Archives November 2023

Rahn Consolidated (Pty) Ltd’s (“Rahn Consolidated”) articles and case studies are aimed at socialising, climatising, creating awareness and cautioning economic participants on regarding economic crime schemes. The focus will inter alia be on the investigations around money laundering in casinos, risks, reporting and most importantly, its regulatory compliance. The term “Economic crime schemes” are often used interchangeably with “Financial Crime”. For the purpose of ensuring all readers are kept in the loop, Rahn Consolidated will make use of both terms. Rahn Consolidated being at the forefront of deterring Financial Crime through compliance will focus primarily on the compliance of regarding Financial Crime and ensuring fines by way of administrative sanctions that fines are mitigated as much as possible.

Issue No.15 focuses on the Gambling industry, also widely referred to as the Casino and Gaming industry. The risks that are associated to this industry are related to Money Laundering (ML) and Terrorist Financing (TF) due to the cash exposure inherent with the industry.

The different activities carried out, such as land-based casinos and internet-based casinos, are all susceptible to ML and as such business that operate within this industry should always ensure that they are compliant with the ML/TF laws particularly the Financial Intelligence Centre Act, as amended. This article aims to highlight the bare minimum requirements and highlighting the risks thereof.

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Item 9 of Schedule 1 of the Financial Intelligence Centre (FIC) Act identifies and Accountable Institution (AI) as a person who carries on the business of making available a gambling activity as contemplated in section 3 of the National Gambling Act, 2004, in respect of which a license is required to be issued by the National Gambling Board or a provincial licensing authority.

Considerations for the Casino and Gaming Industry:

Casinos are subject to a range of regulatory requirements, commercial considerations, and security measures, which can complement AML and CFT measures:

• Age verification
• Financial crime controls
• Social responsibility provisions
• Security controls
• Gaming surveillance, e.g., to deal with problem gambling.

FATF GAMBLING RBA

From a reporting perspective, the Gambling industry only constitutes about 5.71 % of the total reporters (including both accountable institutions and reporting institutions).

Rahn Consolidated can assist this highly cash intensive AI in assisting with compliance related to financial crime and embedment of controls thereof.

ML/TPF Risks Case study: Casinos and Gaming

The below is a lay-out of the Gaming industry over a couple of years and the inspections which were covered by the Regulators. This highlights the significance of this industry and to what extend these industries are at risk to ML/TF.

Type	2015 |	2016 |	2017 |	2018 |	2019 |	Total |	Average |	Percent
Casino	38	47	24	29	23	161	32	8%
Bingo	23	27	24	27	41	143	28	7%
Bookmaker	132	132	122	135	236	757	151	39%
Limited Payout Machines	110	195	124	1149	314	892	178	46%
Total	303	401	294	340	614	1952	390	100%

FATF MER

Example of Gambling (Casinos, Bookmakers etc.) registration and its structure

XYZ Casino and XYZ bookmakers share a premises in Johannesburg and in Cape Town. 2 Licenses are issued by the responsible supervisory body being the relevant provincial licensing authority. This means that 2 registrations must occur. Multiple Money Laundering Reporting Officers (MLROs) can be added per accountable institution. The MLRO will only be able to see reporting and registration information of that accountable institution.

Rahn Consolidated (Pty) Ltd’s (“Rahn Consolidated”) articles and case studies are aimed at socialising, climatising, creating awareness and cautioning economic participants on regarding economic crime schemes. The focus will inter alia be on the investigations around Jewelry business AML compliant, risks, reporting and most importantly, its regulatory compliance. The term “Economic crime schemes” are often used interchangeably with “Financial Crime”.

For the purpose of ensuring all readers are kept in the loop, Rahn Consolidated will make use of both terms. Rahn Consolidated being at the forefront of deterring Financial Crime through compliance will focus primarily on the compliance of regarding Financial Crime and ensuring fines by way of administrative sanctions that fines are mitigated as much as possible.

Issue No.14 focuses on Reporting Institutions particularly relating to Kruger Rand dealing. This industry, dealing primarily in money in the form of Kruger Rands could be cash intensive and therefore easily susceptible to money laundering.

South Africa has specifically applied reporting obligations on Kruger Rand dealers, which are not classified as Accountable Institutions (AI) under the Financial Intelligence Centre Act but rather Reporting Institutions (RI).

This issue highlights risks affecting Kruger Rand dealers when it comes to money laundering.

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Item 2 of Schedule 3 of the Financial Intelligence Centre (FIC) Act identifies a person who carries on the business of dealing in Kruger Rands as a Reporting Institutions (RI) .

The FIC views “a person who carries on the business of dealing in Kruger Rands” to be any person who, as a regular feature of his/her business, deals in jewellery, ornaments, watches or other objects that contain Kruger Rands irrespective of the value of the turnover of the Kruger Rand dealer. For purposes of this article, “dealer” is therefore regarded as someone who trades in Kruger Rands.

