financial intelligence centre REPUBLIC OF SOUTH AFRICA PRESENTATION

financial intelligence centre REPUBLIC OF SOUTH AFRICA PRESENTATION PORTFOLIO COMMITTEE ON FINANCE BACKGROUND TO ANTI-MONEY LAUNDERING & COMBATING OF FINANCING OF TERRORISM SYSTEM IN SA AND THE IMPLEMENTATION OF THE FIC ACT 2 AUGUST 2007

financial intelligence centre REPUBLIC OF SOUTH AFRICA PRESENTATION 1. Context of South Africa’s anti-money laundering and combating of financing of terrorism system 2. Relationships and responsibilities 3. The Financial Intelligence Centre 4. Challenges ahead

financial intelligence centre REPUBLIC OF SOUTH AFRICA ELEMENTS IN SA’s AML/ CFT SYSTEM The system incorporates the following elements: • Criminalisation: of money laundering and financing of terrorism. • Administrative preventative measures: to be taken by financial institutions and non-financial businesses and professions – reporting requirements (eg suspicious transactions, Cash threshold, terror finance); customer due diligence/ Know Your Customer; record keeping; staff training; appointment of compliance officer; sanctions for non-compliance. • Law enforcement: legal capacity to investigate and prosecute and other measures; availability of resources. • Supervision: Supervisory bodies to monitor and ensure compliance enforcement. • Financial Intelligence Centre to receive data, analyse and refer to law enforcement. Function independently. Resources. • International cooperation: mutual legal assistance, extradition, and information sharing.

financial intelligence centre REPUBLIC OF SOUTH AFRICA SA EXPERIENCE IN AML/ CFT AND THE FINANCIAL INTELLIGENCE CENTRE ACT The FIC Act (Act No. 38 of 2001) • Helps create an anti-money laundering environment in South Africa to: – Maintain and protect the integrity of financial sector; – Identify proceeds of unlawful activities and combat money laundering activities (and since 2005, combating terrorist financing); – Build a partnership between the private and public sectors. • Complements the Prevention of Organised Crime Act (POCA), 1998 which defines the crime of money laundering and anti-terror legislation (POCDATARA, 2005);

financial intelligence centre REPUBLIC OF SOUTH AFRICA SA EXPERIENCE IN AML/ CFT: FINANCIAL INTELLIGENCE CENTRE ACT • Imposes ‘know your customer’ and other obligations on wide range of accountable institutions – – Client identification and verification; Record keeping; Reporting transactions and sharing information; Measures to promote compliance. • Imposes obligations on supervisory bodies and give law enforcement further responsibilities • Creates the Financial Intelligence Centre

• FATF adopts revised version of 40 Rs imposing stricter standard • SA becomes member of FATF 2003: 2001: 9/11 – FATF adopts 8 (now 9) SRs on terrorist financing • SALRC proposes draft legislation creating FIC and imposing obligations similar to FATF 40 Rs • SA criminalises money laundering and introduces asset forfeiture provisions in Proceeds of Crime Act 1996: 2004: SA criminalises terrorist financing in POCDATARA Act 2003: FIC starts functioning in operational format – receiving STRs 2002: FIC established – starts preparation for receipt of reports 2001: FIC Act passed based on model of SALC recommendations 2000: Formation of the AFU to implement parts of POCA 1998: Money laundering offences and asset forfeiture provisions updated and incorporated in POCA 1996: FATF adopts revised version of 40 Rs 1990: FATF issues 40 Rs on measures to combat financial intelligence centre REPUBLIC OF SOUTH AFRICA FIC continues to expand enhance its capability to assist law enforcement agencies in investigations and actions relating to proceeds of crime

financial intelligence centre REPUBLIC OF SOUTH AFRICA AML/ CFT Investigation and Prosecution AML/ CFT Regulation And Supervision Structures South African Police Service National Prosecuting Authority Directorate for Special Operations Asset Forfeiture Unit Structures Legislative framework South African Reserve Bank Financial Intelligence Centre Act: Establishes FIC Identification Provides for powers Record-keeping and functions of FIC Reporting Internal rules Protection of Prevention of Organised Crime Constitutional Democracy Act against Terrorist and Related Activities Act • Criminal Procedure Act • Monitoring and Interception Prohibition Act • National Prosecuting Authority Act • International Cooperation in Criminal Matters Act Banks Act Financial Services Board Estate Agency Affairs Board FAIS Act Independent Regulatory Board of Auditors (PAAB) National Gambling Board JSE Law Society of SA

