Category Case studies

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.

Enjoy the read!!

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”).

Rahn Consolidated’s articles and case studies are aimed at socialising, climatising, creating awareness, and cautioning economic participants regarding economic crime schemes. The focus will be on anti-money laundering and the investigations around economic crime scheme risks, reporting, and most importantly, its regulatory compliance. The term “Economic crime schemes” is often used interchangeably with “Financial Crime”.

South Africa has introduced new banknotes and coins, the previous notes and coins are now going to be phased out. Below is a case study of how this impacts people who have cash in hand and the impacts this can have on cash threshold reporting from a financial crime perspective.

Image: SARB

ISSUE NO.21-2023, focuses on South Africa’s recently introduced banknotes and coins. This has caused a significant impact on people who have cash in hand. The previous notes and coins are being phased out. This has implications for financial crime prevention, specifically regarding cash threshold reporting.

From a financial crime perspective, cash threshold reporting refers to the obligation of financial institutions. They need to report any cash transactions above a certain threshold to the relevant authorities. This is done to prevent money laundering and other illegal activities.

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The Implications of New Bank Notes and Coins

With the introduction of new banknotes and coins, financial institutions need to implement new controls and checks to ensure that they are accurately reporting cash transactions. This includes updating their systems and procedures to recognize and process the new notes and coins.

For individuals who have cash in hand, the impact of the new notes and coins is significant. They will need to exchange their old notes and coins for new ones before the old ones are phased out. This will require them to go to a bank or other financial institution and exchange their old notes and coins for new ones.

Image: SARB

For those who do not exchange their old notes and coins before they are phased out. They will no longer be able to use them as legal tender. This means that they will have worthless notes and coins. This can have a significant impact on their financial situation.

Image: SARB

The introduction of the new banknotes and coins in South Africa has significant implications. Especially for financial crime prevention, specifically regarding cash threshold reporting. Financial institutions need to implement new controls and checks to ensure that they are accurately reporting cash transactions. For individuals, it is important to exchange their old notes and coins for new ones. Before the old ones are phased out to avoid any financial impact.