KEY ELEMENTS AND CHANGES INTRODUCED BY THE FINANCIAL INTELLIGENCE CENTRE AMENDMENT ACT 1 OF 2017 (FICAA)

The Financial Intelligence Centre Act 38 of 2001 (FICA) dates back to 2001. FICAA was signed by the President on 24 April 2017 and gazetted on 2 May 2017. The Minister of Finance, determined that certain provisions would become operative on 13 June 2017, others on 2 October 2017, and others on a later date still to be determined but envisaged to be no later than by the end of 2018.

FICAA is aimed at strengthening the SA regulatory framework for anti-money laundering and the combating of the financing of terrorism. It further ensures that the SA framework is more closely aligned to the global standard for anti-money laundering and the combating of the financing of terrorism compliance, risk management and enforcement.

Although the scope of the amendments is wide and the introduced requirements are diverse and varied, most can be categorised as relating to customer due diligence. The purpose of customer due diligence is for accountable institutions (such as banks, attorneys and estate agents) to know who their clients are and to understand their business with the client. This is achieved through client identification and verification measures – commonly also known as “know-your-client” (KYC) requirements – as well as on-going due diligence, which includes on-going monitoring, the periodic refreshing of client information and the regular review of certain categories of clients, such as those representing a higher risk of money laundering, terrorism financing and related forms of financial crime. The FICAA contains a full range of customer due diligence requirements which are focussed on understanding customers better rather than simply identifying and verifying their identities.

Now included in the scope of customer due diligence are:

• the identification of beneficial owners (to prevent natural persons from abusing legal entities for purpose of money laundering and terrorism financing);
• requirements relating to business relationships with foreign prominent public officials and domestic prominent influential persons, respectively; and
• additional controls to ensure that accountable institutions fully understand the nature and potential risk posed by their clients.

However, the most significant amendment is the introduction of the risk-based approach (as opposed to the former rule-based approach) to the identification and assessment of money laundering and terrorist financing risks.

Due to the complexity and scope of FICAA, the sanctioning of non-compliance with the new provisions of the Act and its Regulations will be delayed to enable accountable institutions to make the necessary adjustments for their implementation. The Financial Intelligence Centre (FIC) and supervisory bodies appointed over accountable institutions (e.g. the Law Society and the Estate Agency Affairs Board) will work together in deciding when to start enforcing the new requirements of FICAA. The enforcement of provisions that were not amended (e.g. registration and reporting obligations) will continue. However, against this background, the following strong statement from the FIC must be noted:

“At no point in time should accountable institutions not know who they are doing business with and must ensure that proper records are kept of transactional activities at all times.”

The risk-based approach implies less regulation and prescriptive requirements, and allows for more flexibility. This, however, brings a measure of uncertainty and leaves accountable institutions in need of guidance. Risk-based decision-making require a clear application of the mind and thorough documenting of all decisions, including the rationale on which they are based. It is clear that different industries or sectors are exposed to different money laundering or terrorist financing risks and that their respective approaches will differ. The FIC foresees specific guidance to address industry or sector specific challenges in the future. In this regard the role of supervisory bodies appointed over accountable institutions is likely to be pivotal.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)