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Collaboration between business and public sector in fighting fraud and corruption
FRAUD AWARENESS SEMINAR 2018
Pieter Alberts
Monitoring and Analysis
Date: 13 November 2018
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PRESENTATION OUTLINE
General Background - FIC
• Industries vulnerable to money laundering
• Anti-Money Laundering/Counter Terrorism Funding – Regime
• The FIC and why do crime concern it
Collaboration – Public-private partnerships (PPPs)
• Why do we need collaboration?
• International best practices
• Benefits
• Functions
• Key factors to consider in setting up a PPP
FIC’s contribution
• Stakeholders / Reporting
• Case studies
• Statistical information
Way forward
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Schedule 3 – Reporting Institutions
• Motor vehicle dealers
• Gold coin dealers
Schedule 1 - Accountable Institutions
• Banks
• Attorneys
• Estate Agents
• Gambling Institutions
• Financial Advisors
• Long Terms
Schedule 2 – Supervisory Bodies
• Reserve Bank
• Financial Sector Conduct
Authority (FSCA)
• Law Societies
• Estate Agency Affairs Board
Business?
Industry sectors vulnerable to Money Laundering and Terror Financing? (CATEGORIES OF ENTITIES & OBLIGATIONS in terms of FICA)
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Anti-Money Laundering (AML)/Counter Terrorism Funding (CTF) Regime
Money laundering
is the taking of criminal
proceeds and disguising
their illegal sources in
order to use the funds to
perform legal or illegal
acts.
Financing of Terrorism
(TF)
The solicitation, collection
and provision of funds to
support terrorists, their
acts and organisations.
They want to conceal
both the financing and the
nature of the activity
being financed.
Glo
bal
Do
mesti
c
Financial Action Task
Force (FATF)
intergovernmental body
focusing on combating
ML and TF. It is a
policy making and
standard setting body
(IMF and World Bank).
Financial Intelligence Centre Act (Act 38
of 2001) – [FICA] established the FIC and
placed obligations on financial institutions
and other businesses deemed vulnerable to
money laundering.
The Prevention of Organised Crime Act
(Act 121 of 1998) [POCA] - Introduced the
crime of ML and set the penalties associated
with a conviction.
The Protection of Constitutional
Democracy Against Terrorist and Related
Activities Act (Act 33 of 2004)
[POCDATARA] - Introduced measures to
address the financing of acts of terrorism.
Client identification and verification (RBA) [s21]
Record keeping [s22]
Reporting [s28, 28A, S29]STRs, CTRs, TPRs
Risk Management Compliance Program
(RBA) [s42]
Competent person to ensure effective
compliance [s42A]
Ongoing training of employees [s43]
Registration with FIC AI; RI - [s43B]
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The FIC and why do crime concern it
Commercial Crime
Crime Against the State
International Cooperation
Organised Crime
Monitors and gives
guidance to
accountable and
reporting institutions.
Receives, Processes
and Analyses
transactional data to
develop financial
intelligence products
Exchanges
information with
similar bodies in other
countries.
This is made available
to stakeholders to
facilitate the
administration and
enforcement of laws.
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• Destruction caused by financial crimes:
• An average of 3.1% of annual turnover is spent on combating financial crimes; and
• 47% of respondents have been victims of financial crime over the last 12 months*.
• Financial crime and professional money laundering schemes have become more complex and
sophisticated to bypass the AML/CFT controls that have been put in place.
• On the other hand, terrorists are using small amounts of money to inflict great amounts of damage,
and as a result, TF is becoming harder to detect.
• Partnerships between government and the private sector can help both parties more effectively
safeguard their financial systems against misuse by criminal organisations or terrorists.
• Addressing these more complex issues requires proactive engagement between government and the
private sector.
Why do we need collaboration?
*Revealing the true costs of Financial Crime” - Thomson Reuters 2018 Survey Report
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• Globally in the Financial Action Task Team (FATF) & the Egmont Group there is a strong movement
towards working more closely with the financial sector, in particular, to combat financial crime.
• The concept used referred to as public-private partnerships (PPPs) - no clear FATF or other definition
of what a PPP is in the context of anti money laundering and counter-terrorist financing (AML/CFT)
measures.
• The Royal United Services Institute (RUSI) Occasional Paper* uses the term:
• ‘financial information sharing partnerships’.
• In the context of this discussion, PPPs refer to largely:
• formal mechanisms to share information between the public and private sectors to advance
joint efforts to combat money laundering/terrorist financing (ML/TF).
International best practises
* https://rusi.org/publication/occasional-papers/role-financial-information-sharing-partnerships-disruption-crime
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International best practises - examples
Country UK USA Australia Canada Singapore Hong Kong
PPP Joint Money
Laundering
Intelligence
Taskforce
(JMLIT)
USA PATRIOT
Act 314A
Context and
Entities of
Suspicion
Briefings
Fintel Alliance (FA) Project Protect Anti-Money
Laundering and
Countering the
Financing of
Terrorism Industry
Partnership
(ACIP)
Fraud and Money
Laundering
Intelligence
Taskforce (FMLIT)
Examples
of
outcomes
Produces FinInt
- 400 lives cases
Panama Papers The identification of
entities/information
to share with
LEAs/public sector
(either in country or
internationally);
Success with
human trafficking
matters
Risk areas of
trade-based ML
and the misuse of
company
structures for illicit
purposes
Detection,
prevention and
disruption of
serious financial
crime and money
laundering threats
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• PPPs are mutually beneficial.
