Roy Andersen

							FINANCIAL
INTELLIGENCE
CENTRE ACT
Defining Money Laundering
  United Nations Definition
   “...any act or attempted act to disguise the source of
       money or assets derived from criminal activity...”
  Examples of criminal activity
      Fraud, robbery, drug trafficking, tax evasion etc.
  Process / Stages of ML
      Entry / Placing
      Concealment / Layering
      Withdrawal and re-entry / Integration
Comparison International Money
Laundering Trends




Canada   USA   RSA   Hong Kong Australia
        International & RSA ML Trends

   CANADA – FIU: FINTRAC
     Proceeds    of Crime Act
     Proceeds of Crime (ML) Regulations – Specify doc’s necessary for
      identification persons, STR reporting 8 Nov. 01

   USA – FIU: FinCEN
          Asset Forfeiture Reform Act, 2000
     Civil
     Bank Secrecy Act Regulations, which require:
     Money services business register with Treasury
     Maintain current list of their agentsfor examination


   HONG KONG – FIU: JFIU
     DrugTrafficking (Recovery of Proceeds) Ordinance
     Organized and Serious Crimes Ordinance


   AUSTRALIA – FIU: AUSTRAC
     Proceeds  of Crime Act, 1987
     Financial Transactions Reports Act, 1988
    Entry/Placing Stage
Initial cycle whereby cash is introduced
into the financial system
This is the physical disposal of
proceeds of crime
This might take the form of:
 Single Premium Investment
 Large Multiple Premium Investments
 Second Hand Policies
 Concealment/Layering
        Stage
 Involves separating the illicit proceeds
 from their source
Examples:
   Switching of funds between banks and/or
    jurisdiction
   Single premium investments shortly
    followed by a surrender or loan
Concealment/Layering
       Stage
Switching of cash through a network of
businesses and shell companies across
several jurisdictions
The use of cash deposits as collateral
security in support of legitimate
transactions
  Withdrawal and Re-
entry/ Integration Stage
  The repossession of property or that
  which seems to legitimately represent
  the original property and placing it back
  into the economy
  This process can take form of obtaining
  payment by way of cheque or electronic
  payment from the insurer or
  reinvestments in other investments
Occurrence of Stages
The three stages may occur separately or at
the same time
Money Laundering can be detected at the
first stage – when tainted proceeds first enter
the financial system or
Where trusts or companies are formed and
there are transfers within and from the
financial system
Intermediaries must be most vigilant at these
points where the criminal is actively seeking
to launder the proceeds of crime
Purpose Money Laundering
       Legislation
 Develop a Money Laundering regime
 Declare Money Laundering an offence
 (through POCA)
 Create anti – Money Laundering
 controls (through FICA)
   Financial Intelligence
     Centre Act (FICA)
Introduces measures aimed at preventing
  money laundering activities:
- Accountable Institutions
- Financial Intelligence Centre
- Investigating Authorities
  Principle Objectives, include:
     Identification proceeds of unlawful activities
     Combating of ML activities

  Other Objectives, include:
     Making / forwarding information to authorities
Accountable Institutions
    FICA provides a list of accountable
    institutions that may be exploited for
    money laundering purposes:
-   Long-Term Insurance Companies
-   Brokers
-   Attorneys
-   Banks
-   etc
Investigating Authorities
 South African Police
 National Directorate of Public
 Prosecutions (the Scorpions)
 South African Receiver of Revenue
       Function of FIC
Not an investigative body
Collect, Process, Analyse & Interpret reports
received from Accountable Institutions (AI)
Inform, advise and co-operate with
investigating authorities
Supervise Compliance, and give guidance to
accountable institutions to combat money
laundering
   Obligatory Duties:
Accountable Institutions
 ML control measures, include:
    Duty to Identify and Verify new and existing
     Clients (know your client)
    Duty to Keep Records
    Duty to Formulate and Implement Internal Rules
    Duty to Train Staff
    Duty to Monitor Compliance
    Duty to Report Suspicious and Unusual
     Transactions (03/02/2003)
Suspicious Transactions
What is a suspicious or unusual
transaction?
When does a person have knowledge of
a suspicious transaction?
When must a person report such a
transaction?
How must the transaction be reported?
      What is a Suspicious
         Transaction?
    A transaction or a series of transactions
    which:
-   facilitated or are likely to facilitate the transfer
    of the proceeds of an unlawful activity; or
-   there is no apparent business or lawful
    reason for the transaction; or
-   the purpose of the transaction is to avoid the
    “reporting duty” under FICA
-   the transaction may be relevant to the
    investigation of an evasion of a tax duty
    Typical Examples
A large investment given the client’s profile
Multiple-policies all cancelled within the 30-
day cooling-off period
Third party payments during the 30-day
cooling-off period or of early surrenders on
large investments
Unemployed person using a third party’s
bank account for large investments
Incorrect debit order details necessitating a
refund
Refund on un-issued policies for outstanding
   Test of suspicion –
 “reasonable man test”
For the purposes of this Act a person has
knowledge of a fact if-

(a) the person has actual knowledge of that fact;
or
(b) the court is satisfied that: -
    (i) the person believes that there is a
    reasonable possibility of the existence of that
    fact; and
    (ii)the person fails to obtain information to
    confirm or refute the existence of that fact
  Information to be reported –to the
                 FIC
A report must:
    a) contain a full description of the suspicious or unusual
       transaction, including the reason why it is deemed to
       be suspicious or unusual as contemplated in that
       section;
        b) indicate what action has been taken in connection
        with the transaction
        c) indicate what documentary proof is available in
        respect of the transaction concerning which the report
        is made and the reasons referred to in paragraph (a).
Information to be reported – Reg 23 (1 – 5)