financial intelligence centre REPUBLIC OF SOUTH AFRICA POLICY AND OPERATIONAL ENVIRONMENT United Nations Conventions Vienna Convention/ Palermo Convention/ Terrorist Financing Security Council Resolutions International AML/ CFT Context Standard: Financial Action Task Force (40 Rs + 9 SRs) FATF- Regional Bodies (eg, Esaamlg) Interact with IMF/ World Bank/ United Nations/ Commonwealth Sec SA’s Policy Environment Financial Intelligence Centre with Other Gov Depts eg. Treasury, Police, Justice, Foreign Affairs AML/ CFT Operations Financial Intelligence Centre Accountable and reporting Institutions (private sector) Supervisory Bodies/ Law Enforcement

financial intelligence centre REPUBLIC OF SOUTH AFRICA Financial Action Task Force • Inter-Governmental Body consisting of 33 members • Purpose to develop and promote national and international policies to combat money laundering and terrorist financing • Objective to generate political will to bring about legislative and regulatory reforms in these areas • Policies expressed in the form of standards: • 40 Recommendations on Money Laundering • 9 Special Recommendations on Terrorist Financing • Assessment methodology • Typology studies

financial intelligence centre REPUBLIC OF SOUTH AFRICA CORE INSTITUTIONAL STAKEHOLDERS Minister of Finance Parliament Financial Intelligence Centre Supervisory Bodies Accountable Institutions (businesses) in private sector Law enforcement, Revenue, intelligence & prosecution authorities

financial intelligence centre REPUBLIC OF SOUTH AFRICA FIC “Value – Add” Chain (4) Analysis by FIC (5) Referral by FIC to LEA’s (3) Reporting to FIC (2) Compliance monitoring (1) Compliance measures FIC (9) Legislation development (6) Investigation & Prosecutions by LEA’s & NPA (7) Trends analysis by FIC with partners (8) Policy development

financial intelligence centre REPUBLIC OF SOUTH AFRICA AML/ CFT ARCHITECTURE FIC Bank International Links/ fiu’s sharing Investigative Authorities & Intelligence Agencies, eg. SAPS Reports Data storage Insur. Analysis ance Referrals Awareness Casino Referals Investigations & Prosecutions NPA -DSO -AFU SARS Intelligence Agencies Supervisory Bodies (FSB, SARB, JSE, etc) Accountable Institutions, eg. Policy & country eval Monitor Compliance of Accountable Inst’s International Standard – Financial Action Task Force 40+9 Rs

financial intelligence centre REPUBLIC OF SOUTH AFRICA OBLIGATIONS ON ACCOUNTABLE INSTITUTIONS These are institutions most vulnerable to money -laundering Banks • 19 categories of different institutions – eg. banks, insurance industry, brokers, casinos, accountants, lawyers, estate agents FIC Data storage Analysis Reports Suspicious Transaction Reports sent to FIC Insurance sector Obligations of Accountable Institutions: Casinos • Required to submit Suspicious Transactions Reports (STRs) • Required to: • Keep records for 5 years • Identify and verify clients • Appoint Compliance Officer • Training for staff • Future Reporting obligations • Add more accountable institutions – eg. diamonds/ gold dealers?

financial intelligence centre REPUBLIC OF SOUTH AFRICA • Supervisory Bodies Insurance sector These are: the Financial Services Board; SA Reserve Bank; Companies and Intellectual Property Registration Organisation; Estate Agency Affairs Board, Independent Regulatory Board of Auditors (PAAB), National Gambling Board, JSE Securities Exchange, & SA Law Society; • Obliged to monitor the level of compliance by accountable institutions • ‘Statutory’ vs. ‘self-regulatory’ bodies vs. nonsupervised bodies; • Casinos Listed in Schedule 2 of the Act – Monitor Compliance Banks SUPERVISORY BODIES – FIC obligated to act as ‘supervisor of last resort’ where no supervisor exists; – Establish regional offices to monitor compliance and conduct compliance inspections; FIC to conduct compliance inspections on acc inst’s and sup bodies.

financial intelligence centre REPUBLIC OF SOUTH AFRICA Ministries Departments and Supervisors responsible for oversight of sectors AN Other FIC Others Companies Account’nts Companies Register Estate Agents Ind Reg Board of Auds Trade & Industry Estate Agency Affairs Board Gambling Finance Trade & Industry Nat Gambling Board Stock Brokers Lawyers Trade & Industry JSE Stock Exchange Finance services Law Society Finance Fin Services Board Justice Finance Banks Sector Banking Supervisor Gov SARB Ministry

financial intelligence centre REPUBLIC OF SOUTH AFRICA LAW ENFORCEMENT AUTHORITIES Referrals sent from FIC Data capture Analysis Reports NPA • Investigate and prosecute cases involving proceeds of crime • Receive referrals from FIC • Makes requests to FIC for additional information • Appoint Authorised Officers - To protect integrity of information; - AFU - DSO SASS SAPS • Provide access to government databases to verify info; - Ability to search criminal databases; • Ensure regular feedback on progress made in investigations and prosecutions SARS • Collect and report statistics. NIA

