1. The first stage is placement The origins of the illegal money is usually mixed with the origins of legitimate money The proceeds of unlawful business are in the form of cash Therefore it can be easily mixed with the proceeds of a cash business A further aim is to convert the nature of the profits from cash into some other forms of assets such as property or financial instruments e.g investment policies, travellers cheques etc
The concepts of money laundering and unlawful activities 2. The second stage money launderers try to achieve the following 4 objectives: Disguise the ownership Disguise the origin Disguise the audit trail Disguise the profit and source of crime • This is achieved by conducting layers of complicated financial transactions usually using electronic transactions.
The concepts of money laundering and unlawful activities 3. The third stage consists of a series of more transactions, designed to make the funds available to the criminals again. This is achieved by accessing the funds and using it for legitimate purposes. The funds are then fully integrated into the financial system.
The concepts of money laundering and unlawful activities What are unlawful activities: • Any conduct that constitutes a crime or which contravenes any law whether the conduct occurred before or after the commencement of the South African legislation or in South Africa or elsewhere constitutes unlawful activity. E.g Tax evasion, drug trafficking, theft, robbery, fraud, abduction, extortion. • Proceeds of unlawful activities are defined as any property or service advantage, benefit or reward which is derived, received or retained directly or indirectly in South Africa or elsewhere at any time before or after the commencement of the POCA Act which resulted from unlawful activities.
Background to Anti-Money Laundering Legislation • The governments of the world have united in the fight against money laundering with an international agreement setting up the Financial Action Task Force (FATF) • The FATF was founded in 1989 by the G7 countries • The FATF activities include combating money laundering for criminal and terrorist purposes. • The FATF has issued 40 recommendations for action against money laundering that form the basis for legislation in many countries.
Background to Anti-Money Laundering Legislation • International pressure on countries to adopt measures that met with the FATF requirements led to the Financial Intelligence Centre Act 2001 • FICA added to POCA and the removal/reversal of certain parts of POCA meaning the two acts have to be read in conjunction with each other • POCDATARA was only added in 2004
Money Laundering Legislation • Money laundering legislation does not act upon the crime itself but rather deals with the proceeds of that crime. • The three main laws dealing with money laundering in South Africa in chronological order (arranged in the order of time) are the: Prevention of Organised Crime Act 1998 (POCA) Financial Intelligence Centre Act 2000 (FICA) Protection of Constitutional Democracy Against Terrorism and Related Activities 2004 (POCDATARA)
Money Laundering Legislation The Prevention of Organised Crime Act (POCA) • The purpose of POCA is to introduce measures to combat organised crime, money laundering and criminal gang activities. • The objectives of POCA : To criminalise racketeering ( Racketeering refers to criminal activity that is performed to benefit an organization such as a crime syndicate). Examples of racketeering activity includes extortion, money laundering, loan sharking, obstruction of justice and bribery and offences relating to activities of criminal gangs
Money Laundering Legislation The Prevention of Organised Crime Act (POCA) To criminalise money laundering and a number of serious offences in respect of laundering and racketeering To create a general reporting obligation for businesses coming into possession of suspicious property To create a mechanism for criminal confiscation of proceeds of crime and for civil forfeiture of proceeds
Money Laundering Legislation Money Laundering Offences under POCA: • The offences are as follows: Offences involving proceeds of all forms of crime Offences involving proceeds of a pattern of racketeering Receiving or keeping property derived from racketeering (swindling/committing fraud) and using or investing any part of that property in the acquisition of any interest in, or the establishment or operation or activities of any enterprise Receiving property from an enterprise when you know or should have known that the property results from racketeering • Penalties may be as harsh as imprisonment for 30 years or a fine of R100 million
Money Laundering Legislation The Financial Intelligence Centre Act (FICA): • The purpose of FICA is to combat money laundering activities and the financing of terrorist and related activities. • FICA creates requirements to ensure that money laundering is controlled. These requirements are aimed at Identifying suspicious transactions Reporting of suspicious transactions • People who are involved in money laundering activities will be charged under POCA whereas people who fail to identify or report suspicious transactions will be charged under FICA • FICA also requires accountable institutions who might be used to launder money comply with certain legal duties relating to combating money laundering
Money Laundering Legislation Accountable Institutions: • The main purpose of FICA is to impose certain procedures onto accountable institutions relating to identifying and reporting suspicious or unusual transactions • Accountable institutions are businesses that can be used to launder money for e.g: Banks Estate Agents Attorneys Trust Companies Collective Investment Schemes and Long term insurance companies • FICA also establishes: The Financial Intelligence Centre and The money laundering advisory council To help combat money laundering
Money Laundering Legislation Financial Intelligence Centre: • The main objective of the FIC is to assist in the identification of the proceeds of unlawful activities and the combating of money laundering activities. • All accountable institutions are required by the Act to report all information regarding money laundering activities to the FIC • The FIC then hands over the case to the appropriate authorities for further action.
Money Laundering Legislation Financial Intelligence Centre: • Other objectives of the Financial Intelligence Centre are: To make information collected by it available to investigating authorities, intelligence services and SARS to facilitate the administration and enforcement of the laws of the republic To exchange information with similar bodies in other countries regarding money laundering activities and similar offences.
Money Laundering Legislation The money laundering Advisory Council: • The money laundering advisory council was established to advise the minister of finance on policies and best practises to combat money laundering and to identify the proceeds of unlawful activities. • It also acts as a forum in which associations representing categories of accountable institutions, organs of state and supervisory bodies that report to the financial intelligence can consult one another. • The council should also advise the financial intelligence centre on the performance of its functions NB!! FICA requires the creation of a paper trail, with detailed records of the origins of the money placed with an accountable institution and the people involved
Money Laundering Legislation The Protection of Constitutional Democracy against Terrorism and Related Activities Act (POCDATARA) • Money laundering is sometimes used to fund the activities of terrorist organisations, therefore • POCDATARA Introduced an obligation to report certain offences linked to terrorist activities, including terrorist financing and • Reporting of any property associated with terrorist and related activity to the financial intelligence centre
The Impact of FICA on FSP’s • FICA creates the following four money laundering control obligations for all accountable institutions The duty to identify and verify clients Duty to keep records of business relationships and transactions Reporting duties and obligations to give and allow access to information Adoption of measures designed to promote compliance by accountable institutions
The Impact of FICA on FSP’s • As a result of the requirements FSP’s and accountable institutions must have all the necessary policies, procedures and systems in place to ensure full compliance with the Act and other applicable anti-money laundering or terrorist financing legislation. This means that FSP’s must have adequate staff training in place and proper systems and procedures to assist them to comply with the FICA.
Recommend
More recommend
