Tag anti money laundering

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Case studies

Money Laundering in Casinos – RAHN CASE STUDY ISSUE NO.15-2022

Tossing the dice to curb money laundering- a study on curbing money laundering in casinos

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.

People playing roulette at the Casino

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.

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.

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Considerations for the Casino and Gaming Industry:

Land-based casinos vary in a number of key areas which may impact the specific money laundering or terrorist financing risks that they are exposed to, e.g. types of gambling offered, location, speed and volume of business, the payment methods accepted from customers, size of premises, customers (regular customers with

(regular customers with membership rules or passing trade such as casual tourists or organised casino tours), whether the casino owner forms part of a larger organisation owned by the same operator, and the general regulatory environment that the casino operates within. Internet casinos also vary, e.g.,

whether the operator has other web sites, or whether an operator’s server is in a different country from other parts of its business. These differences contribute to significant differences between land-based and internet casinos in a number of key areas, including customer contact.

Magnifying glass with Compliance

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.

Type20152016201720182019TotalAveragePercent
Casino3847242923161328%
Bingo2327242741143287%
Bookmaker13213212213523675715139%
Limited Payout Machines110195124114931489217846%
Total3034012943406141952390100%

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.

Illustration about the gambling industries registration and its structure
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Case studies

Jewelry business AML compliant – RAHN CASE STUDY ISSUE NO.14-2022

How to get your Jewelry business AML compliant – Deep dive into the Kruger Rand Business

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.

RahnKrugerRands

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

Based on this table, Kruger Rands are rated high-risk and as such reporting controls need to be embedded in a business to ensure that the risks are mitigated:

FATF Mutual Evaluation

RahnSectors

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

Section 29 of the FIC Act requires that any person, who carries on a business, is in charge of a business, manages a business, or is employed by a business, must report suspicious or unusual transactions to the FIC. This reporting obligation is

applicable to a person who carries on the business of dealing Kruger Rands. About 2.63% of the total 2021 reporting eminated from the Kruger Rand dealers while the bulk of the reporting eminates from Banks (82%).

Considering the FATF Mutual Evaluation’ sector risk rating, it is evident that the this industry needs to increase awareness to ensure that it is fully compliant. Rahn Consolidated can assist in implementing the correct reporting capabilities.

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

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Case studies

Money Laundering Act – RAHN CASE STUDY ISSUE NO.7-2022

Security Exchange and Financial Intelligence Centre (FIC) Act- Authorised Exchange as defined in the Securities Service Act (Including Forex)

Rahn Consolidated (Pty) Ltd’s (“Rahn Consolidated”) articles and case studies are aimed at socialising, climatising, creating awareness and cautioning economic participants regarding economic crime schemes. The focus will inter alia be on the investigations around economic crime schemes, risks, reporting and most importantly, its regulatory compliance and adherence to the sector-specific money-laundering act. The term “Economic crime schemes” is 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 compliance regarding Financial Crime and ensuring fines by way of administrative sanctions that fines are mitigated as much as possible.

money-laundering act

Issue No.7 deep-dives into the services provided in the authorised security exchange space and how this will be impacted by any money-laundering act, specifically contained in the FIC Act. This particular Accountable Institution is very unique in that it cannot be looked at in isolation, therefore when applying obligation requirements for securities exchange, one needs to consider the securities exchange services as provided in both the banking sector and Financial Service Provider (FSP) sector. This simply implies that securities exchange as a product should satisfy both Prudential Conduct (Financial Stability) and Market Conduct (Treating Customers Fairly).

In this issue, Rahn Consolidated will assist its clients (prospective and existing) on the importance of this requirement as an Accountable Institution and focus on ways to improve compliance going forward.

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Item 4 of Schedule 1 of the FIC Act lists an authorised user of exchange as defined in the securities service act, 2004 as an Accountable Institution (AI). Already this needs further explanation in order to ensure that we are sure what the activities of this particular AI entails.

Section 1 of the aforementioned securities service act defines authorised user as “a person authorised by an exchange in terms of the exchange rules to perform such securities services as the exchange rules may permit”.

What exactly is an exchange?

money-laundering act

According to the Financial Action Task Force (FATF) Guide, an exchange is quite a broad term. Authorised exchange users of securities services are required to have applicable compliance measures in place and a clear

understanding of their activities that are affected by the FIC Act. From a regulatory perspective, dealers of foreign exchange are supervised by the South African Reserve Bank (SARB) in particular the Prudential

Authority, Financial Surveillance Department and National Payment System Department. On the other hand, the authorised user of the exchange is supervised by the Financial Sector Conduct Authority (FSCA).

Securities include, but are not limited to the following:

  • Transferable securities, including equities and bonds or similar debt instruments;
  • Money-market instruments;
  • Investment funds, including units in collective investment undertakings;
  • Options, futures, swaps, forwards, and any other derivative contracts relating to commodities that must be settled in cash or may be settled in cash;
  • Derivative instruments for the transfer of credit risk;
  • Financial contracts for differences; and
  • Options, futures, swaps, forward rate agreements and any other derivative contracts relating to climatic variables, freight rates, emission allowances or inflation rates or other official economic statistics that are settled in cash, as well as any other derivative contracts relating to assets, rights, obligations, indices and measures not otherwise mentioned in this section, which have the characteristics of other derivative financial instruments.
financial intelligence centre logo

Anti Money-Laundering Act – 2021 FIC Submissions

Cases related to Estate Agents are mostly In April 2021, exactly a year ago, approximately 1.9 million Cash Threshold Reports were submitted to the FIC. About 4% of those reports emanated from forex services and exchange services and obviously, Banks being the largest reporters.

Rahn Consolidated would like to emphasize the importance of compliance with the FIC Act in this particular industry, and these are not limited to reporting obligations as addressed above.

As an AI, the authorised exchange’s users (including forex) are not limited to only reporting obligations under a Money Laundering Act (FIC), 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

money-laundering act

“The items below pose the greatest Money Laundering and Terrorist and Proliferation Financing (ML/TPF) risks in the securities industry:

  • Wholesale markets;
  • Unregulated funds;
  • Wealth management;
  • Investment funds; and
  • Bearer securities.”

FATF Typologies, 2017

Authorised Exchange notes

Securities ML/TPF vulnerabilities: Complex products that may be offered before they are regulated (such as crypto-assets). These types of products need to be risk rated to assess the ML/TPF risks in the industry and business.

FIC Act requirements: From a Risk-based approach (RBA) perspective, these complex products need to be risk rated and assessed so as to ensure correct application and mitigation controls provided for the products itself.

Product Risk Assessment (PRA) conducted by Rahn Consolidated: Rahn Consolidated has established an effective PRA tool that forms part of the bigger RBA as prescribed in the FIC Act. This tool guarantees compliance and eliminates the risk of penalties imposed.

FIC Act Penalties: PRA forms part of Customer due diligence in the FIC Act. Lack of implementation of these controls will result in the Financial Intelligence Centre imposing administrative sanctions on your business based on the severity of the non-compliance.

Securities products are growing exponentially and the Financial Intelligence Centre is aware of it. Allow Rahn Consolidated to assist with the minimum requirements of this critical anti money-laundering act, prior to enactment, and advise your business on the more stringent controls imposed on the Authorised Exchange business.

FATF Guidance on Authorised Exchange