Archives November 2023

The aim of the Rahn Consolidated articles and case studies is to socialise and acclimatise economic participants to economic crime schemes. The focus will inter alia be on the investigations around economic crime schemes, accountable institutions, reporting and most importantly its regulatory compliance. The term, economic crime schemes, is often used interchangeably with Financial Crime, and for the purpose of this article, both terms will be used interchangeably.

Rahn Consolidated, being at the forefront of deterring Financial Crime through compliance, will focus primarily on compliance with Financial Crime legislation thus ensuring fines by way of administrative sanctions are mitigated as much as possible.

Issue No.3 assists all Accountable Institutions (AIs) and Reporting Institutions (RIs) to familiarise themselves with duties and requirements as far as Anti-Money Laundering and Counter Terrorist and Proliferation Financing (AML and CTPF) are concerned. The Financial Intelligence Centre Act (FIC Act) as one of the core regulations in AML and CTPF will be referred to in line with the governance documents that govern these requirements in each business.

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Schedules 1 and 3 of the FIC Act stipulate in a nutshell all businesses (referred to as AIs and RIs) that need to adhere to AML and CTPF requirements. Amongst others business that needs to comply are:

Accountable Institutions (AIs):

• Legal practitioners as defined in the Attorneys Act;
• Board of executors or a trust company as contemplated in the Trust Property Control Act;
• Estate agents as defined in Estate Agency Affairs Act;
• Authorised user exchange as defined in the Securities Service Act;
• Collective Investment Schemes (CIS) Manager as defined in the CIS Act;
• Business of a Bank as defined by the Banks Act;
• A Mutual Bank as defined by the Mutual Bank Act;
• Long-term insurance business as contemplated in the Long-term Insurance Act;
• Gambling activities as contemplated in section 3 of the National Gambling Act;
• Foreign exchange business;
• Business of lending money against the security of securities;
• Business of a Financial Service Provider (FSP) requiring authorisation by FAIS;
• A person who issues travelers’ cheques;
• Postbank as referred to in the Postal Services Act;
• Ithala developmental finance corporation limited; and
• A person carrying out the business of a money remitter.

FIC’s website

Accountable Institutions should register as a minimum requirement.

All accountable institutions mentioned above should as a baseline register with FIC as accountable institutions, then internally develop a (1)Risk Management and Compliance Programme (RMCP) which outlines minimum control measures that the AI will take in mitigating AML and CTPF risks. All sections of the FIC Act including those reporting to the FIC should be adhered to by all AIs. Failure of which will result in penalties or fines that were previously alluded to in issue no.2 of Rahn Consolidated’s articles and case studies.

Some of the requirements that are outlined in the FIC Act, which will be deep-dived in the next issues of Rahn Consolidated articles and case studies, are those of identifying and verifying the clients with which the business is dealing. Rahn Consolidated has realised that many businesses are not aware of their compliance requirement. As a result, some have taken a back seat as the notion has been that of only FSPs being required to comply.The FIC is also very much aware of this and has as a result provided some guidelines and extended exemptions (which were subsequently changed after the FIC amendment Act-refer to Rahn’s Consolidated’s FCC Q/A publications).

An example of AIs which may not be aware: A Client of an Estate Agent is the person who would provide the agent with a mandate, such a client would need to be identified and verified. An Estate Agent as an AI would also need to have a developed RMCP indicating measures on how FIC Act is adhered to. AML risks pertaining to this type of business still involve cash as there are transactions that take place during the sale or purchase of the property.

In such an example, Rahn Consolidated also provides compliance requirements to assist in verifying client identity as part of due diligence.

(1)An RMCP as contemplated in section 42 of the FIC Act is a principles-based document that highlights all FIC requirements to be adhered to. All AIs need to develop, document, maintain and implement this document as a 1st step to being compliant.

Financial Crimes Governance Documents

Duties of each Accountable Institution (AIs) and Reporting Institution (RIs)

Although AIs are seen as primarily the main businesses which should comply with AML and CTPF regulations including FIC Act. There are certain businesses in which the FIC Act requires compliance from mainly a reporting perspective. This implies that measures in these institutions that need to be put in place are not as stringent as those required for Accountable Institutions. These are referred to as Reporting Institutions. These are Institutions that are required to mainly conduct reporting to the FIC at a bare minimum. Rahn Consolidated has realised that many businesses are not aware of their compliance requirement. As a result, some have taken a back seat as the notion has been that of only FSPs being required to comply.

Businesses (AIs and RIs need to bear in mind that the FIC can only deem them compliant if they register with the FIC. This is the 1^st point of being compliant. The FIC can only keep track of compliance and assist in deterring financial crime if all AIs and RIs register and comply. Based on examples provided in this issue. The below case study depicts the number of reports that were provided by estate agents and vehicle dealers. This relates to different reporting requirements as contemplated in the FIC Act:

Reporting conducted by Estate Agents:

Reporting conducted by Motor Vehicles Dealers:

Risk Management and Compliance Programme:

Source: FIC Roadshow slides

The aim of the Rahn Consolidated articles and case studies series is to socialise and acclimatise economic participants to economic crime schemes. The focus will inter alia be on the investigations around economic crime schemes, risks, reporting and most importantly its regulatory and AML compliance. The term, economic crime schemes, is often used interchangeably with Financial Crime, and for the purpose of this article, both terms will be used interchangeably.

