MEDIA STATEMENT MINISTER SIGNS FIC AMENDMENT ACT INTO OPERATION The Minister of Finance, Malusi Gigaba, has signed and gazetted the coming into operation of various provisions of the Financial Intelligence Centre Amendment Act, 2017 (Act No. 1 of 2017) ( FIC Amendment Act ). The FIC Amendment Act was signed into law by the President on 26 April 2017 and gazetted on 2 May 2017 (Annexure A), but the determination of the commencement date was left to the Minister of Finance. Commenting on the signing of the Act, Minister Gigaba said it was critical for government to accelerate the implementation of the Act as it demonstrated government s commitment to the fight against corruption, money laundering and illicit flows. The Minister added that although the signing of the Act was a big step forward, more work still needed to be done. The key objective of this law is to improve the protection of the the integrity of South Africa s financial system and strengthen its ability to prevent and punish financial crimes like money laundering, illicit capital flows, tax evasion, corruption and bribery, and financing of terrorism. Key elements of the law introduced by the FIC Amendment Act This law achieves the above objective by placing the risk based approach at the centre of South Africa s Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) regime. It recognises that the risk of money laundering and terrorist financing can vary by individual, business sector and within sectors. The risk-based approach incorporates three key elements: a) Strenthening AML/CFT through a more consultative approach based on partnerships between key stakeholders in both the public and private sectors. b) Improving co-ordination and collaboration to ensure more effective preventive and better enforcement measures. c) More customer-friendly and cost-efficient approach to the implementation of AML/CTF in line with the Treat Customers Fairly initiative. The law also introduces the following new concepts and approaches to the implementation of the Financial Intelligence Centre Act, 2001 (FIC Act); (a) Full range of customer due diligence (CDD) requirements which are focussed on understanding customers better rather than simply identifying and verifying their identities. (b) Customer-Friendly approach based on a risk-based CDD enables efficient utilisation of resources and should make compliance easier for low risk clients. (b) Beneficial ownership, which requires institutions to know and understand the natural persons who ultimately own or exercise control over legal entities or structures. (c) Prominent (Influential) Persons and Politically Exposed Persons, which requires institutions to better manage risks relating to relationships with prominent persons. (d) Freezing of assets, in terms of targeted financial sanctions against persons identified by United Nations Security Council in terms of various sanctions regimes.
Different effective dates for different sections of the FIC Amendment Act The implementation of different provisions of the FIC Amendment Act will start on different dates; 13 June 2017, 2 October 2017 and dates to be determined after 2 October 2017 (but expected to be no later than the end of 2018). The first set of provisions commences today. These provisions do not require changes to existing regulations, exemptions or internal systems of institutions to enable compliance with the FIC Act. The provisions deal mainly with information sharing, consultation arrangements, constitutional concerns relating to inspection powers, and improved functioning of the FIC Act Appeal Board. The second set of provisions will commence on 2 October 2017. These provisions, which give effect to the above-mentioned new concepts and approaches, will require changes to existing regulations and exemptions under the FIC Act, as well as staff training and major changes to systems by supervisors, the Office of the Chief Procurement Officer, and accountable institutions. Further, a move to a risk-based approach, which modernises the manner institutions undertake customer due diligence, implies less regulations but necessitates more guidance to clarify the expectations of supervisors on how institutions should appropriately implement the legislation. The accelerated implementation of the FIC Amendment Act demonstrates Government s commitment to fight corruption, money laundering and illicit financial flows. The commencement of the FIC Amendment Act, both today and on 2 October 2017 confirms South Africa s commitment to improve compliance with the Financial Action Task Force international standards in respect of measures on foreign Politically Exposed Persons, Beneficial Owners and record keeping. South Africa is expected to report on progress on these measuers to the FATF Plenary next week and possibly October 2017. Effective dates of implementation after 2 October 2017 The commencement and operationalisation dates of the two remaining set of provisions in the FIC Amendment Act, namely sections 26A to 26C dealing with the freezing of assets in terms of the UN Security Council Resolutions on targeted financial sanctions, and Schedule 3A dealing with the setting of a monetary value threshold for companies doing business with the State, will be determined after October 2017. The delay on sections 26A to 26C is to to enable consultations within Government, and allow for internal systems development. One of the new features that will be introduced by the Amendment Act is a requirement for institutions to determine whether there are specific money laundering or terrorist financing risks associated with relationships with prominent persons in companies doing business of a certain value with the State. This provision, which relates to Schedule 3A, will commence on 2 October 2017, but will require operationalising later by notice, once a monetary value threshold has been finalised and the State is able to generate such a database or capability. Treasury is currently working with the Chief Procurement Office in this regard. Consultations The full implementation of the new provisions will take time, even after the commencement of relevant provisions in October 2017. Supervisors of accountable institutions are aware of the implementation challenges and that a transitional period is required to achieve full compliance with the FIC Amendment Act even after law takes effect. The relevant supervisory bodies will, even after 2 October 2017, continue regular engagements with the relevant industries to determine a timetable for full compliance, and monitor progress on such compliance. Various consultations with the industry and supervisory bodies have been taking place this year. Draft Guidance Note that was developed jointly by the FIC, SA Reserve Bank, Financial Services Board and National Treasury will be released by Thursday, and a document on A new approach to combat money laundering and terrorist financing from Treasury is released today for public comment on how best to implement the new measures.
