1. pwc

2. FICA (Financial Intelligence Centre Act) Money Laundering Control Workshop
Module 1 - Money Laundering – General Awareness
1 hour
Module 2 – Accountable Institutions & their compliance obligations
30 minutes
Presenter: Anton Lockem
PWC Tax Services
Senior Consultant

3. PricewaterhouseCoopers
Money Laundering
General Awareness
Module 1
pwc

4. Money Laundering – General Awareness Module 1 - Agenda
Introduction
Money Laundering legislation:
- Internationally
- South Africa
How ML legislation effects the firm
Video
Suspicious transaction reporting

5. Money Laundering – General Awareness Module 1 - Agenda (continued)
How to recognise money laundering
Anti-terrorism legislation
Money Laundering database
Conclusion

6. What is money laundering?
The process whereby criminals attempt to:
disguise the true origin and ownership of the proceeds of their criminal activities
without jeopardising its source
Acts committed to fund terrorism (internationally – 2001, SA 2004/5)

7. Money Laundering vs. Fraud
Fraudulent activity
loss or disappearance of assets or revenue
Money laundering
large quantities of illicit proceeds
being distanced from their source a.s.a.p.
in an undetected manner.
less likely to affect financial statements
Money laundering:
- Conceal the origin of the assets
- Unlikely to affect financial statements
Fraud:
- Normally result in a loss

8. Origins of laundered money
Theft
Fraud
Tax evasion
Bribery / corruption
Forgery
Prostitution
Drug trafficking
Perlemoen smuggling
Counterfeiting
Extortion/blackmail
Robbery
Smuggling

9. Our vulnerability Includes:
Advising or assisting individuals to organise their personal affairs
Helping to set up trusts, companies or other business structures (locally and offshore)
Acting as Attorney, conveyancer, trustee, nominee or company director
Advice on capital structure, the issue of securities, industrial strategy, mergers and acquisitions
Corporate finance / tax planning
Exchange control advice

10. Why authorities concentrate on money laundering?
Huge business
Previously focused on the crime itself
New approach = attack proceeds of crime
Follow the money trail to the crime
Confiscate proceeds
Deny criminals access to financial institutions & advisors without increased risk of detection
Increasing international pressure

11. Why should you be interested?
Money laundering is a crime
Firm is potentially vulnerable
“Suspicious transactions” must be reported to the FIC
“Accountable institutions” must implement compliance systems
Penalties for non-compliance are severe
WE MUST PROTECT OUR REPUTATION & THE FIRM’S NAME

12. The international A-ML Regime (1)
International policy-making and standard-setting body
Financial Action Task Force (FATF)
Inter-governmental body
40 recommendations (revised in 2003)
8 special recommendations to combat terrorist financing (2001)
33 members – South Africa a member since 2003

13. The international A-ML Regime (2)
FATF functions include:
Monitoring compliance by members to international standards
Identifying non-cooperative countries or territories
Nigeria, Philippines, Cook Islands, Guatemala, Indonesia, Myanmar, Nauru
Recently removed: Egypt and Ukraine – to be monitored
Transactions require heightened scrutiny

14. Money laundering legislation in South Africa
Prevention of Organised Crime Act (POCA)
effective date: January1999
Financial Intelligence Centre Act (FICA)
effective date: February 2002
The Protection of Constitutional Democracy against Terrorist and Related Activities Act (PROCDATRA)
Passed by parliament on 12 November – not yet gazetted
Prevention of Corrupt Activities Act (PRECCA)
Effective date: August 2004

15. Introduction to POCA Criminalises the act of money laundering
Criminal confiscation of proceeds of crime
Civil forfeiture of:
proceeds, and
instruments of offences

16. POCA – Offences (1) Money laundering (Section 4)
Any act in connection with property that has effect of concealing or disguising source or movement thereof, or assists the criminal to avoid prosecution
Where a person knows or ought reasonably to have known that the property is the proceeds of unlawful activities

