More changes to deal with money laundering risks in SA

Businesses dealing in exquisite and very expensive goods such as art, pianos and even mountain bikes will soon have similar compliance obligations as banks and lawyers.

This forms part of government’s efforts to avoid having the country land on the Financial Action Task Force (FATF) grey list.

A wider category of credit providers, high-value goods dealers, informal money providers, the South African Mint, co-operative banks, and crypto asset service providers now fall within the ‘accountable institutions’ net following an amendment to the Financial Intelligence Centre Act (Fica).

Addressing weaknesses

The Financial Intelligence Centre (FIC) says in a statement the increased sectoral coverage will address the scope of weaknesses identified by the global money laundering and terrorist financing watchdog, FATF.

“The additional sectors will improve the FIC’s ability to obtain information concerning the financial activities of customers from a wider range of financial [and] non-financial institutions and crypto asset service providers,” the FIC says in its statement.

Era Gunning, banking and finance executive at ENSafrica, says businesses that deal in high value goods and receive payments in any form to the value of R100 000 or more will have to register with the FIC as an accountable institution and comply with the provisions of the act.

This means they will have to implement customer identification and verification processes (customer due diligence), appoint a money laundering control officer, and set up a risk management and compliance programme that lays out the risk-based approach the institution will follow to deal with the provisions of the act.

Employees will have to undergo training to comply with Fica and to spot potential breaches.

New laundering methods

Traditionally money launderers relied on the purchasing of precious metals and stones (diamonds and the like) as well as expensive vehicles and grand homes to ‘wash’ their ill-gotten gains.

However, money launderers sitting with mountains of illegal money don’t want to follow the old routes anymore. There are now too many eyes there.

They now go for expensive goods and crypto asset online platforms.

“A savvy money launderer knows not to buy Krugerrands or diamonds but rather a prize bull or rare game … The message is not that everyone who is buying high value goods or selling it is necessarily a money launderer, but government is putting checks and balances in place to catch the ones who are,” says Gunning.

Read: South Africa provides fertile ground for funders of terrorism …

“In the UK and the European Union there are similar provisions, but [the legislation] only catches you if you sell high value goods for cash. That is not the case in SA. Here you are in the net whether the payment is cash or any other way above the prescribed threshold.”

This means that any entity that exchanges one crypto asset for another or sells mountain bikes or artworks worth more than R100 000 will have to subject their customers to a risk-based assessment designed to identify high-risk clients. The higher the risks, the greater the effort to verify the client.

All accountable institutions must also report any cash transaction valued at R50 000 or more to the FIC.

Legislative overhaul

Amelia Warren, candidate legal practitioner at ENSafrica, says this is happening in conjunction with amendments to the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill which includes the tightening of the FIC Act and the Companies Act.

“These amendments will address 14 of the 20 technical areas of non-compliance identified by the Financial Action Task Force,” she says.

A major amendment for Fica is a change in the role of the regulator. It will be able to produce forensic evidence and to request information from other organs of state. This broadens the power and scope of the FIC to implement the law, says Warren.

A major amendment for the Companies Act is the identification of beneficial owners of companies and entities. A beneficial owner is the natural person who is in control of a legal entity. The accountable institution must identify who the ‘warm bodies’ are to prevent people from laundering money by hiding behind a company structure.

A public register will be established, as has been done in the EU, to identify the beneficial owner of each company.

Loads of work, little time

Gunning says there is a significant amount of work to be done and the amendments will result in a permanent increased administrative burden for many companies.

This cost will obviously be shifted onto the customer, she adds.

The amendment to the applicable schedules of the FIC Act is effective from 19 December. There will be no grace period and inspections will be done from the start.

If a business is non-compliant initially it will receive remedial administrative sanctions, but financial penalties will probably be imposed after 18 months.

Listen to Ryk van Niekerk’s interview with Intellidex founder Stuart Theobald about what South Africa can do in an effort to stay off the FAFT grey list(or read the transcript here):

You can also listen to this podcast on iono.fm here.