Immediate consultations will take place on the released documents and provisions coming into effect on 2 October 2017 (see Roadmap). A second draft of the relevant consultation documents will be released for further comments before finalisation by October 2017. To enhance and entrench future consultative processes, the Counter-Money Laundering Advisory Council will also be replaced by an Inter-departmental forum. Further consultative forums which will include the industry will also be established. Other continuing work and treating customers fairly Further processes to assess and understand money laundering and terror financing risk at a national level, and to establish cost efficient and easy ways to access compliance information on beneficial owners, will continue. In implementing the law, institutions should always treat customers fairly, and implement the new law in a customer-friendly way, taking into account the need for fair and lower charges. Various measures, including those in the Financial Sector Regulation Bill, once enacted, and enhancing the Banking and other Ombuds, will advance these objectives in the financial sector. Released documents and contact A table of documents released today for noting and public consultation, including deadlines, can be found below. These documents will be available on the National Treasury and FIC websites. These include the above-mentioned documents and draft Notices on the withdrawal of Exemptions and Amendments to Regulations. Mr Raymond Masoga, from the National Treasury, at 012 315 5018 (raymond.masoga@treasury.gov.za) and Ms Poovindree Naidoo, from the FIC, at 012 641 6000 (poovindree.naidoo@fic.gov.za) will be the main contact persons for general queries. Issued on behalf of National Treasury Date: 13 June 2017
Website available DOCUMENTS FOR NOTING AND CONSULTATION Name of the Document Description of Document Request to the Public Government Notice No. 563 on Commencement of the Financial Intelligence Centre Amendment Act No. 1 of 2017 ( the FIC Amendment Act ) Gazette No. 40821 of 2 May FIC Amendment Act, 2017 Draft Guidance A new approach to combat money laundering and terrorist financing Roadmap on Implementation of the FIC Amendment Act Government Notice No. 562 in Gazette No. 40196 of 13 June 2017 inviting comment on withdrawal of exemptions and amendments to regulations Minister s Notice on commencement of the FIC Amendment Act Gazette containing the FIC Amendment Act as signed by the President Draft Guidance to Assist Accountable Institutions to Implement the Financial Intelligence Centre Amendment Act, 2017, issued by the Financial Intelligence Centre to assist institutions and supervisors with the implementation of the FIC Amendment Act, for public comment and engagement National Treasury high-level document providing long-term vision, strategy and overview on implementation of the FIC Amendement Act, with questions for public response and engagement Roadmap for the Short-term implementation of the Financial Intelliegence Centre Amendment Act for supervisors and accountable institutions, detailing implementation plans; FIC Amendment Act provisions commencing on 13 June and 2 October 2017; and timeframes, for noting (i) Minister s Draft Government Notice, with an explanatory note, announcing the withdrawal of existing Exemptions, for public comment Noting Noting Consultation and Comments Deadline: 12 July 2017 Consultation and Comments Deadline: 12 July 2017 Noting Consultation and Comments Deadline: 12 July 2017 (ii) Minister s Draft Government Notice, with an explanatory note, announcing amendments to existing Regulations, for public comment
DRAFT AMENDMENTS TO REGULATIONS IN TERMS OF FINANCIAL INTELLIGENCE CENTRE ACT, 2001, PUBLISHED FOR PUBLIC COMMENT Content: Part A: Draft government notice to amend regulations Part B: Explanatory note on draft amendments to regulations PART A DRAFT GOVERNMENT NOTICE NATIONAL TREASURY No. R 2017 FINANCIAL INTELLIGENCE CENTRE ACT, 2001 (ACT NO. 38 OF 2001): DRAFT AMENDMENTS TO MONEY LAUNDERING AND TERRORIST FINANCING CONTROL REGULATIONS The Minister of Finance has, in terms of section 77 of the Financial Intelligence Centre Act, 2001 (Act No. 38 of 2001), made the regulations set out in the Schedule. SCHEDULE GENERAL EXPLANATORY NOTE: [ ] Words in bold type in square brackets indicate omissions from existing enactments. Words underlined with a solid line indicate insertions in existing enactments. Definitions 1. In these regulations, the Regulations mean the Money Laundering and Terrorist Financing Control Regulations, 2002, published in Government Notice No. R. 1595 of 20 December 2002 as amended by GN R456 in Government Gazette 27580 of 20 May 2005 and GN R867 in Government Gazette 33596 of 1 October 2010 and GN 1107 in Government Gazette 33781 of 26 November 2010. Amendment of regulation 1 2. Regulation 1 of the Regulations is hereby amended by the deletion of the definitions of close corporation, foreign company, identification document, manager, South African company and trust. Insertion of regulation 1A 3. The following regulation is hereby inserted in the Regulations after regulation 1: Prescribed amount of a single transaction 1A. The prescribed value of a transaction to be considered a single transaction is an amount not less than R5 000.00.
