Financial Intelligence – what businesses need to know

The Financial Intelligence Centre Amendment Act (the Act) was enacted by President Jacob Zuma, and published in the Government Gazette on 2 May 2017.

The Act is designed to make the South African financial system intolerant to abuse in the form of money laundering and the financing of terrorism, putting more emphasis on ensuring international companies established (or seeking to establish operations) in South Africa, do not fall foul of local or international regulations. 

This important step puts South Africa at the forefront of such regulation on the continent and brings local legislation in line with the international standards that have been established by the Financial Action Task Force, a watchdog set up to monitor the progress of its member countries in implementing money laundering and terrorist financing counter-measures, which were issued in 2009 as a result of the global economic crisis.

The Act introduces several new measures to strengthen anti-money laundering in the combating of terrorist financing, including:

 -  A risk based approach: The "risk based approach" places an obligation on accountable institutions to differ in their approach to due diligence depending on the risk posed by a particular customer and business relationship. For instance, an individual earning a minimum wage salary would be considered to pose a lesser risk of money laundering or terrorist financing activities than a wealthy individual who transacts with large amounts of money on a daily basis.  
 - Prominent influential persons: These are individuals, both domestic and foreign, who occupy prominent positions in the public and private sector. Such persons are more likely to be exposed to corruption, on a larger monetary scale, in their day-to-day business dealings. A list of prominent influential persons appears in a schedule to the Act, and includes people as high up as the president, the deputy president, premiers of the various provinces as well as individuals holding high ranking positions such as CEO's, directors of boards, and chief financial officers. 
 - Beneficial ownership: This places an obligation on an accountable institution to identify those individuals, within corporate structures, who benefit financially from transactions. Determining beneficial ownership assists in the detection and investigation of individuals, where illicit financial dealings have been made, cloaked by using corporate structures.  

According to the Financial Intelligence Centre Report for 2016, the value of funds blocked by proceeds of crime was approximately ZAR184.6 million, the majority of which went into the Criminal Asset Recovery Fund. It is likely that the strengthened measures to combat money laundering and the financing of terrorism, which are introduced in the Act, will increase the amount of funds that are seized due to illicit financial dealings, that then be used to fund government projects. 

Business and Institutions operating in South Africa will be required to conduct ongoing due diligence throughout their business relationships with particular customers. The most obvious effect of conducting ongoing due diligence is to enhance the accountable institution's ability to detect an unusual transaction concerning their customer. The repercussions of not complying with these new rules could be detrimental to businesses, and could include fines of up to one million rand. 

The accountable institution will also be required to provide training to their employees regarding internal risk management, compliance with the bill, and anti-money laundering and anti-terrorism financing measures. This is to ensure that no employee falls foul of these new rules as employee actions will be considered a reflection on the business and therefore, penalties will be inflicted on the company in question.

The National Treasury is in the process of drafting regulations and subordinate legislation in terms of the Act, which is ongoing and will require public participation at a later stage. The Act will commence thereafter and once enforced all businesses (and staff) will need to be prepared to comply within the set boundaries.

To find out more about the new Act and how it might affect your business operations in South Africa, you can contact Krevania Pillay here.  

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