In an effort to deal with the possible grey listing of South Africa and strengthening the fight against money laundering, terrorist financing and proliferation financing, the FIC recently made some changes. With effect from 19 December 2022, the list of Accountable Institutions in Schedule 1 was amended, and the updated list is as follows:
1. (a) A person who is admitted and enrolled to practise as a legal practitioner as contemplated in section 24(1) of the Legal Practice Act, 2014 (Act 28 of 2014) who is:
2. (a) A person who carries on the business of preparing for, or carrying out, transactions
for a client, where–
(i) the client is assisted in the planning or execution of
(d) A person who carries on the business of preparing for or carrying out transactions (including as a trustee) related to the investment, safe keeping, control or administering of trust property within the meaning of the Trust Property Control Act, 1988 (Act 57 of 1988).
3. An estate agent as defined in the Estate Agency Affairs Act, 1976 (Act 112 of 1976).
4. An authorised user of an exchange as defined in the Financial Markets Act, 2012 (Act 19 of 2012).
5. A manager registered in terms of the Collective Investment Schemes Control Act, 2002 (Act 45 of 2002), but excludes managers who only conduct business in Part VI of that Act.
6. A person who carries on the “business of a bank” as defined in the Banks Act, 1990 (Act 94 of 1990)
7. A mutual bank as defined in the Mutual Banks Act, 1993 (Act 124 of 1993).
7A. A co-operative bank as defined in the Co-operative Banks Act, 2007 (Act 40 of 2007).
8. A person who carries on a life insurance business as defined in the Insurance Act, 2017. This excludes a reinsurance business, as defined in this Act;
9. A person who carries on the business of making available a gambling activity as contemplated in section 3 of the National Gambling Act, 2004 (Act 7 of 2004) in respect of which a license is required to be issued by the National Gambling Board or a provincial licensing authority.
10. A person who carries on the business of dealing in foreign exchange.
11. (a) A person who carries on the business of a credit provider, as defined in the National
Credit Act, 2005;
(b) A person who carries on the business of providing credit in terms of any credit agreement that is excluded from the application of the National Credit Act, 2005 by virtue of section 4(1)(a) or (b) of that Act.
12. A person who carries on the business of a financial services provider requiring authorisation in terms of the Financial Advisory and Intermediary Services Act, 2002 to provide advice or intermediary services in respect of the investment of any financial product (but excluding a non-life insurance policy, reinsurance business as defined in the Insurance Act, 2017 and the business of a medical scheme as defined the Medical Schemes Act, 1998)
13. A person who issues, sells or redeems travellers’ cheques, money orders or similar instruments.
14. The South African Postbank Limited referred to in section 3 of the South African Postbank Act, 2010 (Act 9 of 2010)
15. A person who carries on the business of a money or value transfer provider
16. A person who carries on the business of dealing in high-value goods in respect of any transaction where such a business receives payment in any form to the value of ZAR100 000 or more, where "high-value goods" means any item that is valued in that business at ZAR100 000 or more. This specifically relates to tangible items that are traded, sold or bought in the ordinary course of business of that entity. For example, an audit firm that is downsizing and selling their fleet of vehicles for R135 000 each would not be part of the regular feature of the audit firm’s business. However, a tanzanite dealer who has items that are over R100 000 each, would fall within the ambit of the HVGD.
17. The South African Mint Company (RF) (Pty) Ltd, only to the extent that it distributes non-circulation coins in retail trade and where in respect of such transactions it receives payment in any form to the value of R100 000,00 or more, whether the payment is made in a single operation or in more than one operation that appears to be linked.
18. A person who carries on the business of one or more of the following activities or operations for or on behalf of a client:
(a) exchanging a crypto asset for a fiat currency or vice versa;
(b) exchanging one form of crypto asset for another;
(c) conducting a transaction that transfers a crypto asset from one crypto asset address or account to another;
(d) safekeeping or administration of a crypto asset or an instrument enabling control over a crypto asset;
(e) participation in and provision of financial services related to an issuer's offer or sale of a crypto asset; and
where “crypto asset” means a digital representation of perceived value that can be traded or transferred electronically within a community of users of the internet who consider it as a medium of exchange, unit of account or store of value and use it for payment or investment purposes, but does not include a digital representation of a fiat currency or a security as defined in the Financial Markets Act, 2012 (Act 19 of 2012).
19. A clearing system participant as defined in section 1 of the National Payment System Act, 1998 that facilitates or enables the origination or receipt of any electronic funds transfer and or acts as an intermediary in receiving or transmitting the electronic funds transfer.
These entities now have a responsibility to do the following:
The FIC further stated that it and supervising bodies are not intending to issue any fines for non-compliance during the first transitional 18-month period until May 2024. Thereafter, non-compliance by these entities can lead to imprisonment for a period not greater than 15 years or a fine that does not exceed R100 million.