• Some businesses including jewellers are buying Kruger Rands and using these to manufacture jewellery, ornaments and watches that contain the original Kruger Rands.
• The inclusion of a Kruger rand in another object such as a piece of jewellery, ornament, watches etc. does not alter the intrinsic nature of Kruger Rand.
• The FIC therefore views any person who, as a regular feature of his/her business, deals in jewellery, ornaments, watches or other objects that contain Kruger Rands to be a dealer in Kruger Rands.

FIC Kruger rands guide

The reporting obligations concerning RI are as follows:

• Cash Threshold Reporting

Kruger Rand dealers are required to report cash transactions above the prescribed threshold in terms of section 28 of the FIC Act.

• Suspicious and Unusual Transaction Reporting

ML/TPF Risks Example: Kruger Rand Dealer

It is important to note that the head office and branches are separate reporting institutions and can be registered separately by the reporting officer responsible for the head office or branch. This also applies to franchises. The registration platform also allows for an instance where one reporting officer is appointed for all branches. A Kruger Rand dealer has one head office and three branches in South Africa. Mr Z is the reporting officer responsible for the head office and all three branches.

It is important to note that only Mr Z can register the head office and branches and only Mr Z will have access to the registration and reporting information. It is furthermore important to note that reporting to the Centre follows the registration structure of the accountable institution. Multiple Money Laundering Reporting Officer (MLRO) can be added per registration structure i.e. per head office and per branch. If the MLRO is registered at branch level, he/she can only see reporting information of that particular branch.

Example of Kruger Rand Dealers registration

Rahn Consolidated (Pty) Ltd’s (“Rahn Consolidated”) articles and case studies are aimed at socialising, climatising, creating awareness and cautioning economic participants on regarding economic crime schemes. The focus will inter alia be on the investigations around compliance of Motor Vehicle Dealers, risks, reporting and most importantly, its regulatory compliance. The term “Economic crime schemes” are often used interchangeably with “Financial Crime”.

For the purpose of ensuring all readers are kept in the loop, Rahn Consolidated will make use of both terms. Rahn Consolidated being at the forefront of deterring Financial Crime through compliance will focus primarily on the compliance of regarding Financial Crime and ensuring fines by way of administrative sanctions that fines are mitigated as much as possible.

Issue No.13 shifts its interest into the motor vehicles dealers industry. This industry is very cash intensive and could easily be susceptible to Money Laundering.

South Africa has specifically applied reporting obligations on dealers in motor vehicles (MVDs), as they are subject to a general reporting requirement, but are not classified as Accountable Institutions (AI) under the Financial Intelligence Centre Act, but rather Reporting Institutions (RI).

This issue particularly highlights risks affecting motor vehicle dealers when it comes to money laundering.

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Item 13 of Schedule 3 of the Financial Intelligence Centre (FIC) Act identifies a person who carries on the business of dealing in motor vehicles as a Reporting Institution (RI).

The Financial Action Task Force (FATF) Mutual Evaluation noted some vulnerabilities or channels that could be exploited to launder proceeds of domestic crime, in particular for the use of cash, while motor vehicle dealers’ understanding of more sophisticated Money Laundering (ML) schemes is limited. During onsite inspections, authorities indicated that they believe the proceeds that stay within South Africa are mainly used to support luxurious lifestyles, including purchasing real estate, motor vehicles etc.

It is important that motor vehicle dealers embed controls in their businesses to ensure that they are not used as vehicles to launder money. Similarly, the authorities noted that motor vehicles were often involved in known ML cases, but such knowledge does not seem inform understanding of sector vulnerabilities.

There therefore seems to be more work that needs to be conducted in this regard. The recovery of cash proceeds of crime remains challenging. Authorities acknowledged that many offenders quickly convert their illicit proceeds to cash, which then becomes extremely difficult to trace. Cash is used by the criminal fraternity to maintain a lavish lifestyle for themselves and their immediate families and is spent on luxury items, such as jewelry, high value motor vehicles and property.

FATF Mutual Evaluation Report_October 2021

Activities to consider in the motor vehicle industry are:

• Motor vehicle related services; and
• Buying and selling of motor vehicle parts.

Now that we know that the FATF takes the motor vehicle industry seriously, we expect these principles to be used to legislate in order to address the risks pertaining to ML within this industry. Having said that, let us unpack the Motor Vehicle Industry from a legislative perspective with particular reference to the FIC Act.

• The Financial Intelligence Centre (FIC) views a “person who carries on the business of dealing in motor vehicles” to be any person who is engaged in the business of buying, selling or exchanging any new or second hand self-propelled vehicle, including a vehicle having pedals and an engine, or an electric motor as an integral part thereof or attached thereto and which is designated to be propelled by these means on land, as well as any trailer and caravan.
• Motor vehicle dealers have a duty to register with the FIC in terms of section 43B of the FIC Act.
• Motor vehicle dealers are required to report cash transactions above the prescribed threshold in terms of section 28 of the FIC Act.

ML/TPF Risks Case Notes: Motor Vehicle dealers

Example of Motor Vehicle Dealers registration

Example of Motor Vehicle registration franchise e.g ZZ Motors (Fictitious name)