17. POCA – Offences (2) Proceeds of unlawful activities – section 1
Means - any property or part thereof or any service, advantage, benefit or reward which was derived, received or retained, directly or indirectly, in connection with or as a result of any unlawful activity carried on by any person, whether in the Republic or elsewhere,
“Property”
Means - money or any other movable, immovable, corporeal or incorporeal thing and includes any rights, privileges. claims and securities and any interest therein and all proceeds thereof

18. POCA – Offences Laundering proceeds of another’s offence (Section 5)
Assisting another to benefit from proceeds of
Acquisition, possession or use of
Negligently fails to identify the true nature of illicit property (Section 6)
Acquiring, possessing or using, where you ought reasonably to have known
Negligence is no excuse

19. POCA – Penalties and defences
Fine of up to R100 million
Imprisonment for up to 30 years
Defence
Reporting suspicions to Financial Intelligence Centre (“FIC”)
Compliance with FICA

20. Introduction to FICA FICA creates:
The Financial Intelligence Centre (FIC)
Duties for you!
Duties for the firm!

21. Introduction to FICA Role players:
Any person in business (including all employees)
Accountable Institutions (AI’s) – Schedule 1
Supervisory Bodies – Schedule 2
Reporting Institutions (RI) – Schedule 3
Duties:
Reporting suspicious transactions (All role players)
Reporting conveyance of cash (> set amount) outside of SA (All persons) – (NB. Not yet operative)
Comply with money laundering control measures (AI’s & RI’s)

22. List of Accountable Institutions (1)
An admitted attorney (on either practising or non-practising role)
2. Board of executors, trust company, any person who administers trust property per Trust Property Control Act
3. Estate Agent
4. Financial instrument trader
5. Unit Trust Management Company
6. Bank
7. Mutual Bank

23. List of Accountable Institutions (2)
Long term insurance business
Licensed gambling businesses
Forex dealer
11. Money lender against securities
12. Person who carries on business of providing investment advice or broking services, including a PAAB member who carries on such a business.
13. Seller, issuer, redeemer of travel cheques, money orders

24. List of Accountable Institutions (3)
Postbank
Member of a stock exchange
Ithala Development Corporation
Approved Investment Manager in terms of:
17. Section 4 (1) (a) of Stock Exchanges Control Act
18. Section 5 (1) (a) of Financial Markets Control Act
19. Person who carries on business of a money remitter

25. List of Reporting Institutions
Motor vehicle dealer (your client?)
Kruger Rand dealer
(Section 28 re cash transactions of RI’s not yet operative)

26. Implications for You if you are an Accountable Institution
You (if an AI):
Duty to be trained and follow firm’s internal rules for AI’s
General provisions (Reporting suspicious transactions), (conveying of cash outside of SA**)
Threshold Reporting (specified cash transactions **, electronic transfers outside SA **)
** These sections are not yet operative

27. Implications for You if you are NOT an AI
You (if not an AI):
General provisions (Reporting suspicious transactions )
Threshold Reporting (conveying of cash outside of SA**)
** This section is not yet operative
Must not provide investment advice/ intermediary services if not FAISA registered
Auditors - be aware of implications on audits of FICA, particularly if your client is an Accountable Institution

28. FICA – offences and penalties
Failure to report suspicious transactions
Negligent failure to identify suspicious transactions
Tipping off
Failure to implement compliance measures
Penalties
Maximum penalty 15 years jail and/or R10 million fine, or
Maximum penalty 5 years jail and/or R1million fine (Compliance procedures)

29. Prevention and Combating of Corrupt Activities Act
Offence to handle the proceeds of corrupt activities
overlaps with general money laundering offences
Creates reporting duties on persons in positions of authority:
All knowledge of corruption / bribery
Offences with element of dishonesty > R
Report to SAPS

30. IT’S HOME VIDEO TIME! HE’S NOT CRAZY
MY HUSBAND WAS A CLIENT OF YOUR FRANKFURT OFFICE
IT’S THE CHAOTIC WAY HE RUNS THINGS
SUMMARY

31. Money laundering stages
Placement
Convert cash to monetary instruments or deposit into accounts $
Corporate banking
£ account
Legitimate asset
Equities
Treasury
Debt
Layering
Move funds to other financial institutions to obscure origin.
Integration
Acquire legitimate assets or fund activities.

