Krevania Pillay, Associate COMMON FINANCIAL CRIME TYPOLOGIES - PowerPoint PPT Presentation

FINANCIAL CRIME IN SOUTH AFRICA : THE 2019 EDITION Krevania Pillay, Associate

COMMON FINANCIAL CRIME TYPOLOGIES

OVERVIEW • Emerging financial crime trends and typologies • The hallmarks of an effective risk management and compliance program • The enhanced due diligence measures applicable to PEPS

FINANCIAL CRIME TRENDS TYPOLOGIES Typology theory: FIC assesses information received from AIs & reporting institutions Produces reports on common methods for ML / TF ML/TF activity + similar methodology = Typology Reports intend to assist government / identified sectors to understand ML/ TF threats Insert filename here Date of presentation 4

FINANCIAL CRIME TRENDS TYPOLOGIES Typologies of Financial Crime: 419 Scam Fraudulent Duplicate company scams / payments change of banking details fraud Account hijacking/ use of 3rd party account Insert filename here Date of presentation 5

FINANCIAL CRIME TRENDS TYPOLOGIES 419 Scam: Worlds lds most most Ad Advan vance fee commo mmon fr fraud sca scam Persua suades s recipien ipient to Co Continuo inuous s advan vance request sts s for money mon y to mon money y / / frau fr audst dster er extortion ion Insert filename here Date of presentation 6

FINANCIAL CRIME TRENDS TYPOLOGIES Red flags • Unknown sources of money & unrealistic value of funds presented • Communications contain grammatical errors • Communications contain request for banking details Insert filename here Date of presentation 7

FINANCIAL CRIME TRENDS TYPOLOGIES Duplicate payments: Insert filename here Date of presentation 8

FINANCIAL CRIME TRENDS TYPOLOGIES Red flags • Duplication of payments from a single account • Flow of funds inconsistent with normal service provider profile • Purchase of high value assets / lifestyle changes by the fraudster Insert filename here Date of presentation 9

FINANCIAL CRIME TRENDS TYPOLOGIES Fraudulent company scams: Insert filename here Date of presentation 10

FINANCIAL CRIME TRENDS TYPOLOGIES Change of bank details fraud: Request for funds to be Fraudulent paid into change of fraudulent bank account account details Usually Commonly change of perpetrated banking using details of phishing established business Insert filename here Date of presentation 11

FINANCIAL CRIME TRENDS TYPOLOGIES Red flags: • Using fraudulent documentation to open bank accounts for companies with confusingly similar names to existing entities • Change of banking details of established business • Change of banking details unexpectedly / mid contract / when payment is expected / requested • Entities receive money without any corresponding commercial activity • New accounts receive large credits followed by immediate withdrawal Insert filename here Date of presentation 12

FINANCIAL CRIME TRENDS TYPOLOGIES Account hijacking / use of 3 rd party account: Paid to open Unemployed / bank account low income for 3 rd party / earners are Agrees targeted Hijacker is Accompanied able to move by money identity theft undetected Insert filename here Date of presentation 13

FINANCIAL CRIME TRENDS TYPOLOGIES Red flags: • Multiple monthly deposits beyond the scope of salary payments from an employer • Unexplained deposits into bank account of unemployed spouse / minor • Purchasing assets in the name of 3 rd parties such as siblings, spouses & minors • Attorneys trust account receiving numerous unexplained payments from clients Insert filename here Date of presentation 14

HAVING AN EFFECTIVE RMCP Insert filename here Date of presentation 15

HAVING AN EFFECTIVE RMCP Financial Intelligence Centre Act No 38 of 2001 (“FICA”): 2 October 2017 - Strengthens South Applies to various provisions African financial Accountable introduced in FICA institutions (“AI’s”) - system against Amendment Act abuse through Often used as enacted money laundering vehicles to launder and financing of money or proceeds terrorism of criminal activities

HAVING AN EFFECTIVE RMCP Section 42 of FICA: AI’s Adopt & implement 2 April 2019 an RMCP Insert filename here Date of presentation 17