• The government has access to information on targets, modus operandi and covert intelligence and requires
access to relevant financial information held by reporting entities (REs).
• The private sector has a wealth of financial information, wants to prevent their institutions from being
exploited by criminals or terrorists, and must identify and report suspicious activity.
• Criminals are often exploiting multiple financial institutions and other professional intermediaries, both domestically
and internationally, which makes it more difficult for individual financial institutions. Partnership is a useful tool for
greater effectiveness, and efficiency, in developing financial intelligence to combat ML, TF, and a range of
predicate crimes.
• PPPs are instrumental in helping the public and private sectors to develop a better understanding of their overall
financial crime risks in order to take a risk-based approach to AML/CFT efforts.
• PPPs are a mechanism to proactively target Crime/ML/TF but are not intended to replace STR regimes.
Benefits of partnerships (PPP)
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Functions of the partnership
In accordance with the applicable legal
frameworks, the exchange of operational
or tactical intelligence associated with on-
going investigations.
Joint development of typologies/risk
information - bringing together experts
from the public and private sectors to better
understand typologies used by criminals or
terrorists and develop risk indictors for
industry to better detect this activity.
To improve AML/CFT compliance and to
support innovation in AML/CFT initiatives
with multiple private sector participants
active in such conversations.
Training is also a useful function of PPPs.
This can be on-the-job training or specific
programs.
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• Leadership – This involves championing the proposal and bringing other partners on board.
• Administrative or organisational support – The FIUs will be involved in the governance and priority
setting of the structure.
• Operational analysis support – The FIU plays a role in liaising with LEAs to develop cases for
consideration by the structure.
• Strategic analysis support – The FIU needs to be particularly active in PPPs that develop new
typologies or risk information.
• International cooperation
Role of the FIC/FIU?
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• Obtain high-level support for the PPP
• Shared objective setting and co-design (not design and consult)
• Explore potential legal barriers to information sharing
• Foster trust between partners
• Put in place governance arrangements and set expectations
• Selecting private sector participants
• Address concerns of regulatory tension or capture
• Case selection / Measuring and demonstrating the results of PPP
• Choosing the format for the PPP
• Human and IT resources
Key factors to consider in setting up a PPP
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National Intelligence Coordinating Committee
(NICOC)
State Security Agency (SSA)
Defence Intelligence
Foreign FIUs (Egmont Group)
DIRCO
South African Revenue Services (SARS)
Special Investigating Unit (SIU)
Public Protector (PP)
Supervisory Bodies (SARB, FSB)
National Treasury
JCPS Cluster
SA Police Service
General Detectives
Directorate Priority Crime
Investigation (DPCI)
Crime Intelligence
National Prosecuting Authority (NPA)
National Prosecuting Services
(NPS)
Asset Forfeiture Unit (AFU)
Independent Police Investigative
Directorate (IPID)
An investigative division in an organ of
state
An investigating authority
Department of Environmental Affairs
Department of Correctional Services
(DCS)
Stakeholders Accountable Institutions (AIs) and
Reporting Institutions (RIs)
Government Departments (CIPC, DHA, NT, SARB)
Data Providers (Experian, Compuscan)
SABRIC/SAFPS/SAICB
Crime
National Security
Admin
Actions
Data/Info
Section 40: FIC makes information reported to it, and information obtained in terms of its mandate, available to specified stakeholders
Provide intelligence upon
REQUEST or at the
INITIATIVE of the FIC
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Public Protector
SARSIntelligence
Services
SupervisoryBodies
LEAsNPA
IPIDDefence
Intelligence
Investigative Division in an Organ of State
SIU
FIUs
Life cycle of a statutory report
Construct a narrative on the type and extent of illegal
activities involved through the approach of following the
money;
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Attorneys
Estate Agents
Investment advisors or intermediaries
Motor Vehicle Dealers
Gambling
Banks
32,65%
25.10%
20.97%
9.34%
7.67%
0,10%
Rest 4.16%
84,32%
6,79%
8,90%
Scheduled reporting entities vs statutory reporting
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United States of America (USA)
• The FIC was contacted by FinCEN to
assist in a criminal investigation where
a US citizen was defrauded by a
Nigerian citizen based in SA.
• Information shared with the FIC
indicated that the American was in the
process of buying a property in the US.
• Correspondence linked to the
payment was manipulated, bank
account details were unlawfully
changed and money was subsequently
paid to a SA bank in three transfers.
• The victim suffered a loss US$
202,217 (R2,7 million)
South Africa
• The FIC gathered and analysed relevant account
opening information and bank statements, reconstructed
how the money was laundered, identified proceeds and
the ultimate beneficiary thereof.