DRAFT AMENDMENTS TO REGULATIONS IN TERMS OF FINANCIAL INTELLIGENCE CENTRE ACT, 2001 Repeal of Chapter 1 4. Chapter 1 of the Regulations is hereby repealed. Amendment of Regulation 20 5. Regulation 20 of the Regulations is hereby amended by the substitution for the introductory part preceding paragraph (a) of regulation 20 of the following: If an accountable institution appoints a third party to keep on its behalf any records which that institution must retain in terms of the Act, that institution must without delay provide the Centre and the relevant supervisory body with. Repeal of Chapter 3 6. Chapter 3 of the Regulations is hereby repealed. Insertion of Regulation 24A: 7. The following regulation is hereby inserted after regulation 24 of the Regulations: Manner in which and period within additional information to be furnished 24A. An accountable institution, a reporting institution or any other person that receives a request for additional information from the Centre in terms of section 32 of the Act must, after receiving such request from the Centre and within the number of days specified in the request furnish to the Centre the additional information- (a) in accordance with the format and content specified by the Centre; and (b) electronically by means of the internet-based reporting portal provided by the Centre at the internet address, http:www.fic.gov.za, or by any other means specified by the Centre.. Substitution of heading of Chapter 5 8. The following heading is hereby substituted for the heading of Chapter 5: [INTERNAL RULES]MEASURES TO PROMOTE COMPLIANCE AND APPEALS Repeal of regulations 25, 26 and 27 9. Regulations 25, 26 and 27 of the Regulations are hereby repealed. Insertion of regulation 27D: 10. The following regulations are hereby inserted in the Regulations after regulation 27C: Criteria for supervisory body to request information relating to a report made in terms of section 29 27D. For the purposes of section 45B(2A) of the Act, a supervisory body referred to in section 45B(2A)(c) of the Act may only order from an accountable institution under inspection, the production of a copy of a report, or the furnishing of a fact or information related to the report contemplated in section 29 if, to the satisfaction of the Centre- 2
DRAFT AMENDMENTS TO REGULATIONS IN TERMS OF FINANCIAL INTELLIGENCE CENTRE ACT, 2001 (a) (b) (c) appropriate measures are taken by the supervisory body to ensure that the information obtained from the report is processed only for the purposes of determining compliance with the Act; appropriate measures are taken by the supervisory body to prevent unlawful access to the information contained in the report; and appropriate security safeguards are in place for the protection of information contained in the report.. Substitution of regulation 28 11. The following regulation is hereby substituted for regulation 28 of the Regulations: Guidance [notes] 28. (1) The Centre may issue guidance [notes] concerning (a) [the verification of identities] the application of a risk-based approach to establish and verify the identity of a client; (aa) customer due diligence measures; (ab) the duty to keep records; (ac) financial sanctions; (b) reporting [of suspicious and unusual transactions] duties; [and] (ba) any obligations imposed on supervisory bodies under the Act; and (c) any other obligations imposed on accountable institutions under the Act. (2) Guidance [notes] referred to in subregulation (1) may differ for different accountable institutions, reporting institutions or persons, or categories of accountable institutions, reporting institutions or persons and different categories of transactions.. Substitution of regulation 29 12. The following regulation is hereby substituted for regulation 29 of the Regulations: Offences and penalties 29. [(1) Any accountable institution which contravenes regulation 2 (1) is guilty of an offence. (2) Any accountable institution which fails to obtain the particulars referred to in regulation 3, 5, 7, 9, 11, 13, 15 or 17 (1) is guilty of an offence. (3) Any accountable institution which fails to verify any particulars referred to in regulation 3, 5, 7, 9, 11, 13, 15 or 17 (1) in accordance with regulation 4, 6, 8, 10, 12, 14, 16 or 17 (2) is guilty of an offence. (4) Any accountable institution which fails to take reasonable steps to verify information obtained without contact with a natural person or a representative of a legal person, partnership or trust in accordance with regulation 18 is guilty of an offence. (5) Any accountable institution which fails to take reasonable steps to maintain the correctness of particulars in accordance with regulation 19 is guilty of an offence.] (6) Any accountable institution which fails to inform the Centre or the relevant supervisory body of particulars concerning third parties keeping records in accordance with regulation 20 is guilty of an offence. 3
DRAFT AMENDMENTS TO REGULATIONS IN TERMS OF FINANCIAL INTELLIGENCE CENTRE ACT, 2001 (7) Any person or institution which fails to send a report under section 29 of the Act to the Centre within the period referred to in regulation 24 or 24A is guilty of an offence. [(8) Any accountable institution which fails to develop internal rules in accordance with regulation 25, 26 or 27 is guilty of an offence.] (9) Any person or institution convicted of an offence under this [section] regulation is liable to imprisonment for a period not exceeding [six months] three years or a fine not exceeding [R100 000] R1 million or such administrative sanction as may apply.. 13. Commencement These Regulations take effect on 2 October 2017. PART B EXPLANATORY NOTE ON DRAFT AMENDMENTS TO REGULATIONS 1. The Minister of Finance has made a number of exemptions from compliance with a range of requirements under the Financial Intelligence Centre Act, 2001 (FIC Act) which currently applies to accountable institutions. The changes brought about by the Financial Intelligence Centre Amendment Act, 2017 (Act No. 1 of 2017) (Amendment Act) require the withdrawal of many exemptions in addition to substantial amendments to the Money Laundering and Terrorist Financing Control Regulations (Regulations), made under the FIC Act. 2. The amendments to the Regulations and the withdrawal of exemptions will take effect at the same time as relevant sections of the Amendment Act come into operation. 3. The definitions contained in the Regulations that relate to the identification and verification requirements are deleted. 