Financial Intelligence Centre Act

The Financial Intelligence Centre Act 38 of 2001 (FICA) came into effect on 1 July 2003. FICA was introduced to fight financial crime, such as money laundering, tax evasion, and terrorist financing activities.

The majority of criminal activities are perpetrated to acquire one thing – money! If money is generated by crime, it is useless unless the original tainted source or intended usage of funds can be disguised as it could connect the criminals to the illegal activity and law enforcement officials would seize it.

In today’s globalised economy, criminals can generate huge sums of money through fraud, drug trafficking, arms smuggling and many other heinous crimes. These criminals are constantly adapting their activities to disguise their “dirty money” and targeting financial institutions. Not only does this cost country billions a year, but it is also providing the resources for international terrorism to grow.

Governments and international bodies have undertaken efforts to deter prevent and apprehend money launderers. Financial institutions have likewise undertaken efforts to prevent and detect transactions involving “dirty money”, both as a result of government requirements and to avoid the reputational risk involved.

FICA brings South Africa in line with similar legislation in other countries designed to reveal the movement of monies derived from unlawful activities and thereby curbing money laundering and other criminal activities.

Background

The G7 summit meeting in 1989 established an inter-governmental body known as the Financial Action Task Force (FATF). FATF was set up to evaluate the effectiveness of local and international money laundering control structures. In addition, the Financial Action Task Force was commissioned with set standards and promote effective implementation of legal, regulatory and operational measures to combat money laundering, terrorist financing and other related threats to the integrity of the international financial system.

Pressure from the FATF and the international environment to implement effective money laundering control legislation led to the development of the Financial Intelligence Centre Act. South Africa’s commitment to the implementation of TATF recommendations codified in FICA meant South Africa became the first African country to become a fully-fledged member of FATF. South Africa was accepted as a member of the FATF in June 2003 after it was evaluated and found to have developed a comprehensive legal structure to combat money laundering activities.

What is money laundering?

Money laundering is the process used by criminals to hide, conceal or disguise the nature, source, location, disposition or movement of the proceeds of unlawful activities or any interest which anyone has in such proceeds. The act of conducting or causing to conduct two or more transactions with the intention of avoiding the duty to report such transactions is a recognised offence in terms of section 64 of FICA.

Money laundering is the process by which money obtained from illegal sources is given the appearance of having come from a legitimate source.

The purpose of FICA

The purpose of FICA is to assist in the identification of the proceeds of unlawful activities, combat money laundering, and combat the financing of terrorist and related activities.

FICA does this by creating a legal framework for effective identification and verification of client identities, record keeping, reporting processes, staff training, compliance requirements and the establishment of the Financial Intelligence Centre and Counter-Money Laundering Advisory Council.

Who does FICA affect?

The term “accountable institution” is defined as a person or organisation referred to in Schedule 1 of FICA that carries out the business of any entity listed.

Accountable institutions include the following organisations:

A practitioner who practices as defined in section 1 of the Attorneys Act 53 of 1979.
A board of executors or a trusted company or any other person that invests keeps in safe custody, controls or administers trust property within the meaning of the Trust Property Control Act 57 of 1988.
An estate agent as defined in the Estate Agency Affairs Act 112 of 1976.
An authorised user of exchange as defined in the Security Service Act 36 of 2004.
A manager registered in terms of the Collective Investment Schemes Control Act 45 of 2002 but excludes managers who only conduct business in Part VI of the Collective Investment Schemes Control Act 45 of 2002.
A person who carries on the “business of a bank” as defined in the Bank Act 94 of 1990.
A mutual bank is defined in the Mutual Banks Act 124 of 1993.
A person who carries on a “long-term insurance business” as defined in the Long-Term Insurance Act 52 of 1998.
A person who carries on the business of making available a Gambling activity as contemplated in section 3 of the National Gambling Act 7 of 2004 in respect of which a license is required to be issued by the National Gambling Board or a provincial licensing authority.
A person who carries on the business of dealing in foreign exchange.
A person who carries on the business of lending money against the security of securities.
A person who carries on the business of a financial services provider requiring authorisation in terms of the Financial Advisory and Intermediary Services Act 37 of 2002, to provide advice and intermediary services in respect of the investment of any financial product (but excluding a short-term insurance contract or policy referred to in the Short-Term Insurance Act 53 of 1998 and a health service benefit provided by a medical scheme as defined in section 1(1) of the Medical Schemes Act 131 of 1998.
A person, who issues, sells or redeems travellers’ cheques, money orders or similar instruments.
The Postbank is referred to in section 51 of the Postal Services Act 124 of 1998.
The Ithala Development Finance Corporation Limited.
A person who carries on the business of a money remitter.

