presentation portfolio committee on finance background to anti-money laundering & combating of...

PRESENTATION

PORTFOLIO COMMITTEE ON FINANCE

BACKGROUND TO ANTI-MONEY LAUNDERING & COMBATING

OF FINANCING OF TERRORISM SYSTEM IN SA AND THE IMPLEMENTATION OF

THE FIC ACT

2 AUGUST 2007

financial intelligence centre REPUBLIC OF SOUTH AFRICA

PRESENTATION

1. Context of South Africa’s anti-money laundering and combating of financing of terrorism system

2. Relationships and responsibilities3. The Financial Intelligence Centre4. Challenges ahead


ELEMENTS IN SA’s AML/ CFT SYSTEM

The system incorporates the following elements:

• Criminalisation: of money laundering and financing of terrorism.

• Administrative preventative measures: to be taken by financial institutions and non-financial businesses and professions – reporting requirements (eg suspicious transactions, Cash threshold, terror finance); customer due diligence/ Know Your Customer; record keeping; staff training; appointment of compliance officer; sanctions for non-compliance.

• Law enforcement: legal capacity to investigate and prosecute and other measures; availability of resources.

• Supervision: Supervisory bodies to monitor and ensure compliance enforcement.

• Financial Intelligence Centre to receive data, analyse and refer to law enforcement. Function independently. Resources.

• International cooperation: mutual legal assistance, extradition, and information sharing.


SA EXPERIENCE IN AML/ CFT AND THE FINANCIAL INTELLIGENCE CENTRE ACT

The FIC Act (Act No. 38 of 2001)

• Helps create an anti-money laundering environment in South Africa to: – Maintain and protect the integrity of financial sector;– Identify proceeds of unlawful activities and combat money

laundering activities (and since 2005, combating terrorist financing);

– Build a partnership between the private and public sectors.

• Complements the Prevention of Organised Crime Act (POCA), 1998 which defines the crime of money laundering and anti-terror legislation (POCDATARA, 2005);


SA EXPERIENCE IN AML/ CFT:FINANCIAL INTELLIGENCE CENTRE ACT

• Imposes ‘know your customer’ and other obligations on wide range of accountable institutions

– Client identification and verification;– Record keeping;– Reporting transactions and sharing information;– Measures to promote compliance.

• Imposes obligations on supervisory bodies and give law enforcement further responsibilities

• Creates the Financial Intelligence Centre


19

90

: F

AT

F i

ss

ue

s

40

Rs

o

n m

ea

su

res

to

co

mb

at

19

96

: F

AT

F a

do

pts

re

vis

ed

ve

rsio

n o

f 4

0R

s

19

96

:

• SA

cri

min

ali

se

s m

on

ey

la

un

de

rin

g a

nd

in

tro

du

ce

s a

ss

et

forf

eit

ure

pro

vis

ion

s i

n

Pro

ce

ed

s o

f C

rim

e A

ct

• S

AL

RC

pro

po

se

s d

raft

le

gis

lati

on

cre

ati

ng

FIC

a

nd

im

po

sin

g

ob

lig

ati

on

s s

imil

ar

to

FA

TF

40

Rs

19

98

: M

on

ey

la

un

de

rin

g

off

en

ce

s a

nd

as

se

t fo

rfe

itu

re p

rov

isio

ns

u

pd

ate

d a

nd

in

co

rpo

rate

d i

n P

OC

A

20

00

: F

orm

ati

on

of

the

A

FU

to

im

ple

me

nt

pa

rts

o

f P

OC

A

20

01

: F

IC A

ct

pa

ss

ed

b

as

ed

on

mo

de

l o

f S

AL

C r

ec

om

me

nd

ati

on

s

20

01

: 9

/11

– F

AT

F

ad

op

ts 8

(n

ow

9)

SR

s o

n

terr

ori

st

fin

an

cin

g

20

02

: F

IC e

sta

bli

sh

ed

–

sta

rts

pre

pa

rati

on

fo

r re

ce

ipt

of

rep

ort

s

20

03

: F

IC s

tart

s

fun

cti

on

ing

in

o

pe

rati

on

al

form

at

–

rec

eiv

ing

ST

Rs

20

03

:

