The Financial Intelligence Centre (FIC) released its 2020/21 Annual Report which contains an overview of the work that the FIC has been involved in during the reporting period. The Report highlights new and adapted approaches that the FIC took in finding ways to continue fulfilling its obligations amidst the pandemic, how it accepted additional oversight responsibilities and lead new partnership initiatives. The report further sets out information regarding the FIC’s performance, governance, human resource management, financial information and a materiality and significance framework. The Report also contains various case studies, statistics relating to compliance inspections, sanctions issued by both the FIC and supervisory bodies for non-compliance, guidance on regulatory topics and what to expect in terms of legislative changes.
Below we discuss some of the highlights from the Report:
Compliance Inspections
Supervisory bodies are responsible for overseeing accountable institutions to ensure compliance with the FIC Act. These supervisory bodies and the FIC are authorised to conduct inspections to assess the level of an institutions’ compliance.
Due to the COVID-19 pandemic and resultant lockdown, the FIC had to adjust their work mode during the reporting period. In doing so, the FIC had to rethink its approach to compliance inspections and created and implemented a model for off-site inspections using virtual and electronic platforms such as via telephone, MS Teams and Zoom. The new approach resulted in better inspection coverage and effective use of time. Where necessary, courier services were used to collect and deliver files and, in certain circumstances, inspectors physically visited institutions. This approach has proved to be just as stringent and thorough as on-site inspections and the Annual Report confirms that off-site inspections will be continued in the foreseeable future. The table below sets out the key differences between on-site and off-site inspections and what to expect.
Should you require assistance on how to prepare for a FIC inspection, click here.
Financial Intelligence Reporting
The FIC’s intelligence reports aid law enforcement, prosecutorial authorities and other competent authorities in their investigations and applications for the forfeiture of assets. During the reporting period, the FIC produced 16% more reactive and proactive reports as compared to the previous reporting period. These reports contributed to the recovery of more than R3 billion in criminal proceeds. It assisted in, among others, the uncovering of terrorist financing networks, money laundering offences, Ponzi Schemes and shed light on the illegal wildlife trade. Most of the reports related to fraud, tax crimes and corruption.
Legal Practitioners
The FIC enhanced its supervisory oversight during the reporting period by assuming responsibility to supervise the compliance of legal practitioners with the FIC Act on behalf of the Legal Practice Council. This was done in terms of a Memorandum of Understanding where the Legal Practice Council delegated its supervisory responsibilities to the FIC. During the past year legal practitioners were assessed for their level of compliance with the FIC Act and approximately 80% of legal practitioners assessed were found to be non-compliant, who will be subject to remedial action during the next financial year.
This delegation of supervisory duties to the FIC will continue until the finalisation and publication in the Government Gazette of the amended schedules to the FIC Act, which is expected to officially assign the role of the FIC Act supervisory body for legal practitioners to the FIC.
For more information on how Masthead can assist legal practitioners with becoming FICA Compliant, click here to get in touch.
Sanctions for non-compliance
The FIC and other supervisory bodies may impose a penalty, which is referred to as an administrative sanction, if it finds that an institution or person has failed to comply with the FIC Act and its directives. The Annual Report provides a summary of the administrative sanctions meted out by the FIC and other supervisory bodies for the reporting period, some of which include:
– The FIC issued 24 sanctions against non-compliant motor vehicle dealers which amounted to more than R33 million. Click here to read more.
– The South African Reserve Bank’s (SARB) FinSurv department imposed one administrative sanction to the value of R100 000.
– The Financial Sector Conduct Authority (FSCA) imposed 14 administrative sanctions to the total amount of R1 116 980 against non-compliant financial institutions.
Below are some highlights from the Annual Report on what to expect going forward in terms of legislative changes:
Reporting on international funds transfers
Section 31 of the FIC Act requires accountable institutions to report to the FIC where funds are moved electronically across the borders of South Africa on behalf, or on the instruction of another person. This reporting stream will be called international funds transfer reports (IFTRs) and will have a prescribed amount and period attached to the reporting requirement.
While the majority of the FIC Act amendments came into operation during 2017 and 2018, section 31 of the FIC Act never came into operation. The FIC has been involved in much work to bring section 31 into operation such as consultations with National Treasury, regulators and supervisory bodies since 2016, as well as testing of the submissions of IFTRs with a number of accountable institutions. There has also been draft regulations and a consultation process since 2019 and the FIC is waiting for finality on the way to proceed, from National Treasury. At this stage there is no compliance obligation upon accountable institutions to report to the FIC on international funds transfers.
Increasing the threshold for cash transaction reports
During 2019, the FIC proposed that the prescribed cash threshold amount be increased from R24 999.99 to R49 999.99. This will mean that the obligation to report information concerning a cash transaction in terms of section 28 of the FIC Act will arise when a transaction is concluded with a client when the transaction exceeds R49 999.99. It was also proposed that the threshold be specific to a particular transaction, and that the requirement to report on aggregated Cash Threshold Reports (CTRs) no longer apply.
At this stage, these proposals are not yet in effect and the current requirement is still that CTRs on transactions exceeding R24 999.99 must be submitted to the FIC.
Regulating Crypto Assets
Throughout 2020, the Intergovernmental Fintech Working Group (IFWG), of which the FIC is a member, worked on a position paper that defined cryptocurrency and proposes regulatory measures for crypto asset service providers. The paper considered international best practice as well as the Financial Action Task Force (FATF) Recommendations and will help ensure South Africa’s anti -money laundering system remains effective and up to date as technology evolves. Click here to read our previous article on the Position Paper on Crypto Assets.