financial intelligence centre REPORTING & FEEDBACK STRs REPUBLIC OF SOUTH AFRICA Feedback & requests 7 working days Set by law 15 working days FIC Accountable Institutions Data storage Analysis Reports Law Enforcement Authorities Quarterly with Sup Bodies 6 monthly with Acc Insts X working days Feedback & requests Intelligence Package Referred

financial intelligence centre REPUBLIC OF SOUTH AFRICA 3. THE FINANCIAL INTELLIGENCE CENTRE • The FIC’s legal obligations, location and accountability • Responsibilities • Structure • Past Financial Year • Future

financial intelligence centre REPUBLIC OF SOUTH AFRICA THE FINANCIAL INTELLIGENCE CENTRE • Legal obligations, location and accountability: • The Financial Intelligence Centre is defined as a juristic person; • Located outside the public service, but within the public administration in terms of section 195 of Constitution; • Accountable directly to Minister of Finance; • Funded from national budget; • Physically located in the National Treasury, Pretoria.

financial intelligence centre REPUBLIC OF SOUTH AFRICA Centre’s Responsibilities Core responsibilities for the Centre include that it: • Analyses information obtained in reports from ‘accountable institutions’; • Refer information to Law Enforcement Authorities - eg. SAPS, DSO (Scorpions), AFU, SARS, the Intelligence Services; • Coordinates SA’s policy on AML/ CFT - thus liaises closely with National Treasury and all stakeholders in public and private sector and internationally; • Monitors the Supervisory Bodies (SARB, FSB, NGB, etc) & gives guidance to accountable institutions, supervisory bodies and others;

financial intelligence centre REPUBLIC OF SOUTH AFRICA Centre’s Responsibilities (cont) • Monitors and inspects for compliance where no supervisory body exists, eg. parastatals, Post Bank; • Exchanges information with similar bodies in other countries – other financial intelligence units; • Participates in and liaises with Financial Action Task Force (FATF) and other non-SA bodies. • Administers the Financial Intelligence Centre Act

financial intelligence centre REPUBLIC OF SOUTH AFRICA FICA ADMINISTRATION Financial Intelligence Centre Act No 38 of 2001 Regulations Guidance Notes Exemptions

financial intelligence centre REPUBLIC OF SOUTH AFRICA FIC STRUCTURE AND STAFFING COMPONENTS

financial intelligence centre REPUBLIC OF SOUTH AFRICA 4. Annual Report 2006/07 Legislation and policy: Amendment Bill - Structural amendments and administrative penalties Bill • Legislation review – Impact of the revised FATF 40 Recommendations and 9 Special Recommendations – Mutual Evaluation results • Mutual Evaluation preparation for mid-2008 • Participation in FATF and its working committees • Participation in Esaamlg - Review of Secretariat functions - Technical assistance

financial intelligence centre REPUBLIC OF SOUTH AFRICA Reporting • 21 466 suspicious transaction reports received. • Majority of these reports were received from financial service providers such as banks, brokers, foreign exchange dealers, insurance providers, investment managers and services, and money remitters (18 799 reports constituting 88% of all reports). • 12% (2667 reports) were received from other sectors such as casinos, estate agents, coin dealers, companies, accountants and auditors, attorneys, car dealers and individuals. • 549 referrals to investigating authorities, with a value in excess of R 1, 4 billion.

financial intelligence centre REPUBLIC OF SOUTH AFRICA STRs received year-on-year

financial intelligence centre REPUBLIC OF SOUTH AFRICA Financial/ Non-financial reporting for year

financial intelligence centre REPUBLIC OF SOUTH AFRICA Compliance and Prevention Achievements This includes the following successes: • Monitor compliance implementation; • Facilitate draft guidance notes for suspicious transaction reporting and terror financing reporting; • Joint compliance audit with National Gambling Board of 29 casinos; • Joint compliance audit with Exchange Control Department of 18 authorised dealers in foreign exchange with limited authority; • Joint compliance audit with Estate Agency Affairs Board of 12 estate agencies; • Facilitate signature of MOU with FSB in March 2007; • Public awareness activities and training; • Regular engagement with key stakeholders; • Run pilot ‘internship’ with 4 interns absorbed into structure on 1 April 07; • Assist in development of an administrative penalty regime.