• The FIC subsequently froze six accounts.
• The FIC also identified three luxury vehicles (Porsche,
Mercedes and BMW) that were purchased with some of
the proceeds.
• The Asset Forfeiture Unit used FIC financial
intelligence to obtain preservation orders on all bank
accounts and the 3 motor vehicles.
• The cooperation between all the stakeholders resulted
in the recovery of 93.33% of the funds initially stolen.
Case study: 1) Fraud – American property purchaser
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• The FIC received an alert from a neighbouring jurisdiction that a person was
defrauded of a large amount of money that was transferred to a South Africa financial
institution. Some funds were transferred to a cryptocurrency exchange and converted
into a basket of cryptocurrencies, including Bitcoin. Some funds were irrecoverable
because they were transferred to other cryptocurrency exchanges in foreign
jurisdictions.
• The FIC froze some of the virtual currency (Bitcoin, Bitcoin Cash and Ripple) held
with the cryptocurrency exchange using a section 34 directive. It also provided an
affidavit that led to the Asset Forfeiture Unit obtaining a preservation order from the High
Court in Johannesburg.
• To note:
• Both addresses traced to BITTREX – exchange based in USA, Las Vegas
• In 24 hours – R500,000.00 moved through 3 countries!
Case study: 2) Fraud and money laundering through cryptocurrencies
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Case Study: 3) Rhino poaching matter
The Hawks arrested two Chinese males and did a search and seizure at the residence of the suspects,
resulting in the seizure of R112,000 in cash, R18m worth of iTunes prepaid cards, and items uniquely
involved in the transnational movement of wildlife items and the transfer of illicit proceeds.
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Rhino poaching matter - cont
• One retail store, to date, provided proof of sale involving R2.7 billion of iTunes cards that
have been purchased in South Africa.
• Apple USA confirmed that the vouchers were redeemed for their monetary value
outside of the country.
• Investigations can confirm that pre-paid gift cards are currently being used to
circumvent reporting requirements and resulting in gross tax and revenue evasion
and exchange control violations.
• Approximately 14 individuals were identified for purchasing iTunes cards in bulk.
• The purchase of iTunes cards provides a commodity that can be used world wide, i.e.
exchange of virtual currency and purchase of physical electronic devices.
• This allows the users in South Africa to purchase large quantities of these vouchers
which they can sell on a Chinese internet site www.taobao.com or www.tmall.com. This
enables the movement of South African currency out of the Republic without any
Reserve Bank interference.
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STATISTICAL OVERVIEW
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Operational Focus
0 100 200 300 400 500 600 700 800 900
ILLEGAL GAMBLING
KIDNAPPING
CYBER CRIMES
RACKETEERING
CRIMES AGAINST THE STATE
EXCHANGE CONTROL…
ARMS AND AMMUNITION
ILLICIT CIGARETTES
CONTRAVENTION OF…
HIJACKING
MURDER
DUE DILLIGENCE
NON FERROUS METALS
HUMAN TRAFFICKING
PRECIOUS METALS AND…
ROBBERY
THEFT
TERRORISM
OTHER
ENVIRONMENTAL CRIMES
MONEY LAUNDERING
CORRUPTION
TAX RELATED
NARCOTICS
FRAUD
Crime Types analysed 2013 to 2017
2017/18 2016/17 2015/16 2014/15 2013/14
Our priority focus areas:
• Fraud • Narcotics • Tax related• Corruption• Money Laundering • Investment scams
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Domestic and International requests from Law Enforcement Agencies for information responded to (2014-2018)
1799 19792145
2243
0
500
1000
1500
2000
2500
FY 2014/2015 FY 2015/2016 FY 2016/2017 FY 2017/2018
Nu
mb
er
of
case
s
870
511
1322
1470
0
500
1000
1500
2000
FY 2014/2015 FY 2015/2016 FY 2016/2017 FY 2017/2018
Nu
mb
er
of
Refe
rrals
Referral of information to Law Enforcement Agencies(2014-2018)
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181,0 184,6 149,355,1
2296,7
477,6 443,9
3027,9
0,0
500,0
1000,0
1500,0
2000,0
2500,0
3000,0
3500,0
FY 2014/2015 FY 2015/2016 FY 2016/2017 FY 2017/2018
Mill
ion
s in
Ran
ds
Section 34 freezing of accounts Proceeds of crime recovered using FinInt
Suspected proceeds of crime frozen (2014-2018)
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Way forward
• South Africa is experiencing a dramatic shift in the way investigations are conducted using a multi-
disciplinary approach involving different agencies and institutions.
• It is believed that financial intelligence is at the heart of every serious crime investigation in the
country, and plays a central role in the successful apprehension and conviction of serious criminals.
• Detection and pursuit of criminal money flows are challenging for law enforcement;
The FIC shall continue to:
• Engage with all the stakeholders, including the Law Enforcement Agencies and the Intelligence
Services, to counter the threat of Crime
• Improve analytical capability and access to external data – big data
• Stakeholders will be kept accountable – for feedback on matters (Impact)
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Questions and discussion
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THANK YOU