4. The Amendment Act defines a single transaction as a transaction other than a transaction concluded in the course of a business relationship and where the value of the transaction is not less than an amount to be determined by the Minister of Finance in the Regulations. This can be described as occasional or once-off business where there is no expectation on the part of the accountable institution or the customer that the engagements would recur over a period of time. Accountable institutions are not required to carry out the full scope of customer due diligence (CDD) measures in respect of clients conducting single transactions below the value to be set by the Minister. The proposed value of the single transaction is R5 000. 5. With the adoption of a risk based approach accountable institutions will have more flexibility to exercise judgment in determining the extent and the nature of the information required to establish and verify a client s identity in accordance with its Risk Management and Compliance Programme. It is therefore proposed that Chapter 1 of the Regulations relating to client identification and verification be deleted. The repeal of Chapter 3 of the Regulations relating to client profile as well as the deletion of regulations 25, 26 and 27 in respect of internal rules is also proposed. 4
DRAFT AMENDMENTS TO REGULATIONS IN TERMS OF FINANCIAL INTELLIGENCE CENTRE ACT, 2001 6. Regulation 24A is inserted to provide for the manner in which and the period within which additional information is to be furnished to the Centre in terms of section 32. 7. Regulation 27D is inserted to provide for the criteria that supervisory bodies (other than the South African Reserve Bank and Financial Services Board) must meet to be able to request information from an accountable institution relating to a suspicious transaction report during an inspection. 8. The Regulation relating to guidance has been expanded to take into account the new requirements in terms of the Amendment Act. 9. The Regulation relating to offences and penalties has been amended to include consequential amendments as well as increase the penalties for an offence in terms of the Regulations as well as provide for administrative sanctions. 5
Content: DRAFT WITHDRAWAL NOTICE OF EXEMPTIONS IN TERMS OF FINANCIAL INTELLIGENCE CENTRE ACT, 2001, PUBLISHED FOR PUBLIC COMMENT Part A: Draft withdrawal notice of exemptions Part B: Explanatory note on draft withdrawal notice of exemptions PART A DRAFT GOVERNMENT NOTICE NATIONAL TREASURY No. R 2017 WITHDRAWAL OF EXEMPTIONS ISSUED IN TERMS OF THE FINANCIAL INTELLIGENCE CENTRE ACT, 2001 (ACT NO. 38 OF 2001) In terms of section 74 of the Financial Intelligence Centre Act, 2001 (Act No. 38 of 2001), I, Malusi NK Gigaba, Minister of Finance, hereby, with effect from 2 October 2017, withdraw Government Notices- (a) R1596 of 20 December 2002; (b) 1353 of 19 November 2004; (c) 560 of 25 June 2010; and (d) 461 of 5 June 2015. MALUSI NK GIGABA MINISTER OF FINANCE
DRAFT WITHDRAWAL NOTICE OF EXEMPTIONS IN TERMS OF FINANCIAL INTELLIGENCE CENTRE ACT, 2001 PART B EXPLANATORY NOTE ON DRAFT WITHDRAWAL NOTICE OF EXEMPTIONS APPROVED IN TERMS OF FINANCIAL INTELLIGENCE CENTRE ACT, 2001 1. The Minister of Finance has approved a number of exemptions from compliance with a range of requirements under the Financial Intelligence Centre Act, 2001 (FIC Act) which currently applies to accountable institutions. The changes brought about by the Financial Intelligence Centre Amendment Act, 2017 (Act No. 1 of 2017) (Amendment Act) require the withdrawal of many exemptions in addition to substantial amendments to the Money Laundering and Terrorist Financing Control Regulations (Regulations), made under the FIC Act. 2. The amendments to the Regulations and the withdrawal of exemptions are proposed to take effect at the same time as relevant sections of the Amendment Act are proposed to take effect. 3. The majority of exemptions made under section 74 of the FIC Act were intended to simplify compliance requirements, based on the regulators understanding of lower money laundering and terrorist financing (ML/TF) risks. The introduction of a risk-based approach, proposed to take effect on 2 October 2017, as an integral concept directing compliance with the requirements of the FIC Act will make these exemptions redundant. 4. Accountable institutions may still be guided by the content of the exemptions to determine the appropriate verification measures to be taken, in accordance with their Risk Management and Compliance Programme (RMCP). Accountable institutions will have to differentiate between the means of identification and verification used in respect of clients in different risk categories, applying simplified measures in cases of lower risk and applying enhanced measures in cases of higher risk. 5. The table below provides an overview of the Exemptions that will become redundant in the context of the Amendment Act and are proposed to be withdrawn. 2
DRAFT WITHDRAWAL NOTICE OF EXEMPTIONS IN TERMS OF FINANCIAL INTELLIGENCE CENTRE ACT, 2001 EXEMPTION Exemption 2: Timing of verification MOTIVATION The exemption was intended to allow an accountable institution to accept a mandate from a prospective client to establish a business relationship before the institution could complete the verification of identity. This is now included implicitly in the Amendment Act and must be addressed in an institution s RMCP. Exemption 3: Partnerships The exemption was intended to allow for the centralisation of compliance within a partnership etc. of professionals practising as accountable institutions. This is now included implicitly in the provisions of Amendment Act and should be provided for in a professional partnership s RMCP. Exemption 4: Reliance on primary accountable institution Exemption 5: Where AML/CFT laws are equivalent The exemption was intended to avoid a duplication of customer due diligence (CDD) obligations where one accountable institution refers a client to another. This is now included implicitly in the provisions of the Amendment Act. The manner and processes for the identification of clients and verification of their identities described in an accountable institution s RMCP must also provide for the extent to which the institution relies on CDD performed by another accountable institution which has referred a client. This exemption was intended to facilitate compliance with section 21 in as far as it requires the verification of the identity of a client situated in a country where, to the satisfaction of the relevant supervisory body, antimoney laundering regulation and supervision is equivalent to that which applies to the accountable institution by allowing that a person/institution in that country confirms in writing to the satisfaction of the accountable institution that they have verified the particulars concerning the client which the accountable institution has identified. This is now included implicitly in the Amendment Act with the introduction of a risk-based approach which allows an accountable institution to determine which business relationships or transactions pose a low ML/TF risk and apply the necessary CDD requirements as described in the institution s RMCP. Exemption 6: Public companies listed on recognised securities exchanges and exemption for tax information 1. This exemption was intended to simplify identification, verification and record keeping requirements in respect of clients which are public companies the securities of which are listed on a recognised securities exchange. 