• SA

be

co

me

s m

em

be

r o

f F

AT

F

• FA

TF

ad

op

ts r

ev

ise

d

ve

rsio

n o

f 4

0R

s

imp

os

ing

str

icte

r s

tan

da

rd

FIC continues to expand and enhance its capability to assist law enforcement agencies in investigations and actions relating to proceeds of crime

20

04

: S

A c

rim

ina

lis

es

te

rro

ris

t fi

na

nc

ing

in

P

OC

DA

TA

RA

Ac

t


AML/ CFTInvestigation

andProsecution

AML/ CFTRegulation

AndSupervision

Structures

South AfricanPolice Service

National Prosecuting

AuthorityDirectorate for Special OperationsAsset Forfeiture Unit

Legislative framework Structures

Prevention of Organised Crime Act

Protection of Constitutional Democracy against Terrorist and Related Activities Act

•Criminal Procedure Act•Monitoring and Interception Prohibition Act•National Prosecuting Authority Act•International Co-operation in Criminal Matters Act

South African Reserve Bank

Banks Act

Financial Intelligence Centre Act:

Establishes FIC Identification

Provides for powers Record-keeping

and functions of FIC Reporting

Internal rules

FAIS Act

Financial Services Board

Estate Agency Affairs Board

Independent Regulatory Board of

Auditors (PAAB)

National Gambling Board

JSE

Law Society of SA


SA’s Policy EnvironmentFinancial Intelligence Centre with

Other Gov Depts eg. Treasury, Police, Justice, Foreign Affairs

AML/ CFT OperationsFinancial Intelligence Centre

Accountable and reporting Institutions (private sector)Supervisory Bodies/ Law Enforcement

International AML/ CFT ContextStandard: Financial Action Task Force (40Rs + 9SRs)

FATF- Regional Bodies (eg, Esaamlg) Interact with IMF/ World Bank/ United Nations/ Commonwealth Sec

United Nations ConventionsVienna Convention/ Palermo Convention/ Terrorist Financing

Security Council Resolutions

POLICY AND OPERATIONAL ENVIRONMENT


Financial Action Task Force

• Inter-Governmental Body consisting of 33 members

• Purpose to develop and promote national and international policies to combat money laundering and terrorist financing

• Objective to generate political will to bring about legislative and regulatory reforms in these areas

• Policies expressed in the form of standards:• 40 Recommendations on Money Laundering• 9 Special Recommendations on Terrorist Financing

• Assessment methodology

• Typology studies


CORE INSTITUTIONAL STAKEHOLDERS

Supervisory Bodies

Accountable Institutions (businesses)

in private sector

Law enforcement,Revenue,

intelligence& prosecution

authorities

Financial Intelligence

Centre

Minister of Finance

Parliament


FIC “Value – Add” Chain

FIC

(1) Compliance measures

(3) Reporting to FIC

(4) Analysis by FIC

(5) Referral by FIC to LEA’s

(6) Investigation & Prosecutions by

LEA’s & NPA

(7) Trends analysis by FIC with partners

(8) Policy development

(9) Legislation development

(2) Compliance monitoring


AML/ CFT ARCHITECTURE

Bank

Insur-ance

Casino

SAPS

NPA-DSO-AFU

SARS

Reports

Referals

Accountable Institutions,

eg.

Investigative Authorities & Intelligence

Agencies, eg.

Investigations & Prosecutions

Data storageAnalysisReferrals

Awareness

InternationalLinks/ fiu’s

FICsharing

Su

per

viso

ry B

od

ies

(FS

B, S

AR

B, J

SE

, etc

)M

onito

r C

ompl

ianc

e of

Acc

ount

able

Ins

t’s

International Standard – Financial Action Task Force 40+9 Rs

Policy &

country eval

Intellig

ence A

gen

ciesfinancial intelligence centre REPUBLIC OF SOUTH AFRICA

Insurancesector

Casinos

Banks

FIC

Data storageAnalysisReports

Obligations of Accountable Institutions:• Required to submit Suspicious Transactions Reports (STRs)• Required to:

• Keep records for 5 years • Identify and verify clients • Appoint Compliance Officer • Training for staff

• Future Reporting obligations• Add more accountable institutions – eg. diamonds/ gold dealers?