32. Funding of terrorism Distribution Layering Placement
Distribute funds to finance terrorist activities $
Corporate banking
£ account
Legitimate asset
Equities
Treasury
Debt
Layering
Move funds to other financial institutions to obscure link between origin and destination.
Placement
Deposit potentially legitimate assets into the financial system

33. FICA – Suspicious Transaction Reporting -Section 29
Who must report Suspicious Transactions?
Anyone carrying on a business
Anyone managing / in charge of a business
Anyone employed by a business
Requirement to report suspicious transactions is contained in section 29.
Took effect on 3 February 2003.
It is in this area where greatest risk of non-compliaince lies.

34. FICA – Suspicious Transaction Reporting -Section 29(1)
When do you report?
Where you know or suspect that:
Firm received / about to receive proceeds of unlawful activities
Firm is a party to a transaction which:
Facilitates or may facilitate transfer of proceeds of unlawful activities
Has no apparent business or lawful purpose
Conducted to avoid reporting duty
May be relevant to the investigation of tax evasion or attempted tax evasion
Firm is used/about to be used in any way for money laundering
Suspicion must go to the source of the funds
I.e. one must actually suspect that source of funds is an illegal activity.

35. FICA – Suspicious Transaction Reporting- s29(2), (3) and (4)
Transactions that have not yet taken place
Transactions about which enquiries are made which will have the above consequences if concluded - also report
Other matters:
May not disclose that you have reported to any other person (tipping off)
Suspicious transaction reporting overrides confidentiality restrictions
We must report to FIC a.s.a.p. but no longer than 15 days after first acquiring the knowledge or suspicion
May continue with transaction unless otherwise directed by FIC.

36. FICA – Suspicious Transaction Reporting Procedure (1)
What is the procedure for reporting? Our procedure
First discuss the matter with the engagement director
Reporting is a personal responsibility
Cannot be overridden by the engagement director or management.
If after discussions, you still suspect money laundering you must report this to Mike Fairbank, the firm’s Money Laundering Compliance Officer ("MLCO").
If you are an accountable institution, this discharges your personal responsibility.
If you are not an accountable institution, the MLCO will ensure that your responsibility is discharged in an appropriate manner.
May continue with transaction unless otherwise directed by FIC.

37. FICA – Suspicious Transaction Reporting Procedure (2)
What next?
Initially report your suspicions to MLCO by phone
This could save you needlessly filing a report
Follow up in writing by submission to MLCO of your report on the PwC Suspicious Transaction Internal Reporting Form
Ensure you get a receipt
The MLCO will investigate all reports
If he concludes that we have the necessary knowledge or reasonable suspicion, he will report the matter to the Financial Intelligence Centre ("FIC").
May continue with transaction unless otherwise directed by FIC.

38. FICA – PwC Suspicious Transaction Reporting Procedure (3)
If you discover or suspect money laundering in the course of your client work you must report through the firm’s procedures, independently of any procedures the client might have.
If you detect that a client has entered into a suspicious or unusal transaction with a third party, you will not ordinarily have a duty to report this under FICA. For the reporting duty to arise, the firm must become a party to such a transaction, or be abused in any way for money laundering purposes.
If we are the auditors we will need to consider the PAAB Act requirements re Material Irregularities
May continue with transaction unless otherwise directed by FIC.

