The Financial Intelligence Centre (FIC) recently published a Collection of Case Studies and Indicators relating to financial crimes in South Africa. The Indicators included in this publication are to assist in identifying criminal activity as they set out examples or common methods used in financial crimes. These case studies and indicators can help FSPs to identify how they (or their clients) could fall victim to financial crime or how they could be used to launder money. They also provide FSPs with valuable information about what to look out for and the type of behaviour, activities, transactions etc. which could be suspicious.
Some of the Case Studies and Indicators contained in the Collection discuss:
- Pyramid Schemes
- Ponzi Schemes and associated crime types such as scams, crypto currency, fraudulent investment accounts, fraud and unregistered financial service providers.
- 419 scams or advanced fee fraud and associated crime types such as investment and accommodation scams.
- Cyber Crime and associated crime types including Fraud, Card Skimming, Scams, Phishing, Cyber Fraud, Crypto Currency Scheme and Child Pornography.
- Tax Evasion, Tax Havens and the abuse of Trust Accounts.
- Fraud and Corruption and associated crime types such as company hijacking, money laundering via casinos, electricity fraud, procurement fraud and duplicate payments, fee misappropriation, market value manipulation, trade-based money laundering, bank detail fraud, tax related crime and cash smuggling.
One of the tax-related crimes discussed in a case study related to undeclared funds in other countries. In this case the FIC became aware of a high-profile South African holding substantial funds and assets in a foreign jurisdiction. The FIC’s analysis of financial data revealed that he had failed to declare these funds and assets to the SARS, and he was also believed to be holding undeclared assets in a second offshore jurisdiction. The FIC shared its findings with SARS for further investigation.
The FIC has also identified several areas of concern related to electronic fund transfers to offshore investment tax havens. While individuals may legitimately invest in other countries, these investments can provide avenues to hide the proceeds of crime or to evade the payment of tax. FIC intelligence shows that tax havens have featured prominently as destination countries for outward transactions and various reports have been routed to the SARS for evaluation.
FSPs who provide financial services in respect of these types of transactions should be alert as to what the FIC has identified as indicators of tax evasion, particularly where tax havens are concerned. We list some of these below:
- The use of complex financial transactions between fictitious entities.
- Use of common address and bank accounts by several persons and corporate entities.
- The location of the business is not the same jurisdiction in which the account holder lives.
- Large and/or frequent foreign currency transactions or cross-border transactions.
- The use of nominees.
- Excessive loans granted to individuals.
- Personal expenses paid with corporate funds.
- Servicing of personal expenses from the trust account.
- Transfers to a personal credit card to buy luxury items.
FSPs who deal with clients with offshore funds should have processes in place to address the risk of dealing with funds which are undeclared, or transactions designed to evade tax. It should also consider the process it would need to follow to report any suspicion of undeclared funds or other tax related crime to the FIC, irrespective of whether a transaction was concluded or not.
One of the main aims of the FIC is to protect the financial integrity of South Africa. The FIC has expressed that core to the case study successes has been the collaboration between the FIC and its competent authority partners, as well as the regulatory reports submitted by accountable and reporting institutions, and other businesses. Regulatory reports form the foundation of the financial intelligence reports that the FIC produces.
FSPs are encouraged to use the case studies and indicators to train their staff, to assist in identifying existing and emerging financial crime threats and to enhance their customer due diligence procedures to effectively address those threats and for the submission of suspicious and unusual transaction reports to the FIC.