Suspicious Transaction Reports sent to FIC

These are institutions most vulnerable to money-laundering -• 19 categories of different institutions – eg. banks, insurance industry, brokers, casinos, accountants, lawyers, estate agents

OBLIGATIONS ON ACCOUNTABLE INSTITUTIONS


SUPERVISORY BODIES

• Listed in Schedule 2 of the Act– These are: the Financial Services Board; SA Reserve

Bank; Companies and Intellectual Property Registration Organisation; Estate Agency Affairs Board, Independent Regulatory Board of Auditors (PAAB), National Gambling Board, JSE Securities Exchange, & SA Law Society;

• Obliged to monitor the level of compliance by accountable institutions

• ‘Statutory’ vs. ‘self-regulatory’ bodies vs. non-supervised bodies;– FIC obligated to act as ‘supervisor of last resort’ where no

supervisor exists;

– Establish regional offices to monitor compliance and conduct compliance inspections;

• FIC to conduct compliance inspections on acc inst’s and sup bodies.

Banks

Insurancesector

Casinos

Mo

nito

r Co

mp

liance

SupervisoryBodies


Ministries Departments and Supervisors responsible for oversight of sectors

Banks

Finance

services

Stock

Brokers

Gam

bling

Estate

Agents

Com

panies

Lawyers

Account’nts

Others

Banking S

up

Fin S

ervicesB

oard

Law S

ociety

Ind Reg

Board of A

uds

FIC

JSE

Stock

Exchange

Nat G

ambling

Board

Estate A

gencyA

ffairs Board

Com

panies R

egister

AN

Other

Finance

Trade &

Industry

Trade &

Industry

Justice

Trade &

Industry

Finance

Finance

Gov S

AR

B


Ministry

Supervisor

Sector

LAW ENFORCEMENT AUTHORITIES

FICData capture

AnalysisReports

NPA- AFU- DSO

SAPS

SARS

SASS

NIA

Referrals sent from FIC

• Investigate and prosecute cases involving proceeds of crime• Receive referrals from FIC• Makes requests to FIC for additional information• Appoint Authorised Officers

- To protect integrity of information;• Provide access to government databases to verify info;

- Ability to search criminal databases;• Ensure regular feedback on progress made in investigations and prosecutions• Collect and report statistics.


Data storageAnalysisReports

Accountable Institutions

Law EnforcementAuthorities

Feedback & requests

STRs

Intelligence Package ReferredFeedback & requests

Quarterly with Sup Bodies

6 monthly with Acc Insts

Set by law15 working days 7 working days

X working days

FIC

REPORTING & FEEDBACK


3. THE FINANCIAL INTELLIGENCE CENTRE

• The FIC’s legal obligations, location and accountability

• Responsibilities• Structure• Past Financial Year• Future


THE FINANCIAL INTELLIGENCE CENTRE

• Legal obligations, location and accountability:

• The Financial Intelligence Centre is defined as a juristic person;

• Located outside the public service, but within the public administration in terms of section 195 of Constitution;

• Accountable directly to Minister of Finance;

• Funded from national budget;

• Physically located in the National Treasury, Pretoria.


Core responsibilities for the Centre include that it:

• Analyses information obtained in reports from ‘accountable institutions’;

• Refer information to Law Enforcement Authorities - eg. SAPS, DSO (Scorpions), AFU, SARS, the Intelligence Services;

• Coordinates SA’s policy on AML/ CFT - thus liaises closely with National Treasury and all stakeholders in public and private sector and internationally;

• Monitors the Supervisory Bodies (SARB, FSB, NGB, etc) & gives guidance to accountable institutions, supervisory bodies and others;


Centre’s Responsibilities

Centre’s Responsibilities (cont)

• Monitors and inspects for compliance where no supervisory body exists, eg. parastatals, Post Bank;

• Exchanges information with similar bodies in other countries – other financial intelligence units;

• Participates in and liaises with Financial Action Task Force (FATF) and other non-SA bodies.