39. FICA – Suspicious Transaction Reporting
Penalties for non compliance
Imprisonment – up to 15 years
Fine - up to R10 million
DAMAGE TO REPUTATION
Reports are submitted electronically on FIC website

40. Suspicious transactions & PwC (1)
Main risks for Firm are:
Being paid from proceeds of unlawful activities
Being used for money laundering purposes because of our reputation
Being party to a relevant transaction should generally be greater risk due to the nature of your business
One needs to know what is usual, before one can identify what is unusual.
Is it normal for a particular customer to carry around large sums of cash?
Need to know what his source of income is in order to determine.
ID of suspicious transactions will depend on what you know about your customer

41. Suspicious transactions & PwC (2)
Preventative strategies could be:
Thorough client & assignment acceptance procedures
Strict disengagement policy – avoid being a party to a transaction (but still need to consider if we have been used for ML purposes)
Compulsory Client Identification & Verification Procedures for Accountable Institution functions
Emphasis on knowing our client’s business & providing tailored advice (e.g. CAKE)
One needs to know what is usual, before one can identify what is unusual.
Is it normal for a particular customer to carry around large sums of cash?
Need to know what his source of income is in order to determine.
ID of suspicious transactions will depend on what you know about your customer

42. Suspicious transaction identification
Identification of Suspicious Transactions
Depends on what we know about our clients
Consider:
Nature of transaction
Value of transaction
Clients with operations in high risk countries
Commercial logic?
Unnecessarily complex or artificial?
Does it “make sense”?
One needs to know what is usual, before one can identify what is unusual.
Is it normal for a particular customer to carry around large sums of cash?
Need to know what his source of income is in order to determine.
ID of suspicious transactions will depend on what you know about your customer

43. Suspicious transaction identification
South African trends
Purchase of goods and properties – enjoying proceeds
Abuse of businesses and business entities
E.g. cash based front businesses
Cash and currency – buying credits in cash, convert into forex
Informal sector – largely unregulated
Sham stokvels
Abuse of financial institutions – e.g. banks & insurance
These ML method were highlighted in a workshop at RAU on 5 December Main aim was to ID major ML trends in SA.
Workshop attended by experieinced financial investigators, prosecutors, regulators and compliance officiers who have identified certain laundering schemes and patterns in the course of their work.
Purchase of goods and properties
Money spent on expensive clothes, personal effects, vehicles, property and furniture. Boats, jet ski’s and yachts in coastal areas and in rural areas livestock and farm implements.
Normally aimed at enjoying proceeds of crime.
Abuse of businesses and business entities
Popular front businesses = bars, restaurants, shebeens, cash loan businesses and cellphone shops.
Shell corporations operating bank accounts – shareholders and directors are often family members.
Trusts often feature, because not closely regulated and afford benefit of privacy.
Cash & currency
transferred physically e.g. strapped to bodies of passengers, hidden in luggage
Buy luxury goods, gamble or convert into forex.
Informal sector – NB part of SA economy
Prevalence and absence of formal records allow for abuse
Large cash deposits into community based saving schemes – stokvels. Risk of scham stokvels may go undetected ARTICLE
Abuse of financial institutions
SA has well developed financial system: deposits into bank accounts, single premium insurance policies

44. Suspicious transactions – red flags
General
Use of many different firms of Attorney’s and advisers for connected companies and businesses.
Transactions passed through intermediaries (e.g. attorneys, PwC) for no obvious purpose.
Unusually complex group structures where complexity does not appear to be warranted.
Accounting systems that fail to give an adequate audit trail.

45. Suspicious transactions – red flags
Identification
Known criminals
Difficult to establish identity or beneficial ownership
Reluctance to provide sufficient details
Clients who you do not meet (3rd party introductions)
Unknown source of funds / not consistent with profile.
Referrals from offices / institutions based in countries known for drug trafficking and production
New clients – “Walk ins” particular at last minute on trip to SA

46. Suspicious transactions – red flags
Large cash transactions – “hot” money
Lacking commercial logic – does not “make sense”
Outside of the normal course of business – method of payment / receipt not usual business practice
Large payments / loans for unspecified services to consultants, related parties, employees or government employees.
Abnormally extensive or unusual related party transactions.
Unauthorised / improperly recorded transactions.