2. The regulations require accountable institutions to obtain the client s tax number and to verify this against a South African Revenue Service (SARS) document. Paragraph 6(2) exempts them from these obligations. These are now included implicitly in the Amendment Act with the introduction of a risk-based approach which allows an accountable
DRAFT WITHDRAWAL NOTICE OF EXEMPTIONS IN TERMS OF FINANCIAL INTELLIGENCE CENTRE ACT, 2001 EXEMPTION MOTIVATION institution to determine which business relationships or transactions pose a lower ML/TF risk and apply the necessary CDD requirements as described in the institution s RMCP. Exemption 7: Exemption for insurance and investment providers Exemption 8: Exemptions for members of exchanges This exemption was intended to relieve the compliance burden in respect of certain types of business activities that pose little risk of money laundering. This is now included implicitly in the Amendment Act with the introduction of a risk-based approach which allows an accountable institution to determine which business relationships or transactions pose a low ML/TF risk and apply the necessary CDD requirements as described in the institution s RMCP. The exemption exempts a financial instrument trader and a member of the Johannesburg Stock Exchange (JSE) from the identification and verification requirements and record keeping requirements in respect of foreign brokers from countries recognised for this purpose on certain conditions. This is now included implicitly in the Amendment Act with the introduction of a risk-based approach which allows an accountable institution to determine which business relationships or transactions pose a lower ML/TF risk and apply the necessary CDD requirements as described in the institution s RMCP. Exemption 9: Exemption for members of exchanges for legal persons and noncontrolled clients Exemption 10: Exemption for Attorneys and Administrators of property Exemption 11: The rules of the JSE provide for the members of the JSE to obtain sufficient information concerning each client to identify the beneficiary of the account. The majority of non-controlled clients are legal persons such as insurance and investment houses. This exemption was granted as there is a relatively low risk of money laundering in respect of trades on the JSE by legal persons who are non-controlled clients. This is now included implicitly in the Amendment Act with the introduction of a risk-based approach which allows an accountable institution to determine which business relationships or transactions pose a lower ML/TF risk and apply the necessary CDD requirements as described in the institution s RMCP. This exemption focused on both the high-risk and low-risk services performed by an attorney in relation to the facilitation of money laundering. A withdrawal of the exemption would mean that services performed by an attorney that had previously fallen outside the scope of the FIC Act will now be included in the scope of the Act. This implies that an attorney would have to determine for itself which services pose a lower or higher risk for money laundering and apply the necessary CDD requirements in accordance with its RMCP. The definition of estate agent in the Estate Agency Affairs Act includes
DRAFT WITHDRAWAL NOTICE OF EXEMPTIONS IN TERMS OF FINANCIAL INTELLIGENCE CENTRE ACT, 2001 EXEMPTION Exemption for estate agents MOTIVATION estate agents who render services to body corporates of sectional title schemes and share block companies. This exemption was initiated as the business of a managing agent does not hold a risk of being abused for money laundering purposes. This is now included implicitly in the Amendment Act with the introduction of a risk-based approach which allows an estate agent to determine which business relationships or transactions pose a lower ML/TF risk and apply the necessary CDD requirements as described in the institution s RMCP. Exemption 12: Exemption for entertainment activities in gambling institutions Exemption 13: Exemption for gambling institutions in respect of single transactions Exemption 14: Exemption for gambling institutions for single transactions Exemption 15: Exemption for banks for unsecured loans Exemption 16: Exemption for foreign banks Schedule 1 specifically refers to a gambling activity which makes this exemption superfluous. This exemption was intended to relieve the compliance burden for gambling institutions in relation to certain circumscribed single transactions. This is now included implicitly in the Amendment Act with the introduction of a risk-based approach which allows a gambling institution to determine which business relationships or transactions pose a lower ML/TF risk and apply the necessary CDD requirements as described in the institution s RMCP. This exemption applies to all other single transactions that do not fall under exemption 13. This is now included implicitly in the Amendment Act with the introduction of a risk-based approach which allows a gambling institution to determine which business relationships or transactions pose a lower ML/TF risk and apply the necessary CDD requirements as described in the institution s RMCP. This exemption relates to unsecured loans of relatively small amounts. This is now included implicitly in the Amendment Act with the introduction of a risk-based approach which allows an accountable institution to determine which business relationships or transactions pose a lower ML/TF risk and apply the necessary CDD requirements as described in the institution s RMCP. This exemption was to simplify identification and verification requirements intended for banks in relation to transactions with banks from foreign countries where the institutions are subject to anti-money laundering measures which, to the satisfaction of a supervisory body, are equivalent to those of the FIC Act.