To read further on the amendments click here
On Thursday, 17 November 2022, one of our Compliance Officers, Adriaan van Wyk, was invited to a discussion on Money Laundering at the radio station POWER FM 98.7 hosted by Faith Mangope.
You can listen to the Podcast here: omny.fm/shows/power-lunch/money-laundering-in-south-africa#description
The FSCA paused their compliance reports last year due to them not being done with the new format compliance reports. Although we do not have written confirmation or any notice to this effect - we've heard from some of their staff that it also affects AUM reports and Handover reports (still to be confirmed). And it does not seem that we have any news on new compliance reports for this year. However, there is some other news.
They are busy though, with onsite inspections. Some of our clients were recently inspected and only on FICA. From discussions with people in the industry they are doing inspections on a broad number of FSP's so you should be ready in case they come to visit you.
You should focus on your FICA compliance ASAP. If you do not have the basics in place your are at risk of being fined. Yes, several FSP's have recently been fined for not complying with even the smallest aspects of FICA after the inspections were conducted (none of our clients though).
Be ready for a FICA inspection - a few FSP's have been fined already
What do you need to have in place?
How will the inspection happen?
They will usually contact the Key Individual and inform them of the impending inspection. They will ask for certain documentation beforehand to peruse it before they visit you. They then provide you with a date on which they will arrive and state what you need to have ready on the day. You will likely not have a fun time during the inspection, but with our help we can make it a little less daunting.
This is a quick summary of what to look out for. If you need assistance please let us know - we are here to help.
Seeing your country being pulled down by corruption is hard for anyone. As compliance officers, it's even more difficult as we are often faced with situations where clients and other businesses are actually involved in this to some degree. I can tell you, from experience, that it is not something that one should take lightly. Let's take a look at the risks one faces with PEP's and what to do with them.
The FIC Amendment Act of 2017 still includes the concept of PEPs, however, the naming conventions have now changed to distinguish between foreign and domestic PEPs as follows:
What is the risk?
We must be able to identify PEPs because their prominent public position may increase the risk of their involvement in bribery and corruption and consequently of laundering the proceeds of any such activity (as one can see from the recent corruption scourge that plagued our country).
A high ranking South African government official opened a number of accounts with an overseas bank. However, his activity raised a number of concerns that the account was being used to launder the proceeds of corruption. The value of cash deposits into these accounts was inconsistent with the stated purpose of the accounts and the customer’s income. In addition, the official opened an offshore company in a “tax friendly” jurisdiction with himself as sole director and sole shareholder. The deposits paid into the company accounts were considerably more than expected and, contrary to what is expected of a functioning business, there were no outgoing payments. After a Suspicious Transaction Report (STR) was submitted, the individual was investigated and charged with money laundering offences and subsequently sentenced to prison.
Their prominent public position may increase the risk of their involvement in bribery and corruption and consequently of laundering the proceeds of any such activity.
What are the proposed controls?
Due to the susceptibility of bribery and corruption associated with PEPs, businesses often don’t want to do business with them, however this is an unintended consequence of the associated risk. Processes and procedures need to be in place to identify customers who are PEPs and when you identify a PEP you must follow your business procedures and compliance policies.
When looking at guidance from international bodies such as the Wolfsberg Group and the Financial Action Task Force, PEP relationships are considered higher risk and should ideally be subject to Enhanced Due Diligence (EDD) such as verifying their source of wealth, regular CDD/KYC reviews and the requirement for Senior Management to give their approval prior to entering into or maintaining the customer relationship. It can also happen that a PEP is not a customer of the accountable institution, but rather a related party such as a beneficial owner. The accountable institution needs to decide what its approach will be in these instances as well. This will usually be contained in the internal rules/policy/processes.
It is important to remember that categorising a customer as a PEP does not mean that they are, or have been, involved in any criminal activity. The can also be risk rated in terms of the accountable institution’s Risk Based Approach (RBA).
The FIC Amendment Act also requires that the following requirements be met for higher risk Foreign Prominent Public Officials and Domestic Prominent Influential Persons:
Risk rating your customers are very important in the new improved version of FICA and PEP's are certainly no exception. Do not take any chances and report any instances of proven or suspected criminal activity via the right channels. You would be doing yourself and everyone, for that matter, a great service.
The new amendments of FICA changes the compliance framework for accountable institutions to a great extent and we'll discuss some of the more pertinent items in this blog post.
Risk Based Compliance
According to the new requirements of FICA, accountable institutions now need to take a risk based approach to FICA and the implementation thereof. This includes:
One must also now be able to risk rate clients according to the risk that they pose with regards to being used for money laundering or to channel the proceeds of any crime. Certain customers and businesses are a lower risk than others and some are a higher risk. Some of the aspects that one can look at to determine the risk a client poses are:
Enchanced Due Diligence
by: Horizon Compliance team