In addition to the accountable institutions, FICA affects all clients/consumers entering into either a single transaction or a business relationship with the accountable institution.

Clients/consumers include:

Natural persons
A natural person acting on behalf of another
Foreign nationals
Close corporations
South African companies
Foreign companies
Legal persons, such as partnerships and trusts

Consumer responsibility in terms of FICA

An accountable institution reserves the right to deny or terminate business relationships or transactions if FICA requirements are not met.

General consumer responsibilities include the consumer must:

Authorise staff and/or consultant to collect, view, collate, process and store FICA documents.
Authorise the storage of FICA documents in the FICA database as required by law.
Acknowledge and accept the current privacy policy.
Not falsely state, impersonate or otherwise misrepresent his/her identity and/or proof of residence and/or any other information provided.
Guarantee the accuracy, truthfulness, correctness, and validity of his/her personal information.
Indemnify and hold harmless the staff, the consultant and the accountable institution against any loss, damage, or injury arising from his/her failure to comply with FICA requirements.
Provide permission, when required, and authorise staff or consultants to disclose or receive his/her FICA documents to or from any accountable institution seeking to establish a business relationship or conclude a single transaction with the customer, any legitimate third party (such as SARS, deeds office, credit bureaux, municipalities) for verifying or comparing personal information in FICA database, and any accountable institution or competent authority for investigation or prevention of any criminal activity and auditing of the database.
Ensure FICA documents are kept up-to-date, notifying staff or consultants of applicable accountable institutions timeously for inclusion in the FICA database.
The responsibilities of accountable institutions in terms of FICA

Accountable institutions have the responsibility to:

Identify and verify new and existing clients.
Keep records of identities of clients and transactions entered into with clients.

If the client acts on behalf of a third party, records of the identity of the third party as well as a copy of the mandate between the client and the third party shall be obtained and retained in instances of concluding a single transaction, concluding transactions as part of a business relationship or establishment of a business relationship.

The method of identification and verification of particulars:

The exact nature of the transaction or business relationship.
The parties to a transaction as well as the monetary value thereof.
The particulars of the employee or representative that obtained the information.
The information, documentation or forms furnished by the client to verify the information.

Responsibilities in addition, to keeping records:

No person shall destroy any record, except if the destruction of such record was authorised by the responsible person.
No person shall amend any record kept in terms of FICA.
Report certain large or suspicious transactions to the Financial Intelligence Centre established by FICA.
Formulate and implement internal rules consistent with FICA obligations.
Offer compulsory FICA training to employees.
Appoint a responsible person as a compliance officer to monitor compliance.

Financial Intelligence Centre

The Financial Intelligence Centre (the Centre) was established in terms of section 2 of FICA. The purpose of the Centre is to establish and maintain an effective policy and compliance framework and operational capacity to identify and combat crime, money laundering and terror financing in order for South Africa to protect the financial system, develop the economy and be a responsible global citizen.

The Centre collects, processes and analyses information disclosed or obtained in terms of FICA to inform, advise and cooperate with investigating authorities, supervisory bodies, the South African Revenue Services and intelligence services to facilitate the administration and enforcement of the laws of South Africa; to exchange information with similar financial intelligence units in other countries regarding money laundering activities; to monitor and provide guidance to accountable institutions, supervisory bodies and other persons regarding the performance of their duties in relation to their respective compliance; and to retain the aforementioned information in the manner required.

The Counter-Money Laundering Advisory Council

Renamed the Counter-Money Laundering Advisory Council in 2008, the organ was established to advise the Minister of Finance on best policies and practices for the identification of proceeds of unlawful activities and to combat money laundering. In addition, the Counter-Money Laundering Advisory Council advises the Centre about the performance of its functions and acts as a forum in which parties can consult one another.

Consisting of various government, accountable institutions and supervisory body representatives, the Counter-Money Laundering Advisory Council must be consulted before the Minister of Finance may create, change or repeal FICA regulations, amend the accountable institution list, supervisory bodies or reporting institutions or exempt anyone from FICA compliance.