• Administers the Financial Intelligence Centre Act


Financial Intelligence Centre Act

No 38 of 2001

Regulations Exemptions

Guidance Notes


FICA ADMINISTRATION

COMPLIANCE AND PREVENTION

Liaises and Inspects for compliance of• accountable institutions• Supervisory Bodies• non-supervised accountable institutions• Capacity building, such as develop ‘Academy’Public Awareness• Provides awareness and training

MONITORING & ANALYSIS

Analyses and Refers• Collects & stores STRs and other reports• Analyses data and adds value• Develops referrals to law enforcement• Exchanges information with international fius and law enforcement agencies;• Maintains statistics

DEPUTY DIRECTOR

ADMINISTRATON & SUPPORT SERVICESProvides various support functions and services to FIC, including:

• Financial and Administrative management; Procurement; Human Resources; • Registry and document storage services; In-house staff training and development; Security services; • Communication and marketing; In-house Legal services; • Information & Communication Technology;

LEGAL & POLICY

Administers Act and Develops coherent policy framework• Develops legislation;• Liaises with standards setters (FATF and Esaamlg);• Monitors typologies and trends; • Liaises with National Treasury & other relevant government departments• Liaises with MLAC•MLAC Secretariat• FIC provides admin support

DIRECTOROversees policy & strategic direction, is FIC Accounting Authority

FIC STRUCTURE AND STAFFING COMPONENTS


4. Annual Report 2006/07

Legislation and policy: Amendment Bill

- Structural amendments and administrative penalties Bill

• Legislation review – Impact of the revised FATF 40 Recommendations and 9 Special Recommendations– Mutual Evaluation results

• Mutual Evaluation preparation for mid-2008

• Participation in FATF and its working committees

• Participation in Esaamlg- Review of Secretariat functions- Technical assistance


• 21 466 suspicious transaction reports received.

• Majority of these reports were received from financial service providers such as banks, brokers, foreign exchange dealers, insurance providers, investment managers and services, and money remitters (18 799 reports constituting 88% of all reports).

• 12% (2667 reports) were received from other sectors such as casinos, estate agents, coin dealers, companies, accountants and auditors, attorneys, car dealers and individuals.

• 549 referrals to investigating authorities, with a value in excess of R1,4 billion.

Reporting


STRs received year on year99

1 7480

1575

7

1979

3

2146

6

6548

7

0

10000

20000

30000

40000

50000

60000

70000

Years

Am

ount

2002/2003 2003/2004 2004/2005 2005/20062006/2007 Total


STRs received year-on-year

Financial and non-financial reports for financial year 2006/2007

Non-Financial Institutions, 12%

Financial Innstitutions, 88%

Financial Institutions Non-Financial Institutions


Financial/ Non-financial reporting for year

This includes the following successes:

• Monitor compliance implementation;

• Facilitate draft guidance notes for suspicious transaction reporting and terror financing reporting;

• Joint compliance audit with National Gambling Board of 29 casinos;

• Joint compliance audit with Exchange Control Department of 18 authorised dealers in foreign exchange with limited authority;

• Joint compliance audit with Estate Agency Affairs Board of 12 estate agencies;

• Facilitate signature of MOU with FSB in March 2007;

• Public awareness activities and training;

• Regular engagement with key stakeholders;

• Run pilot ‘internship’ with 4 interns absorbed into structure on 1 April 07;

• Assist in development of an administrative penalty regime.