DRAFT WITHDRAWAL NOTICE OF EXEMPTIONS IN TERMS OF FINANCIAL INTELLIGENCE CENTRE ACT, 2001 EXEMPTION MOTIVATION This is now included implicitly in the Amendment Act with the introduction of a risk-based approach which allows an accountable institution to determine which business relationships or transactions pose a lower ML/TF risk and apply the necessary CDD requirements as described in the institution s RMCP. Exemption 17: Exemption for banks for low value products Exemption on prepaid instruments (25 June 2010) Exemption on cross border remittance The exemption was intended to simplify identification and verification requirements for low value products. This is now included implicitly in the Amendment Act with the introduction of a risk-based approach which allows an accountable institution to determine which business relationships or transactions pose a lower ML/TF risk and apply the necessary CDD requirements as described in the institution s RMCP. The exemption was intended to simplify identification and verification requirements for low value products. This is now included implicitly in the Amendment Act with the introduction of a risk-based approach which allows an accountable institution to determine which business relationships or transactions pose a lower ML/TF risk and apply the necessary CDD requirements as described in the institution s RMCP. The exemption was intended to simplify identification and verification requirements for low value products. This is now included implicitly in the Amendment Act with the introduction of a risk-based approach which allows an accountable institution to determine which business relationships or transactions pose a lower ML/TF risk and apply the necessary CDD requirements as described in the institution s RMCP.
NOTICE DRAFT GUIDANCE ON THE IMPLEMENTATION OF NEW MEASURES TO BE INTRODUCED BY THE FINANCIAL INTELLIGENCE CENTRE AMENDMENT ACT, 2017 (ACT NO. 1 OF 2017) Thursday, 15 June 2017: The Minister of Finance has announced the coming into operation of a number of provisions of the Financial Intelligence Centre Amendment Act, 2017 (the FIC Amendment Act). According to this announcement the implementation of the provisions of the FIC Amendment Act that provide for the following, will start on 2 October 2017: Customer due diligence measures Recordkeeping requirements Risk Management and Compliance programme Governance and training Together with this announcement the Minister also made available a Roadmap for the Short-term implementation of the Financial Intelligence Centre Amendment Act (which can be found on the Centre s website at www.fic.gov.za). The Roadmap provides details on the process that will be followed to prepare for the commencement of these provisions. One of the objectives of the Financial Intelligence Centre Act, 2001, (the FIC Act) is to bring about transparency in the financial system. Transparency in the financial system implies that it can be easily established who is doing business with financial and nonfinancial institutions and what the nature of that business is. This is made possible if compliance with the requirements of the FIC Act results in adequate information being captured in the records of accountable institutions and information that may support further investigation of money laundering and terrorist financing being shared in a timely manner. Simply put, this means that institutions in the financial system are dealing with known customers who are conducting legitimate business and that institutions can spot when customers are conducting business that may be of an illicit nature and report that to the correct authorities. Transparency of this nature is a key safeguard to the integrity
of the financial system as it ensures that attempts at exploitation of financial institutions are exposed and addressed appropriately. The Financial Intelligence Centre (the Centre) in cooperation with the National Treasury, South African Reserve Bank and Financial Services Board has developed draft guidance to initiate a discussion with accountable institutions on the guidance that will be required to implement the new provisions that will become part of the FIC Act when the abovementioned sections of the FIC Amendment Act come into operation on 2 October 2017. Click here to access the draft guidance note. Commentators are encouraged to share their views on any of the issues raised in this draft document. This draft guidance will also be used in the course of the consultation process as the basis for discussions with industry representative bodies in the different sectors of accountable institutions. At the conclusion of the consultation process, the Centre, together with the National Treasury, South African Reserve Bank and Financial Services Board, will prepare a final document, taking the comments and contributions received into account. Further consultation documents, in addition to the draft guidance, have also been developed and published for public comment. These are draft amendments to the Money Laundering and Terrorist Financing Control Regulations made under the FIC Act, a draft notice to withdraw the Exemptions made under the FIC Act and an overview document on Measures to combat Money Laundering and Terrorist Financing. These documents can be accessed here. Commentators are advised to familiarise themselves with these documents as well when considering and formulating their views on the draft guidance. Commentators are requested to submit written comments, representations or requests only by using the online response form which can be accessed by clicking here. Submissions will be received till, 12 July 2017, by close of business. Institutions forming part of a group (i.e. comprising more than one institution) are requested to coordinate their responses within the group and preferably submit one response on behalf of the whole group. The Centre can be contacted for further information at the following telephone number: Ms Poovindree Naidoo / Ms Adri Potgieter (012) 641 6000. Issued by: 2