Identification and verification

For the money laundering control procedures to be effective, FICA prescribes that accountable institutions must know with whom they do business. As prerequisites for the establishment of business relationships or for the conclusion of transactions, FICA requires the identification and verification of each person or entity with which a transaction is concluded.

Identification and verification extend to new and existing clients according to prescribed procedures based on four categories namely natural persons, legal persons, partnerships and trusts. In addition, in certain instances, members are exempt from compliance.

Records

Accountable institutions are required to keep records of all character identification and verification documents and/or copies obtained before establishing a business relationship, as well as the nature of the business relationship or transaction and the parties to the transaction. Information on clients shall be updated if additional products are purchased by clients or amendments are made to existing products. Records may be kept physically or in electronic form and must be kept for a minimum of five years from the date on which the transaction is concluded or the relationship is terminated. The accountable institution may appoint a third party to keep records on its behalf if free and easy access to the records is available. However, the accountable institution remains liable for the failure of specified record storage.

Authorised Centre representatives, only by virtue of a warrant issued in chambers by a magistrate or regional magistrate or judge of an area of jurisdiction within which the records or any of them are kept, or within which the accountable institution conducts business, have access to records to examine, make extracts or copies of any such records. These records or part thereof are admissible in court as evidence.

Reporting

In terms of FICA, all accountable institutions are obliged to report certain financial transactions of a specific threshold or frequency of occurrence. Several exceptions relating to long-term insurance such as life, disability or medical policies and investment in unit trusts or, on the stock exchange, pension funds, retirement annuities or provident funds are exempt from reporting.

In addition, accountable institutions are to report any suspicious or unusual transactions to the Centre. These include business receiving, transferring or laundering money or the proceeds from unlawful activities or property connected to the financing of terrorist and related activities, has no apparent business or lawful purpose; is conducted for the purpose of avoiding FICA requirements. Other reporting includes the evasion or attempted evasion of a responsibility to pay any tax, duty or levy imposed by the Commissioner of the South African Revenue Service.

Internal rules and training

Accountable institutions must formulate and implement internal rules to identify and verify identity, develop record management and storage systems, and methods of identifying reportable transactions and other prescribed matters. In addition, accountable institutions must provide training to their employees and appoint a Compliance Officer to ensure compliance with the provisions of FICA. Failure to comply is an offence that may result in penalties.

Offences and penalties

Accountable institutions are guilty of an offence if:

They fail to identify persons and keep records.
Destroy or tamper with records.
Fail to give assistance to representatives of the Centre.
Fail to advise Centre representatives of client history when requested.
Fail to report cash transactions above prescribed limits.
Fail to report suspicious or unusual transactions.
Disclose information contained or to be contained in a report to the Centre.
Fail to report conveyance of cash in or out of the Republic.
Fail to send a report to the Centre.
Fail to report electronic transfers.
Fail to comply with a request by the Centre or investigating authority.
Fail to comply with a monitoring order.
Misuse, disclose, tamper with or destroy confidential information.
Fail to formulate and implement internal rules.
Fail to provide training or appoint a compliance officer.
Obstruct an official in the performance of their duties.
Conduct transactions to avoid reporting duties.
Wilfully access or modify an application, data or computer system under the control of the Centre.

Certain offences carry imprisonment of up to 15 years or fines of up to R100 million.

Required documents for FICA purposes

Certified copies of the following documents are required in terms of FICA:

Individuals

Green barcoded ID book for SA citizens or valid passport for foreign nationals
And one of the following that reflects the individual’s name and physical address or erf number and suburb:
Utility bill (less than three months old)
Bank statements (less than three months old)
Lease or rental agreement (less than 12 months old)
Telkom account (less than three months old)
IRP5 as supplied by the employer or an official SARS document

Trusts

Trust Deed for SA registered trusts or similar founding statement for foreign registered trusts
Letter of Authority issued by the Master of the High Court
Green barcoded ID book for SA citizens or valid passport for foreign nationals who are founders, trustees or determining beneficiaries of the trust and anyone who has the authority to act on the account (for example under a power of attorney)
Proof of authority to act on the account for individuals with this authority
If a beneficiary, trustee or founder is a legal entity, then proof of registration details, for example:
For companies: CM1/CM3 AND CM22 AND CM27/CM29 OR if a foreign company, the foreign document of incorporation.