Compliance and Prevention Achievements



CASH FLOW STATEMENT FOR FIVE YEARS ENDED 31 MARCH 2010

2006 2007 2008 2009 2010

No

te

Actual Projections

Revenue

23,617 - 42,840 45,410 47,681

Parliamentary allocation 23,617 - 42,840 45,410 47,681

Expenditure (33,164) (46,284) (82,876) (124,313) (120,261)

IT expenses 1 (2,064) (2,684) (7,000) (14,840) (15,582)

Other operating costs 2 (14,432) (17,319) (30,903) (37,740) (42,664)

IT Professional fees 3 (4,589) (12,244) (24,489) (6,859)

Personnel costs 4 (16,668) (21,692) (32,729) (47,244) (55,156)

Capital expenditure (2,787) (3,832) (86,080) (76,288) (25,846)

Property, plant & equipment 4 (2,787) (3,832) (86,080) (76,288) (25,846)

Net cash outflow for the year (12,334) (50,116) (126,116) (155,191) (98,426)

Funds available at beginning 69,493 57,159 7,043 (119,073) (274,264)

Surplus/(deficit) at year-end 57,159 7,043 (119,073) (274,264) (372,690)


Assumptions: Inclusive of 14% VATThe exact development and infrastructure costs will be determined by the tendering processThe Project Manager, Sys Architect and Business Analyst will be on board on a full-time basis until May 2008Project Administrator available 60% of the timeIncludes two office moves (intermediate and final move)Scope of development is dependent on the outcome of the benchmarking processFIC IT resources are on board as plannedExcludes resources shadowing overheadProlonged mobilisation timelines for new staff may affect the budget and timelines

Current

Implementation

Development contractors R26,744,756.56

Security Infrastructure R25,000,000.00

Task Team cost R9,963,666.10

WAN/LAN Infrastructure R6,704,461.04

Hardware and Software R27,901,371.05

Cost of Move R4,300,000.00

Total cost of implementation R100,614,254.75

Maintenance over 5 years

Maintenance, licenses and ongoing operations R37,000,000.00

Internal Staff R58,324,912.25

User training and tools R11,000,000.00

Indirect/hidden cost (ad-hoc specialists) R 8,000,000.00

Upgrades R14,000,000.00

Total Maintenance R128,324,912.25

Contingency (15%) R34,340,875.05

Total R263,280,042.05

AML/ CFT system and FIC roll-out: Next steps (cont)

Legal and Policy

• Amendment implementation and administration

• Review of Legislation

• Mutual Evaluation preparation for 2008

• International Organisations participation

• Technical assistance in the Region to Esaamlg member countries


AML/ CFT system and FIC roll-out: Next steps (cont)

Analysis • Continue to capture reports;• Increase numbers of referrals;• Staffing and skills;• IT infrastructure.

• Access to databases- Either direct or indirect.

• Continue to develop Memoranda of Understanding with all stakeholders: domestic and international FIUs for exchange of information

Law Enforcement• Capacity-building: • Skills training of financial investigators – courses (ongoing); • Skills training of Authorised Officers.• Deepen coordination – task teams; provincial and local abilities (ongoing).


AML/ CFT AND FIC Roll-out: Next steps (cont)

Compliance and Prevention• Continue to facilitate the issuance of guidance notes to sectors;• Broaden and intensify the compliance audit of accountable and reporting institutions

in designated sectors;• Develop risk-based approach to compliance;• Apply an administration penalty regime;• Establish dedicated inspectorate capacity; • Enhance Public Awareness and Training outreach;• Support FIC strategic threat analysis to determine where and what major ML/ FT

activities are taking place.

International• Continue to Strengthen Esaamlg;• Provide technical assistance to Esaamlg countries;• Engage with FATF, Egmont and other international institutions.


AML/ CFT AND FIC Roll-out: Next steps (cont)

Stabilising and Growing the Financial Intelligence Centre

• To occupy additional premises until new building in 2 years– Customised, specialised space.

• Information Technology- Scope, develop and implement full, integrated system: completion

for testing end 2008;- Security standards.

• Internal systems and operating procedures– Standard operating systems; Ethics basis.

• FIC staffing - Aim for 135 by end this financial year - mission critical posts;- Induction processes, development, retention plans;- Increase numbers of secondees from law enforcement and

supervisory bodies.


THANK YOU

Murray MichellDirector: Financial Intelligence Centre

012 – 3099200www.fic.gov.za

[email protected]


http://www.fic.gov.za/

presentation portfolio committee on finance background to anti-money laundering & combating of...

Documents

financial intelligence

financial institutions

crime of money laundering

compliance enforcement

nonfinancial businesses

law enforcement agencies

financial action task

financing of terrorism