The Financial Intelligence Centre 14 June 2017 3
DRAFT GUIDANCE ON THE IMPLEMENTATION OF NEW MEASURES TO BE INTRODUCED BY THE FINANCIAL INTELLIGENCE CENTRE AMENDMENT ACT, 2017 In collaboration with the National Treasury, South African Reserve Bank and Financial Services Board
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PREFACE 1. The Financial Intelligence Centre (the Centre) in collaboration with the National Treasury, South African Reserve Bank and Financial Services Board has published draft guidance that will be required to support the implementation of the Financial Intelligence Centre Amendment Act, 2017 (Act No. 1 of 2017) (the Amendment Act) when it takes effect. 2. The Financial Intelligence Centre Act, 2001 (the FIC Act) established the Centre which is the national point for the gathering, analysis and dissemination of financial intelligence. The Centre was established to identify proceeds of crime and combat money laundering and the financing of terrorism and in so doing has a primary role to protect the integrity of South Africa s financial system. The Centre develops and provides financial intelligence to a range of agencies supporting the investigation and prosecution of criminal activity by helping to identify the proceeds of crime, combat money laundering and the financing of terrorism. 3. A system to combat money laundering and terrorist financing works effectively if the financial system is transparent, based on robust customer due diligence measures, to ensure that adequate information is captured in the records of accountable institutions and to make the sharing of information that may support further investigation of money laundering and terrorist financing possible. The purpose of the FIC Act, among others, is to introduce this transparency in the financial system. 3
4. By promoting these focus areas, accountable institutions compliance with the regulatory requirements of the FIC Act contributes to making it more difficult for criminals to hide their illicit proceeds in the formal financial sector and thereby profiting from their criminal activities and cutting off the resources available to terrorists. The FIC Act is a key component, therefore, of the regulatory architecture that protects the integrity of the South African financial system and (together with legislation such as the Prevention of Organised Crime Act, 1998 (Act No. 121 of 1998) and the Prevention of Constitutional Democracy against Terrorism and Related Activities Act, 2004 (Act No. 32 of 2004) of the legal framework that supports the administration of the criminal justice system. 5. The Amendment Act incorporates a risk-based approach to compliance elements such as customer due diligence into the regulatory framework. A risk-based approach requires accountable institutions to understand their exposure to money laundering and terrorist financing risks. By understanding and managing their money laundering and terrorist financing risks, accountable institutions not only protect and maintain the integrity of their businesses but also contribute to the integrity of the South African financial system. 4
DRAFT GUIDANCE TO ASSIST ACCOUNTABLE INSTITUTIONS TO IMPLEMENT THE FINANCIAL INTELLIGENCE CENTRE AMENDMENT ACT, 2017 (ACT NO. 1 OF 2017) Contents INTRODUCTION... 7 CHAPTER 1... 8 ADOPTION OF A RISK-BASED APPROACH... 8 I GENERAL PRINCIPLES... 8 What is money laundering?... 8 What is financing of terrorism?... 8 What is risk?... 9 What are inherent and residual risks?... 10 Requirement of a risk-based approach in the FIC Act... 10 What are money laundering and terrorist financing (ML/TF) risks?... 10 What is ML/TF risk management?... 11 The effect of a risk-based approach... 13 RBA for different industries and sectors... 14 II RISK ASSESSMENT AND UNDERSTANDING OF RISK... 15 ML/TF risk indicators... 15 Indicators relating to products and services... 16 Indicators relating to delivery channels... 18 Indicators relating to geographic locations... 18 Indicators relating to clients... 19 Other factors... 21 Risk-rating... 22 The role of a risk matrix... 23 III RISK MITIGATION... 24 Implementation of systems and controls for management of ML/TF risk... 25 Where does customer due diligence fit into risk mitigation?... 26 De-risking and avoiding risk... 27 CHAPTER 2... 29 CUSTOMER DUE DILIGENCE MEASURES... 29 Introduction... 29 FATF Recommendation 10 Customer Due Diligence... 29 Business relationship... 31 Single transaction threshold: anonymous clients and clients acting under a false or fictitious names... 31 5
Establishing and verifying clients identities... 32 Establishing and verifying the identities of natural persons... 33 Establishing the identity of legal persons, trusts and partnerships... 36 Legal persons... 37 Partnerships... 41 Trusts... 43 Timing of verification... 44 Understanding and obtaining information on the business relationship... 45 Ongoing due diligence... 46 Doubts about veracity of previously obtained information... 48 Inability to conduct due diligence... 48 Foreign prominent public officials and domestic prominent influential persons... 49 CHAPTER 3... 58 RECORDKEEPING... 58 General... 58 Obligation to keep customer due diligence records... 59 Obligation to keep transaction records... 59 Manner in which records must be kept... 59 Period for which records must be kept... 61 CHAPTER 4... 63 RISK MANAGEMENT AND COMPLIANCE PROGRAMME... 63 CHAPTER 5... 67 IMPLEMENTATION OF THE UNITED NATIONS SECURITY COUNCIL RESOLUTIONS RELATING TO THE FREEZING OF ASSETS... 67 Mechanisms for implementation... 67 Screening... 68 Accessibility of sanctions list... 69 Basic living expenses... 69 GLOSSARY... 71 6
