The AML/CFT Enforcement Regime in South Africa

The Financial Intelligence Centre (the FIC) is South Africa's Financial Intelligence Unit (FIU) mandated to establish an anti-money laundering and counter terror-financing regulation regime in terms of the Financial Intelligence Centre Act No. 38 of 2001, (the FIC Act), as amended.

Various compliance obligations have been introduced in terms of the FIC Act to enable the protection of institutions against exploitation by criminals and terror financing networks. In the execution of its mandate, the FIC Act requires all businesses to report suspicious and unusual transactions to the FIC and defines the anti-money laundering responsibilities of specific categories of business (called accountable institutions) as well as the supervisory bodies which have oversight over them.

The FIC Act imposes obligations on accountable institutions regarding client identification, recordkeeping and reporting duties, as well as the implementation of internal compliance structures and policies.

South Africa is the only African member of the international anti-money laundering standard-setting body, the Financial Action Task Force (FATF). Regionally, South Africa is a participant in the 14-member Eastern and Southern Africa Anti-Money Laundering Group and is also a member of the Egmont Group which is an international organization consisting of 120 FIUs. With the receipt, analysis and dissemination of financial intelligence by the FIC to relevant local and international authorities, South Africa is able to participate in global efforts in the identification of activities involving transnational organized crime, including fraud, smuggling, human trafficking, the narcotics trade and the stripping of the country's natural resources.

To enhance the effectiveness of the FIC in carrying out its mandate, various amendments to the FIC Act came into operation on December 1, 2010. The main objective of these amendments was to provide for an administrative enforcement framework within which administrative sanctions under the FIC Act could be applied. The key features of the administrative enforcement framework are:

  1. To extend the powers and functions of the FIC to enhance supervision and enforcement of compliance with the Act in a coordinated and integrated manner together with supervisory bodies, and to fulfill the responsibilities of a supervisory body where these do not exist;
  2. To clearly express the mandate of supervisory bodies to supervise and enforce compliance with the obligations on accountable institutions regulated by them under the FIC Act;
  3. (iii) To empower the FIC and supervisors to undertake inspections, issue directives, request information, impose administrative sanctions and apply to the courts for an interdict or a writ of mandamus, where appropriate;
  4. To ensure consistency in the enforcement powers afforded to supervisors;
  5. To enhance cooperation and sharing of information between the FIC, supervisors and law enforcement agencies;
  6. To create an appeal mechanism against decisions of the FIC or supervisors; and
  7. To provide for every accountable institution and every reporting institution to register with the FIC.

Supervisory bodies perform the core function of supervising and enforcing compliance over accountable institutions. For example, the Estate Agency Affairs Board is responsible for enforcing FIC Act compliance obligations relating to estate agents.

The FIC and each of the respective supervisory bodies are expected to work together to coordinate their approach and ensure that the requirements of the FIC Act are being fulfilled and that there is consistent application. A memorandum of understanding is entered into between the FIC and each supervisory body to give effect to this. In terms of this coordinated approach, each supervisory body exercises primary responsibility for supervision and enforcement in relation to their licensed entities in terms of the FIC Act.

There are two exceptions to the supervisory body role, in which the FIC takes prime responsibility, namely:

  • Registration with the FIC;
  • Reporting to the FIC by the various accountable and reportable institutions.

Supervisory bodies are empowered to conduct inspections on their individual licensed accountable institutions to determine compliance with the FIC Act. Section 45(B) of the FIC Act provides for joint inspections in which a supervisory body and the FIC can collaborate. It is preferable for the FIC to accompany supervisory bodies on inspections to ensure that information is shared regarding the inspections as well as their outcome. Such collaboration also ensures a consistent approach to inspections and the interpretation of the FIC Act. Supervisory bodies can also be advised by the FIC on possible actions which can be taken as a result of the inspection findings.

Where there is no supervisory body in place and an accountable or reporting institution is found to be non-compliant with the FIC Act, the FIC has the power to impose a sanction. The authority to issue a sanction rests with the director of the FIC. Where there is a supervisory body, sanctions will be imposed by the head of the supervisory body in consultation with the FIC. A sanction could take the form of a caution, reprimand, a directive to take remedial action, or to make specified arrangements, the suspension of certain business activities, and a financial penalty. Natural persons can also be sanctioned when necessary.

The financial penalty that may be imposed is one not exceeding R10,000,000.00 in respect of natural persons and R50,000,000.00 in respect of legal persons. Criminal liability is dependent on the type of offense committed and could result in imprisonment for a period not exceeding 15 years or to a fine not exceeding R100,000,000.00. Where less severe offenses have been committed, imprisonment for a period not exceeding five years or a fine not exceeding R10,000,000.00 is permissible.

The introduction of these amendments has empowered the FIC in carrying out its mandate

A natural or legal person has a right to appeal a sanction. The appeal is done under the auspices of Section 45(D) of the FIC Act. The lodgment of a notice of appeal must be done within 30 days of the aggrieved party receiving notice of the sanction. Once the hearing of the appeal has taken place, the Appeal Board will announce its decision in writing to confirm, set aside or vary its initial decision. The Appeal Board could also direct the matter back to the FIC or supervisory body for consideration.

The introduction of these amendments has empowered the FIC in carrying out its mandate and has broadened the extent to which the FIC can take effective action against non-compliant accountable or reportable institutions. This strengthens the FIC's compliance enforcement capability and promises greater success in the battle against money laundering and terror financing on both the domestic and international fronts.

Christopher Malan, senior manager: compliance and prevention, The Financial Intelligence Centre, South Africa,

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