   Details in respect of the natural or legal person
   making a report
   Details in respect of the transaction
   Details in respect of any account which may have
   been involved in the transaction
   Details in respect of the natural or legal person
   conducting the transaction, or other entity on whose
   behalf the transaction is conducted
   Details in respect of a natural person conducting the
   transaction concerning which a report under section
   29 is made, on behalf of another natural person or a
   legal person or other entity
Reporting period – Reg 24


Fifteen (15) days, excluding Saturdays, Sundays
and public holidays, after becoming aware, unless
exemption by FIC
          Tipping Off
It is an offence to inform the suspect or
any other person other than in terms of
legislation, that a report is to be
submitted to the FIC
Required transaction must be carried
out as per client’s instructions
Client Identification and
       Verification
Obliged to identify and verify client’s
details ( 30 June 2003) for new clients
Verification takes effect by 30 June
2004 for existing clients
  Client identification
          (Cont)
No new business or transaction can be
conducted unless the AI identifies and
verifies the identity of the client.
If the client is acting on behalf of another
person, the AI must verify the identity of that
other person; and the client’s authority to
establish the business relationship or to
conclude a single transaction
If another person is acting on behalf of the
client, the identity of that other person and
that person’s authority
  Client Identification
         (Cont.)
How do you establish the identity of an
individual, company, close corporation
or trust in terms of FICA?
      Natural Person
A person’s identity can be identified and
verified by a copy of the Identity Book,
or Driver’s License, or Passport or full
Birth Certificate
A person’s residential address can be
verified by means of a utility bill, or
Telkom account, or policy document etc
              Checklist
Charter Life has designed standard templates
to assist brokers and agents to comply with
FICA requirements as regards the
identification and verification of client’s details
both at new business and servicing stages
Charter Life will not process applications and
other requests if where appropriate, the
templates do not accompany other standard
documents like the application or surrender
forms
            New Business
    Brokers need not identify and verify client’s
    details in respect of:
-   Retirement Annuity business
-   Credit life assurance
-   Where the premiums do not exceed
    R2 083.34 p.m./ R25 000 p.a./ R50 000
    single premium
-   Underwritten business, where the surrender
    value within the first three years is less than
    20% of the total premiums paid
   New Business (cont)
  If the policy is not an RA and:
- the Premiums Exceed R2 083.34 p.m./
  R25 000 p.a./ R50 000 single premium
- On underwritten business, the surrender
  value exceeds 20% within the first three
  years
  Then,FICA Identification and
  Verification is required
 New Business (cont)
Broker must sign a Declaration on the
Charter Broker Checklist, confirming
that he has identified and verified
client’s details and he is keeping
records of the documents stated on the
Template
      Servicing: Ad-Hoc
      Premium Increase
   Is the commencement date 01/07/2003 or
   later?
   If Yes, is the policy a Retirement Annuity?
   If No, does the Increase cause premiums to
 - R2 083.34 p.m.
- R25 000 p.a.
- R50 000 single premium
   Then FICA identification and verification has
   to be done by the broker
   A signed Broker Checklist must be forwarded
   with the Letter requesting an increase
      Servicing: Absolute
    Cessions (RAs Excluded)
    If Current Premiums are More than
-   R2 083.34 p.m.
-   R25 000 p.a.
-   R50 000 single premium
-   And the surrender value is more than 20% of
    the total premiums paid
    Then FICA identification and verification has
    to be done by the broker
    A signed Broker Checklist must be forwarded
    with the Cession Form
       Servicing: Absolute
            Cessions
    Brokers need not identify and verify client’s
    details in respect of:
-   Retirement Annuity business
-   Credit life assurance
-   Where the premiums do not exceed
    R2 083.34 p.m./ R25 000 p.a./ R50 000
    single premium
-   Underwritten business, where the surrender
    value within the first three years is less than
    20% of the total premiums paid
      Servicing: Loans/
         Surrenders
Is the commencement date: 01/07/2003?
If Yes, Is the Policy a Retirement Annuity?
If No, Is the premium More than R2083.34 p.m./ R25
000 annual/ R50 000 single and is the surrender
value more than 20% of all premiums paid?
If Yes, Is the policy collaterally ceded?
If No, Proceed to identify and verify client’s details. A
signed Broker Checklist together with the Loan/
Surrender Form must be forwarded to Charter Life
If Yes, Is the Cessionary listed on the JSE?
If No, Proceed to identify and verify client’s details. A
signed Broker Checklist together with the Loan/
Surrender Form must be forwarded to Charter Life.
Duty to Keep Records

AI have a duty to keep records of the client’s
identity; or the identity of the person acting on
behalf of the client; the identity of the person
on whose behalf the client is acting
Such records may be kept in an electronic
format and may be outsourced to a third party
for keeping
Records must be kept for at least 5 years
from the date on which the business
relationship is terminated; or 5 years from the
date of conclusion of the contract if a single
transaction was concluded
Formulation and implementation
       of internal rules

Brokers must formulate and implement
internal rules concerning
  Identification and verification of client’s
   details
  Record retention (manner and place).

  Make rules available to all employees
   involved in transactions
Training and monitoring
     of compliance
Brokers must ensure that they together
with their staff members are trained on
provisions of FICA and the brokerage’s
internal rules
Appoint a compliance officer
responsible for fulfilling and monitoring
compliance with obligations of the
brokerage
      FICA Penalties
Max penalties for non compliance
 Fines R10 million, or
 Imprisonment up to 15 years