Tag financial crime

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

Example of Kruger Rand Dealers registration

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:

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

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 South African Reserve Bank recently issued a notice declaring that administrative sanctions had been imposed on two life insurers following an investigation that found weaknesses in their anti-money laundering control measures. This case study, which forms Part 2 of our Financial Crime Compliance series, takes a closer look at these sanctions, specifically the section 28 finding, and how the Rahn Financial Compliance Platform can be employed to strengthen anti-money laundering control measures in your business.

Section 28 of the FIC Act

“28. Cash transactions above the prescribed limit 

An accountable institution and a reporting institution must, within the prescribed period, report to the Centre the prescribed particulars concerning a transaction concluded with a client if in terms of the transaction an amount of cash more than the prescribed amount—  

(a) is paid by the accountable institution or reporting institution to the client, or to a person acting on behalf of the client, or to a person on whose behalf the client is acting; or

(b) is received by the accountable institution or reporting institution from the client, or from a person acting on behalf of the client, or from a person on whose behalf the client is acting. 

28A.  Property associated with terrorist and related activities and financial sanctions pursuant to Resolutions of United Nations Security Council 

(1) An accountable institution which has in its possession or under its control property owned or controlled by or on behalf of, or at the direction of—  

(a) any entity which has committed, or attempted to commit, or facilitated the commission of a specified offence as defined in the Protection of Constitutional Democracy against Terrorist and Related Activities Act, 2004;

(b) a specific entity identified in a notice issued by the President, under section 25 of the Protection of Constitutional Democracy against Terrorist and Related Activities Act, 2004; or

(c) a person or an entity identified pursuant to a resolution of the Security Council of the United Nations contemplated in a notice referred to in section 26A(1), must within the prescribed period report that fact and the prescribed particulars to the Centre.  

(2) The Director may direct an accountable institution that has made a report under subsection (1) to report —

(a) at such intervals, as may be determined in the direction, that it is still in possession or control of the property in respect of which the report under subsection (1) had been made; and

(b) any change in the circumstances concerning the accountable institution’s possession or control of that property.

(3) An accountable institution must upon—

(a) publication of a proclamation by the President under section 25 of the Protection of Constitutional Democracy against Terrorist and Related Activities Act, 2004; or

(b) notice being given by the Director under section 26A(3),  

scrutinise its information concerning clients with whom the accountable institution has business relationships to determine whether any such client is a person or entity mentioned in the proclamation by the President or the notice by the Director.”

What must happen, in order to meet Financial Crime Compliance

An accountable institution must monitor all incoming and outgoing transactions concluded with or by clients to identify cash transactions in any of the institution’s bank accounts, this is applicable retrospectively and ongoing. Once identified it must be determined if any of the transactions breach the stipulated threshold level. In the event of a breach, the CTR report must be completed and submitted via the GoAML portal to the regulator. It is at this point where many institutions run into issues in so far as identifying the client who made the deposit (banking industry excluded). The issue here lies in the fact that many clients use their own reference to complete the deposit slip which can be difficult to assign to a specific client.

Many accountable institutions are made up of numerous other reporting institutions which may or may not have various bank accounts which serve some purpose within the business context. This leads to further complications which may lead to adverse findings during a regulatory visit.

The next part of the section stipulates the actions which are required when it is identified that an accountable institution is in control or manages properties (investments, insurance policies, pension funds, etc.) that belong to an individual who is listed under the Protection of Constitutional Democracy against Terrorist and Related Activities Act and the UN Security Council listings.  This follows the same logic as the DPIP case study in so far as identifying clients who are listed as sanctioned individuals and may fall under the scrutiny of financial crime and money laundering risks. Accountable institutions are expected to screen their current and prospective clients against these listings to ensure that the property of listed individuals under their control is reported to the regulator and that any lawful instruction pertaining to these assets is executed in accordance with the Act. 

How does the Rahn Financial Crime Compliance Platform solve for this?

The transaction monitoring module of the RAHN Financial Crime Compliance platform has been designed to consume the account statements as supplied by ABSA, FNB, Nedbank and Standard Bank. We have working relationships with the teams within these banks to ensure automated integration and consumption of the data. Cash threshold breaches are automatically identified via overnight batch runs and can be applied historically. Submission of CTR reports is automated through the workflow process in so far as population and preparation of the XML templates with built-in gated reviews to ensure all reporting is transparent and visible to senior management committees and compliance functions.

The bank account management module is the direct result of the need to prove coverage in complex banking and treasury environments. Each bank account is managed and maintained within the context of the reporting institution to which it belongs and the accountable individual who controls the account.

The bank reconciliation module was developed to assist in identifying the client who made the deposit. The system makes use of the same matching engine as used to identify sanctioned individuals and thus provides an outcome that follows an accuracy hierarchy. Unmatched or low accuracy matches are resolved through the workflow process where business SMEs are empowered through exception reporting to identify and clear these cases.

The sanctions matching engine is again applied in the same manner as case study 1 and thus provides the accountable institution with hits against the required sanctions listings. This enables the institution to identify potential terrorist and related activity, and financial sanctions within the client base and thus ensure compliance. The portfolio module allows case managers to build a complete view of a client’s portfolio and thus enables the development of a holistic property holding for everyone who poses the potential to qualify under clause 28A of the Act.

Conclusion

Under Section 28 of the Act, accountable institutions are expected to develop an effective process to identify, manage and monitor cash transactions and identify property holdings for individuals who are deemed to be involved in terrorist and related activities. The Rahn Compliance Platform can assist in this through:

• Identifying cash transactions which breach the prescribed threshold entirely or through aggregation.
• Identify the client who made the deposit through the bank reconciliation module and or the exception workflow process.
• Automated CTR reporting following an approval workflow process and uploaded via the GoAML portal.
• Identification of individuals who are listed on the specified sanction lists with automated workflow process to notify senior management and responsible committees.
• Portfolio view build up capability to identify and ring fence assets belonging to individuals identified under point 4 above.

Tackle Financial Crime and mitigate your Company’s Risks with RAHN

Contact us today at [email protected] to discuss your specific requirements and desired outcomes.