Category Case studies

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 Postbank susceptible to Money Laundering, 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.17 focuses on schedule 1, item 14 of the Financial Intelligence Centre Act (FIC Act). Which names the Postbank as an accountable Institution.

The purpose of this article is to highlight whether there are areas where the Postbank is susceptible to money laundering. We also would like to highlight areas in which Rahn Consolidated can assist to embed controls in this regard. By definition, a Postbank undertakes activities which are customary for a financial institution carrying on the business of accepting deposits. This therefore implies that with the inflow and outflow of mainly cash. We can already see that there are pertinent requirements in the FIC Act that need to be adhered to.

This article also aims to highlight the risks associated to not embedding any controls to curb money laundering activities.

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Item 14 of Schedule 1 of the Financial Intelligence Centre (FIC) Act identifies the Postbank as an Accountable Institution (AI). As referred to in section 51 of the Postal Services Act, 1998 (Act 124 of 1998). Prior to indicating all Money Laundering risks that may be associated with the Postbank. It is imperative to highlight activities performed by the Postbank in order to arrive at an analysis.

Postbank activities include but are not limited to:

As an AI, Postbank business is not limited to only reporting obligations but should at a minimum comply with the following:

• Register business as an AI with the FIC in order to ensure regulatory reporting through go-AML;
• Develop a Risk Management and Compliance Programme (RMCP);
• Conduct Customer Due Diligence (CDD);
• Develop a compliance framework and appoint a compliance officer;
• Conduct training on AML/CTPF risks and controls;
• Effectively keep records; and
• Effectively submit regulatory reports to the FIC.

FIC’s website: http://www.fic.gov.za

Based on above activities, we will focus on money remitters and deposits as activities offered by Postbank. Below are money laundering risks which need implementation of controls on

Money Remittances: risks associated with money laundering:

• Money remittances being cash intensive have high risks owing to large values being remitted to high-risk jurisdictions.
• Postbank in this regard, particularly relating to the money remitting activity. It has to ensure that they embed transaction monitoring controls relating to reporting.
• Thus far there have been about 81 964 reports associated Suspicious Transaction and Activity Reports.

Acceptance of deposits and transfers

• Postbank act as a deposit-taking entity without a banking license under a Banking Act exemption.
• Postbank engage in deposit-taking activities under an exemption from being licensed as a bank. Thus they are not supervised for AML/CFT by the SARB:PA, but by the FIC.
• The risks in deposit taking relate to taking cash or any form of money from individuals. It is unable to conduct customer due diligence on.
• Initial findings identified in the Mutual Evaluation Report in the Financial Action Task Force (FATF). Indicate that 34% of cash deposits are done by unknown depositors.
• Rahn consolidated can assist in embedding controls in monitoring cash transactions and reporting accordingly.

ML/TPF Risks Notes: Registration of Postbank as AI

Postbank operating as a Financial Institution would require a registered section 43B compliance officer. And a registered MLRO in its respective branches for purposes of registration.

Ref: PCC05B

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 with Traveller’s Cheques, 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.16 focuses broadly on the non-banking system that deals with new payment products and services (NPPS). Entities in this industry are still labelled as financial institutions which are issuing and managing different means of payment. These means of payment may include, credit and debit cards, cheques, traveller’s cheques, money orders and bankers’ drafts and electronic money.

The Money laundering and Terrorist financing risks around this area are large require extensive controls to ensure compliance to all AML/CTF laws. This article aims to reflect the AML requirements considering how this particular payment system could be susceptible to money laundering.

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Item 13 of Schedule 1 of the Financial Intelligence Centre (FIC) Act identifies an entity which issues, sells or redeems traveller’s cheques, money orders or similar instruments as an Accountable Institution (AI). When looking into new payment product systems, with reference to traveller’s cheques, the following must be considered:

Traveller’s cheques providers should consider putting in place transaction monitoring systems which can detect suspicious activity based on money laundering and terrorism financing typologies and indicators. Such monitoring systems should take into consideration customer risks, country or geography risks, and product, service transaction or delivery channel risks. The transaction monitoring system could also be used to identify multiple accounts or products held by an individual or group, such as holding multiple traveller’s cheques. Traveller’s cheques providers should consider analysing the information and records retained to determine unusual patterns or activity. Where the traveller’s cheque provider identifies a transaction which it suspects, or has reasonable grounds to suspect, that the funds involved are the proceeds of criminal activity or are related to terrorist financing, it should report its suspicions to the relevant financial intelligence unit in accordance with the FATF Recommendations and the laws in the applicable country.

FATF new payment products RBA

As AIs, Traveller’s cheque businesses are not limited to only reporting obligations but should at a minimum comply with the below:

• Register business as an AI with the FIC in order to ensure regulatory reporting through go-AML;
• Develop a Risk Management and Compliance Programme (RMCP);
• Conduct Customer Due Diligence (CDD);
• Develop a compliance framework and appoint a compliance officer;
• Conduct training on AML/CTPF risks and controls;
• Effectively keep records; and
• Effectively submit regulatory reports to the FIC.

FIC’s website: http://www.fic.gov.za

From a reporting perspective, the traveller’s cheques industry only constitutes about 3% of the total reports submitted between 2021/2022 by different accountable institutions and reporting institutions (AI and RI). This implies 3% of 5 247 362 repots received by the FIC.

It was further reported that from a traveller’s cheque perspective, most reports relate to suspicious activities and transactions (SAR/STR). To quantity the above, above 81 964 reports are received from the NPPS alone which includes traveller’s cheques. This makes it about 21% of the total SAR/STR received for different types of AIs and RI for the period 2020/2021.

The above indicates the importance of this industry and how badly it could be susceptible to money laundering.

“It is imperative for this industry to focus largely on detective controls enabling their reporting.”

Rahn Consolidated can assist cash intensive AIs in developing and implementing bespoke transaction monitoring systems and processes to drive out compliance and financial crime controls. This ensures that the SAR/STR reporting reflects the true risk within the organisation and not simply making use of generic approaches which typically over-simplify and over-estimate risks within a particular organisation.

Money Laundering Risks identifies in these payment systems:

ML/TPF Risks Case study: Traveller’s cheque (payment systems AI registration)

Example of Traveler’s cheque registration and its structure

An entity’s main line of business is that of an issuer of traveler’s cheques as defined in the schedule 13 of the FIC Act. Below indicates how registration would occur, especially if the payment product system is non-banking.

Mr. X is the compliance officer of all 4 accountable institutions, see diagram below. It is important to note that reporting to the Centre follows the registration structure of the accountable institution (s). Multiple MLRO can be added per registration structure i.e., per schedule item. The MLRO is registered under the main line of business he/she can see all registration and reporting information. If the MLRO is registered for an underlying schedule item only he/she can only see reporting and registration information of that schedule item. N/B: Fictitious structure for illustration purposes.

PCC 05B

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.