For CCs: CK1/CK2 AND CK2A

1. One of the following documents that reflect the company/CC name and physical address or erf number and suburb:

Utility bill (less than three months old)
Bank statement (less than three months old)
Lease or rental agreement (less than 12 months old)
Telkom account (less than three months old)
Official SARS document

2. Green barcoded ID book for SA citizen or valid passport for foreign national who is the CEO/MD/Head and anyone having authority to transact, or anyone holding 25% or more of the shareholding (plus a letter from the company’s auditors proving shareholding) and proof of authority to transact for individuals with this authority

3. If another legal entity holds 25% or more shareholding, then proof of registration details, for example:

For a South African company, CM1.CM3 AND CM22 AND CM27/29
For a foreign company, the official registration document from the foreign country of incorporation
For a CC, the CK1/CK2 with CK2A
For a partnership, the partnership agreement
For another trust, the Trust Deed and Master’s Letter of Authority
For another legal entity, the constitutional document

Partnerships

1. Partnership agreement, if any
2. Green barcoded ID book for SA citizen or valid passport for foreign national who is the CEO/MD/Head and anyone having authority to transact, or anyone holding 25% or more of the shareholding (plus a letter from the company’s auditors proving shareholding) and proof of authority to transact for individuals with this authority

3. If partners are legal entities then proof of registration details or example:

For a South African company, CM1.CM3 AND CM22 AND CM27/29
For a foreign company, the official registration document from the foreign country of incorporation
For a CC, the CK1/CK2 with CK2A
For a partnership, the partnership agreement
For another trust, the Trust Deed and Master’s Letter of Authority

Other legal entities (for example clubs, and associations)

1. Constitution or founding document, if any
2. One of the following documents which reflect the entity name and physical address or erf number and suburb:

Utility bill (less than three months old)
Bank statements (less than three months old)
Lease or rental agreement (less than 12 months old)
Telkom account (less than three months old)
IRP5 as supplied by the employer or an official SARS document

3. Green barcoded ID book for SA citizens or valid passport for foreign nationals who have authority to transact and proof of authority to act on the account for individuals with this authority

Registration with the Centre

Section 43B of FICA requires accountable institutions and reporting institutions to be registered with the Centre. Such registration includes providing the Centre with the details of the compliance officer and the institution’s information. The initial registration period commenced on 1 December 2011 and all accountability and reporting institutions were required to be registered prior to 1 March 2011.

Persons who commence new businesses, which are regarded as accountable or reporting institutions, are required to register with the Centre.

Law Society and FICA – confidentiality and privilege

FICA preserves legal professional privilege. In broad terms, the privilege protects from disclosure, and communications between attorneys and their clients that are made in confidence for the purpose of enabling the client to obtain general legal advice and advice in respect of litigation which is either pending or contemplated or which has commenced. This latter concept of “litigation privilege” also extends to communications between a third party and an attorney for the purposes of litigation that is pending or contemplated or has commenced.

The privilege is the privilege of the client, not the attorney. If an attorney claims privilege, he or she does so on behalf of the client and the client may elect not to claim the privilege, in which event the attorney has no independent right to do so.

The privilege does not operate if the client obtains legal advice in order to further a criminal end.

A legal advisor who knowingly participates in the commission of a crime is not acting professionally but the authorities suggest that even if he or she had no knowledge of the purpose for which advice was sought, no privilege will attach to the communications with the client if the latter obtained the advice in order to further a criminal objective.

Confidentiality is a wider concept than a privilege as information may be confidential even though it is not protected by legal professional privilege.

There is an overlap between confidentiality and privilege. Confidentiality is a necessary condition for claiming privilege but is not a sufficient condition for such a claim. The fact that a communication was made in confidence will not necessarily mean that that communication is privileged. That privilege only attaches if the communication is made for the purpose of obtaining legal advice so that a statement unconnected with the giving of legal advice will not be privileged even if it was made in confidence.

Confidentiality, as opposed to privilege, is overridden by the duty to report.

The text published here is a summary of the text that facilitated discussions between the delegates of a workgroup presented by Pule Inc. It should by no means be construed as a comprehensive discussion on the issues raised herein and should also not be regarded as legal advice on the subject.