Financial Intelligence for your Business

The Financial Intelligence Centre Amendment Act, 1 of 2017 (“the Amendment Act”) was signed into law by the President and published on 2 May 2017. Some of its provisions came into effect on 13 June 2017 while the majority of the remaining provisions will come into effect on 2 October 2017.

Why was it necessary to amend the Financial Intelligence Centre Act (“FICA”)?

South Africa is a member of the Financial Action Task Force (“FATF”), an international body that develops and promotes measures to combat money laundering, terrorist financing and other threats to the integrity of the international financial system.

In 2012, the FATF adopted and issued new Recommendations to be adopted and implemented by its member states. These Recommendations are globally recognised as the anti-money laundering (“AML”) and counter-terrorist standard. Failure by South Africa to adopt the new Recommendations would have meant a declaration by FATF that South Africa is non-compliant with AML standards, a label that we clearly cannot afford.

The Amendment Act is intended to improve the efficacy of AML and counter-terrorist measures in South Africa.

Does the Amendment Act have an impact on your business?

Yes, it does, if your business is classified as an accountable institution.

Why does the Amendment Act introduce a risk-based approach to compliance?

The amended FICA is like an archetypal headmaster: encouraging you to work smarter, not harder, but with painful penalties looming if you don’t get it right.

The “working smarter” bit involves adopting a risk-based approach, especially to client due diligence. The idea is simple – identify your risk of being used to facilitate money laundering activities and apply your resources more effectively in proportion to the risks that need to be mitigated.

The Amendment Act has already identified some high-risk clients in the form of domestic prominent influential persons (which includes persons in both the public and private sector) and foreign prominent public officials, their families and known close associates. When dealing with any of these persons, enhanced client due diligence measures may need to be implemented. Enhanced measures include obtaining senior management approval for the business relationship, taking reasonable steps to establish the source of wealth and funds of the client and enhanced ongoing monitoring of the relationship.

The risk-based approach adopted by your business should be reflected in a Risk Management and Compliance Programme.

What should the required Risk Management and Compliance Programme entail?

Each accountable institution must have a Risk Management and Compliance Programme. This programme must allow the business to identify, monitor and manage the risk of its products or services being used in money laundering activities. It must also set out the steps the business will follow to ensure adherence to the legislation operationally. The Risk Management and Compliance Programme must be made available to every employee involved in transactions to which FICA and its amendments apply. In addition, ongoing training should be provided to all such employees.

What are the consequences of non-compliance?

Although the Amendment Act decriminalised certain offences, most instances of non-compliance will result in administrative penalties being imposed. Since the Financial Intelligence Centre does not have to rely on a potentially more onerous process of involving the National Prosecuting Authority to impose administrative penalties, these provisions have some real sting to them.

In addition, the Amendment Act provides that the board of directors of an accountable institution, or alternatively, the senior management of an institution, must ensure compliance by the accountable institution with FICA. Failing to do so will render these responsible individuals liable to administrative sanctions.

Compliance Online has updated our FICA training programme with the amendments and can customise our online training offering to incorporate your business’ Risk Management and Compliance Programme.