HAVING AN EFFECTIVE RMCP Risk Management & Compliance Programme: • AI’s - develop, document, maintain and implement programme for AML and CFT risk management and compliance • RMCP must enable AI to identify, assess, monitor, mitigate and manage risk arising from AI’s products / services or ML, TF & related activities Insert filename here Date of presentation 18

HAVING AN EFFECTIVE RMCP HAVING AN EFFECTIVE RMCP HAVING AN EFFECTIVE RMCP Risk Management & Compliance Programme: Section 42 of FICA: Risk Management & Compliance Programme: • Provide for manner in which AI: AI’s • AI’s - develop, document, maintain and implement programme for AML and CFT risk management and compliance  determines if person is prospective client in process of establishing business relationship / entering into single transaction or has already done so • RMCP must enable AI to identify, assess, monitor, mitigate and manage risk arising from AI’s products / services or ML, TF & related  complies with s20A of FICA: Prohibition on establishing business relationship / activities concluding single transaction with anonymous client / client with apparent false name Adopt & implement an  establishes & verifies identity of persons 2 April 2019 RMCP Insert filename here Date of presentation 19

HAVING AN EFFECTIVE RMCP Risk Management & Compliance Programme:  determines whether future transactions consistent with institution’s knowledge of prospective client  conducts additional due diligence measures in respect of legal persons, trusts & partnerships  conducts ongoing due diligence & account monitoring in respect of business relationships  examines complex / unusually large transactions & unusual patterns of transactions & keeps written findings of the above Insert filename here Date of presentation 20

HAVING AN EFFECTIVE RMCP Risk Management & Compliance Programme:  confirms information relating to client when it has doubts about veracity of information received  performs customer due diligence requirements when it suspects that transaction / activity is suspicious  terminates existing business relationships  determines whether prospective client is foreign prominent public official or domestic prominent influential person Insert filename here Date of presentation 21

HAVING AN EFFECTIVE RMCP Risk Management & Compliance Programme:  conducts enhanced due diligence for higher-risk business relationships & when simplified customer due diligence might be permitted in institution  maintains records as required by FICA Insert filename here Date of presentation 22

HAVING AN EFFECTIVE RMCP Risk Management & Compliance Programme: • RMCP must:  enable AI to determine when transaction / activity reportable in terms of AI’s reporting obligations & provide process for reporting information  provide for its implementation in AI’s branches, subsidiaries or foreign operations & processes relating to implementation Insert filename here Date of presentation 23

HAVING AN EFFECTIVE RMCP Risk Management & Compliance Programme: • AI required to indicate whether any of above requirements not applicable - if so, reasons? • Board of directors, senior management / other persons exercising highest level of authority in AI must approve RMCP • AI must review RMCP at regular intervals - ensure it remains relevant to AI’s operations & compliance with FICA • AI must, on request, make copy of documentation describing RMCP available to FIC / relevant supervisory institutions Insert filename here Date of presentation 24

HAVING AN EFFECTIVE RMCP Section 42A of FICA: Employee compliance Dedicated Compliance Compliance with RMCP function Insert filename here Date of presentation 25

HAVING AN EFFECTIVE RMCP Section 42B of FICA: FIC’s Consider Draft Guidance obligations submission Insert filename here Date of presentation 26

HAVING AN EFFECTIVE RMCP Section 43 of FICA: Insert filename here Date of presentation 27

WHAT IS PEP RISK? Insert filename here Date of presentation 28

“ PEP risk is the very real possibility that over breakfast tomorrow morning, you will read that your bank holds the accounts of one of the world’s most corrupt leaders – and you had no idea, and you are being held responsible. It’s the risk of the bank’s shares dropping because of this news. It’s the risk of a court case filed by the major shareholders against the bank’s management for incompetence and failure to comply with legislation. It’s the risk of losing clients, losing millions of dollars, paying crippling fines and having all your correspondent banking relationships terminated. ” White paper produced by World-Check. World-Check provides risk intelligence to more than 2,700 financial institutions and government agencies in 153 countries.