INTRODUCTION 1. The Amendment Act incorporates a risk-based approach to compliance elements such as customer due diligence (CDD) into the regulatory framework. A riskbased approach requires accountable institutions to understand their exposure to money laundering and terrorist financing risks. By understanding and managing their money laundering and terrorist financing risks, accountable institutions not only protect and maintain the integrity of their businesses but also contribute to the integrity of the South African financial system. 2. The Centre, in consultation with the National Treasury, South African Reserve bank and Financial Services Board, has developed a set of basic guidance to assist accountable institutions in meeting the obligations such as the implementation of a risk based approach and customer due diligence requirements emanating from the Amendment Act, effectively. The guidance provided by the Centre will be updated and revised from time to time. The Centre therefore advises accountable institutions to regularly monitor communications from the Centre so as to stay abreast of the current guidance on a given issue. 7
CHAPTER 1 ADOPTION OF A RISK-BASED APPROACH I GENERAL PRINCIPLES What is money laundering? 3. Money laundering is the manipulation of money or property in order to disguise its true source. Criminal activities, such as drug trafficking, human trafficking, racketeering and corruption generate large amounts of profits for individuals or groups carrying out these activities. When criminals are successful in generating returns from these criminal activities, they obtain illegal earnings that cannot be explained. Therefore, by using funds generated from criminal activities criminals risk drawing the attention of the authorities to the underlying criminal activity thereby exposing themselves to prosecution and forfeiture of the illicit proceeds. 4. In order to benefit from the proceeds of unlawful activity, criminals must conceal the origins of these funds. This is the process of money laundering. The result of a successful money laundering scheme is that proceeds from an underlying unlawful activity are no longer associated with the activity. Unlawfully acquired proceeds therefore appear to be legitimate income. What is financing of terrorism? 5. The financing of terrorism involves the solicitation, collection and the providing of funds and other assets with the intention that it may be used to support terrorist acts, terrorist organisations or individual terrorists. The funds and assets may stem from both legal and illicit sources. The primary goal of persons involved in the financing of terrorism is not to conceal the sources of the funds and assets, as with money laundering, but to conceal both the financing and the nature of the activity being financed. 8
What is risk? 6. The concept of risk is often described as the effect of uncertainty on objectives and that an effect is a positive or negative deviation from what is expected. This uncertainty is a function of three factors: threat, vulnerability and consequence. 7. A threat is a person or group of people, object or activity with the potential to cause harm. In the context of money laundering and terrorist financing this includes criminals, terrorist groups and their facilitators, their funds, as well as the past, present and future money laundering or terrorist financing activities. 8. The concept of vulnerabilities comprises those things that can be exploited by the threat or that may support or facilitate its activities. Identifying vulnerabilities, as distinct from threats, means focusing on, for example, the factors that represent weaknesses or features that may be exploited in a given system, institution, product, service etc. The areas in which these vulnerabilities may arise are discussed in more detail later in this guidance. 9. Consequences refers to the likelihood and impact of money laundering or terrorist financing activities materialising as a result of a combination of threats and vulnerabilities manifesting in an accountable institution. 10. According to ISO 31000: 2009 (International Organization for Standardization), risk may be managed or dealt with, as follows: Avoiding the risk by deciding not to start or continue with the activity that gives rise to the risk; Accepting or increasing the risk in order to pursue an opportunity; Removing the risk source; Changing the likelihood; 9
Changing the consequences; Sharing the risk with another party or parties (including contracts and risk financing); Retaining the risk by informed decision. 11. Risk can therefore be transferred, tolerated, treated or terminated. What are inherent and residual risks? 12. Inherent risk is the risk of an event or circumstance that exists before controls or mitigation measures are applied by the accountable institution. 13. Residual risk is the level of risk that remains after controls and mitigation measures were implemented by the accountable institution. Requirement of a risk-based approach in the FIC Act 14. The FIC Act requires accountable institutions to apply a risk-based approach when carrying out customer due diligence measures. What are money laundering and terrorist financing (ML/TF) risks? 15. The concept of ML/TF risks, as the term implies, relate to threats and vulnerabilities that may promote the laundering of proceeds of unlawful activities or the financing of terrorism, on the one hand, or may jeopardise the detection, investigation or prosecution of these activities or the possibility of the forfeiture of proceeds of unlawful activities, on the other. 16. On a national level ML/TF risks are threats and vulnerabilities which put at risk the integrity of South Africa s financial system and negatively impacts the 10