Krugerrand dealers are currently listed as reporting institutions under schedule 3 of FICA. Reporting institutions have only two compliance obligations in terms of FICA, i.e., to register with the Financial Intelligence Centre (FIC) and to file regulatory reports for suspicious transactions and cash threshold reports. Below, we look at a case relating to non-compliance by a Krugerrand dealer namely Scoin Trading Propriety Limited (Scoin), that went to the FIC Appeal Board.
Background
Scoin had failed regularly in its reporting duties, over several years, from at least 2011 and the FIC had imposed sanctions on them on two previous occasions. After the most recent FIC inspection was conducted on Scoin, the Centre found that the Krugerrand dealer failed to comply with its reporting duties of cash receipts above the prescribed limit, as required in terms of section 28 of FICA. The Centre found 61 failures to report and accordingly imposed a sanction, including a financial penalty of R2 625 770.00. Due to financial considerations, the payable portion of the financial penalty was reduced to R2 571 410.00, with the balance conditionally suspended for three years.
After the administrative sanction was imposed, Scoin took action to remediate 25 of the non-compliant transactions, however, one transaction was not reported, and two transactions were reported with incorrect transaction dates.
Appeal
Scoin felt aggrieved and took the administrative sanction on appeal. One of the arguments raised was based on the failure by the Centre to adhere to the procedural requirements for the imposition of an administrative penalty. Scoin appealed the sanction based on the fact that it was not made aware of the amount or particulars of the intended administrative sanction to be imposed by the Centre.
In terms of Section 45C(5)(c) of the FIC Act, before imposing an administrative sanction, the Centre must have given Scoin reasonable notice in writing:
a) Of the nature of the alleged non-compliance
b) Of the intention to impose an administrative sanction
c) Of the amount or particulars of the intended administrative sanction; and
d) That the institution or person may, in writing, within a period specified in the notice, make representations as to why the administrative sanction should not be imposed.
Whilst the Centre stipulated in the notice what the maximum penalty under the Act was for such an offence, it omitted to specify the amount or particulars of the intended administrative sanction for this particular matter against Scoin.
The Appeal Board concluded that the FIC’s failure to comply with Section 45C(5)(c) did not have a material effect on the result of the matter. The FIC justified the large amount attached to the sanction by highlighting that Scoin’s non-compliance was serious and that such conduct hindered the FIC’s mandate to fight crime associated with money laundering and terrorist financing. In addition, the facts of the case remained undisputed.
The Appeal Board found that in the circumstances and due to Scoin being a repeat offender, the substantial sanction was warranted. On account of the FIC misinterpreting Scoin’s annual financial statements, the quantum of the sanction was readjusted by the appeal board so that it would be proportionate to the sanction imposed.
Conclusion
Scoin’s repeated failure to comply with its reporting duties warranted a substantial administrative sanction being imposed against it. The decision highlights that a failure to follow a procedural step by the FIC may not necessarily lead to the reporting institution being let of the hook for their non-compliance.
Krugerrand Dealers, as Reporting Institutions under Schedule 3 of FIC Act, have a much less complex regulatory environment that that of an Accountable Institution, who has many more obligations and duties under the FIC Act. Once the proposed amendments to the FICA Schedules come into operation, Krugerrand Dealers will fall under the new category of high-value goods dealers in terms of Schedule 1 of FICA. This essentially means that Krugerrand Dealers will be categorised as Accountable Institutions and will be tasked with complying with far more extensive FICA obligations.
It is important for all accountable and reporting institutions to ensure that they are aware of and comply with their obligations in terms of the FIC Act, so as to avoid any administrative sanctions being imposed against them.
For more information on the proposed amendments to the FICA Schedules, read our previous article.
To read the appeal document, click here.
If you want more information on how Krugerrand Dealers can get a head start to be FICA compliant with the proposed new requirements, click here.