47. Suspicious transactions – red flags
Transactions (continued)
At amounts that are undervalued or overvalued + double billing
Unusual amount of cash transactions for substantial amounts / many small transactions adding up to a substantial amount.
Transfers from 3rd party bank accounts / 3rd party cheques
Payments “in error” to be forwarded or cancelled
Transfers to numbered bank accounts.
Use of bearer cheques

48. Suspicious transactions
See FAQs in the PwC Anti-Money Laundering Manual
ANY QUESTIONS?

49. The Protection of Constitutional Democracy against Terrorist and Related Activities Bill (“PROCDATRA”) A
POCA – Brings in property owned or controlled by terrorists or persons involved in such activities or financing thereof
FICA
Purpose will include combating of terrorism and related activities
New section 28A – Accountable Institutions have duty to report property of entities or persons who have committed a PROCDATRA offence in their possession or control
Section 29 (reporting suspicious transactions) will encompass property which is connected to a PROCDATRA offence re financing of terrorism, in addition to proceeds of unlawful activity

50. Money Laundering vs. Fraud
Fraudulent activity
Likely to affect financial statements
Loss or disappearance of assets or revenue
Money laundering
Less likely to directly affect financial statements if your client is being abused for ML purposes
But, if using company as a front to launder large amounts of illicit cash proceeds – watch for fictitious sales
Money laundering:
- Conceal the origin of the assets
- Unlikely to affect financial statements
Fraud:
- Normally result in a loss

51. PwC Anti-Money Laundering Database
User friendly, with easy navigation, contains:
Overview of FICA & your responsibilities
PwC Policy & Procedures (Internal Rules)
Suspicious transactions & reporting
Accountable Institutions within PwC
PwC Compliance Procedures
PAAB Guidelines
SA legislation
Financial Action Task Force (FATF) material
MLCO contact details

52. PwC Anti-Money Laundering Database
Also contains FAQs on:
Suspicious transaction reporting
Accountable Institutions within PwC
Exemptions
Details of your responsibilities if you are a trustee (personal appointment) – see FAQ on this under PwC Compliance Procedures – Accountable Institutions within PwC

53. SA legislation – future developments
RSA to review current legislation in the next 12 – 18 months
Request for comments on Regulations to FICA
PwC submitted our comments on 19 November (will deal with at end of module 2)
Coming into effect of of anti-terrorism legislation
Implementation of the additional reporting requirements
Cash transactions (AI’s and RI’s)
EFT transactions to or from RSA (AI’s)
Cash conveyed to or from the RSA (Everyone)

54. Conclusion – Implications for Firm
General provisions (Reporting suspicious transactions)
Accountable Institution (CIV, KYC, record keeping)
MLCO should assume compliance obligations, internal rules, and training
Threshold Reporting (conveying cash outside SA- not yet operative)
Not a Reporting Institution

55. Conclusion – Implications for You if you are an Accountable Institution
You (if an AI):
Duty to be trained and follow internal rules for AI’s
Must implement Compliance procedures (e.g. Client Identification & Verification, record keeping, KYC), but only when fulfilling an AI function
General provisions (Reporting suspicious transactions), (conveying of cash outside of SA**)
Threshold Reporting (specified cash transactions **, electronic transfers outside SA **)
** These sections are not yet operative

56. Conclusion – Implications for You if you are NOT an AI
You (if not an AI):
General provisions (Reporting suspicious transactions )
Threshold Reporting (conveying of cash outside of SA**)
** This section is not yet operative
Must not provide investment advice/ intermediary services if not FAISA registered
Auditors - be aware of implications on audits of FICA, particularly if your client is an Accountable Institution

57. QUESTIONS?
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