financial intelligence centre REPUBLIC OF SOUTH AFRICA CASH FLOW STATEMENT FOR FIVE YEARS ENDED 31 MARCH 2010 2006 2007 2008 Note Actual 2009 2010 Projections Revenue 23, 617 - 42, 840 45, 410 47, 681 Parliamentary allocation 23, 617 - 42, 840 45, 410 47, 681 Expenditure (33, 164) (46, 284) (82, 876) (124, 313) (120, 261) IT expenses 1 (2, 064) (2, 684) (7, 000) (14, 840) (15, 582) Other operating costs 2 (14, 432) (17, 319) (30, 903) (37, 740) (42, 664) IT Professional fees 3 (4, 589) (12, 244) (24, 489) (6, 859) Personnel costs 4 (16, 668) (21, 692) (32, 729) (47, 244) (55, 156) (2, 787) (3, 832) (86, 080) (76, 288) (25, 846) Net cash outflow for the year (12, 334) (50, 116) (126, 116) (155, 191) (98, 426) Funds available at beginning 69, 493 57, 159 (119, 073) (274, 264) Surplus/(deficit) at year-end 57, 159 7, 043 (274, 264) (372, 690) Capital expenditure Property, plant & equipment 4 7, 043 (119, 073)

financial intelligence centre REPUBLIC OF SOUTH AFRICA Current Implementation Development contractors R 26, 744, 756. 56 Security Infrastructure R 25, 000. 00 Task Team cost R 9, 963, 666. 10 WAN/LAN Infrastructure R 6, 704, 461. 04 Hardware and Software R 27, 901, 371. 05 Cost of Move Total cost of implementation R 4, 300, 000. 00 R 100, 614, 254. 75 Maintenance over 5 years Maintenance, licenses and ongoing operations R 37, 000. 00 Internal Staff R 58, 324, 912. 25 User training and tools R 11, 000. 00 Indirect/hidden cost (ad-hoc specialists) R 8, 000. 00 Upgrades R 14, 000. 00 Total Maintenance R 128, 324, 912. 25 Contingency (15%) R 34, 340, 875. 05 Total Assumptions: Inclusive of 14% VAT The exact development and infrastructure costs will be determined by the tendering process The Project Manager, Sys Architect and Business Analyst will be on board on a full-time basis until May 2008 Project Administrator available 60% of the time Includes two office moves (intermediate and final move) Scope of development is dependent on the outcome of the benchmarking process FIC IT resources are on board as planned Excludes resources shadowing overhead Prolonged mobilisation timelines for new staff may affect the budget and timelines R 263, 280, 042. 05

financial intelligence centre REPUBLIC OF SOUTH AFRICA AML/ CFT system and FIC roll-out: Next steps (cont) Legal and Policy • Amendment implementation and administration • Review of Legislation • Mutual Evaluation preparation for 2008 • International Organisations participation • Technical assistance in the Region to Esaamlg member countries

financial intelligence centre REPUBLIC OF SOUTH AFRICA AML/ CFT system and FIC roll-out: Next steps (cont) Analysis • Continue to capture reports; • Increase numbers of referrals; • Staffing and skills; • IT infrastructure. • Access to databases - Either direct or indirect. • Continue to develop Memoranda of Understanding with all stakeholders: domestic and international FIUs for exchange of information Law Enforcement • Capacity-building: • Skills training of financial investigators – courses (ongoing); • Skills training of Authorised Officers. • Deepen coordination – task teams; provincial and local abilities (ongoing).

financial intelligence centre REPUBLIC OF SOUTH AFRICA AML/ CFT AND FIC Roll-out: Next steps (cont) Compliance and Prevention • • Continue to facilitate the issuance of guidance notes to sectors; Broaden and intensify the compliance audit of accountable and reporting institutions in designated sectors; Develop risk-based approach to compliance; Apply an administration penalty regime; Establish dedicated inspectorate capacity; Enhance Public Awareness and Training outreach; Support FIC strategic threat analysis to determine where and what major ML/ FT activities are taking place. International • • • Continue to Strengthen Esaamlg; Provide technical assistance to Esaamlg countries; Engage with FATF, Egmont and other international institutions.

financial intelligence centre REPUBLIC OF SOUTH AFRICA AML/ CFT AND FIC Roll-out: Next steps (cont) Stabilising and Growing the Financial Intelligence Centre • To occupy additional premises until new building in 2 years – Customised, specialised space. • Information Technology - Scope, develop and implement full, integrated system: completion for testing end 2008; - Security standards. • Internal systems and operating procedures – Standard operating systems; Ethics basis. • FIC staffing - Aim for 135 by end this financial year - mission critical posts; - Induction processes, development, retention plans; - Increase numbers of secondees from law enforcement and supervisory bodies.

financial intelligence centre REPUBLIC OF SOUTH AFRICA THANK YOU Murray Michell Director: Financial Intelligence Centre 012 – 3099200 www. fic. gov. za Fic_feedback@fic. gov. za