Rahn Consolidated, being at the forefront of deterring Financial Crime through compliance, will focus primarily on compliance with Financial Crime legislation thus ensuring fines by way of administrative sanctions are mitigated as much as possible.

Issue No.2 assists readers in understanding legislative requirements from a financial crime scheme (economic crime schemes perspective). The Authorities/Regulators who are responsible for drafting these legislations seek supervisory assistance from selected supervisors and in turn Supervisors require assistance from compliance officers in all spheres to ensure that legislative requirements are complied with.

From this issue, we will also note in detail the different types of administrative, financial, and criminal sanctions that are available for Regulators and Supervisors to enforce, as a result of failure to adhere to AML compliance.

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AML Compliance – Central to deterring Financial Crime

Issue No.1 has articulated that there is a correlation amongst all financial crime schemes, but most importantly Money Laundering always becomes dominant as it always occurs as a result of predicate offenses such as fraud, cybercrime, etc.
From a country governance perspective, a financial crime such as Money Laundering is governed by the below organisations of which South Africa’s supervisors are members:

• Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG);
• Financial Action Task Force (FATF); and
• International Money Fund

Money Laundering Supervisory bodies as contemplated in Schedule 2 of the Financial Intelligence Centre (FIC) are as per below:
• Financial Sector Conduct Authority (FSCA);
• South African Reserve Bank (SARB);
• Estate Agency Affairs Board (EAAB);
• National Gambling Regulatory Board for Auditors established in terms of
• Law Society as contemplated in the Attorney’s Act; and
• Provincial licensing authority as defined in the National Gambling Act.

The legislative universe, international standards, and subordinate legislation include but not limited to the below:

• Financial Intelligence Centre Amendment Act
• Guidance Notes (GN);
• Public Compliance Communication (PCC); and
• Directives.
• Protection of constitutional democracies against terrorist and related activities Act (POCDATARA)
• Prevention of Organisation Crime Act (POCA)
• Prevention and combatting of corrupt activities Act (PRECCA)

Rahn Consolidated assists Accountable Institutions (AI) and Reportable Institutions (RI) as contemplated in schedules 1 and 3 of the FIC Amendment Act, by enabling them with regulatory and AML compliance tools based on their relevant regulatory requirements to ensure that they are compliant.
Lack of compliance with the above-mentioned legislation could lead to sanctions that could affect Als and RI. These would in turn adversely have the below effect on AIs and RIs:

• Loss of operating license;
• Administrative fines and penalties; and
• Reputational risks.

One needs to be mindful that the most critical requirement emanating from the FIC amendment Act which assists the FIC’s financial crime investigations is related to reporting suspicious activities to the FIC. Issue 3 will focus primarily on the duties of each AI and RI in embedding financial crime compliance and assisting the FIC to curb Money Laundering risk.

AML Compliance – Financial Crimes Legislative Universe and Financial Penalties

Best Practice and Industry Benchmark

The difference between administrative, financial, and criminal sanctions are best described below:

The aim of the Rahn Consolidated articles and case studies is to socialise and acclimatise economic participants to economic crime schemes. The focus will inter alia be on the investigations around economic crime schemes, risks, reporting, and most importantly its regulatory compliance. The term, economic crime schemes, is often used interchangeably with Financial Crime, and for the purpose of this article, both terms will be used interchangeably.

Rahn Consolidated, being at the forefront of deterring Financial Crime through compliance, will focus primarily on compliance with Financial Crime legislation thus ensuring fines by way of administrative sanctions are mitigated as much as possible.

Issue No.1 assists readers from all spheres to understand the basics thereof before we deep dive into its main components.

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Economic Crime Schemes also referred to as Financial Crimes range from different types of “schemes” inter alia:

• Fraud;
• Terrorist Financing;
• Bribery and Corruption;
• Cybercrime;
• Market abuse and insider dealing;
• Information Security;
• Proliferation Financing; and
• Money Laundering.

In most instances, Money Laundering is a type of scheme used as a predicate offense to the above-mentioned crimes. This implies that these crime schemes do not and will not be executed in isolation. Most of them ultimately lead to proceeds of these crimes being laundered using mostly financial institutions. What the Financial Intelligence Centre (“FIC”) refers to as Accountable and Reportable Institutions. These will be deed-dives in the more articles to be provided by Rahn Consolidated.

Financial Crime Schemes (Economic Schemes)

South African and Internationally Focused Studies

Different types of schemes have their own modus operandi in that, each scheme has a targeted audience (victims) and enabler (technology) it uses. For instance, looking into Money Laundering as a financial crime scheme, the modus operandi of the perpetrators is to “wash-up” elicit money (called layering) and ensure that it is used back in the economy as clean money (integration). The modus operandi for Fraud for instance is based on the perpetrator being deceitful, dishonest, misleading, and having irregular acts with an intention to benefit illicitly.

Fraud and financial crimes are on the rise

Source: PWC 2020 Global Economic Crime and Fraud Survey

Financial Crime perpetrators have evolved immensely over the years and have largely affected the financial industry. Not only has Financial Crime Compliance been at the forefront of assisting Regulators/Authorities to curb this. They have been made aware of the different types of financial schemes around them on a daily basis.

The current technology enablers often make it very easy to penetrate the market. They make use of those businesses that do not have adequate controls to mitigate these risks (“scheme”).