STANDING COMMITTEE FOR FINANCE 17 November 2009

1. STANDING COMMITTEE FOR FINANCE 17 November 2009

2. AGENDA 1. The AML/ CFT Generic System 2. South Africa’s AML/ CFT system 3. The Financial Intelligence Centre 4. Strategic objectives 5. The Financial Intelligence Centre’s Annual Report 2009

3. The AML/ CFT Generic System

4. The generic AML/CFT value chain The anti-money laundering (AML) and combating of terror financing (CTF) system can be described as a value chain which includes a range of various players Business Compliant & Supervised Business Community Received by the FIU Analysis of Info & against data bases Refer to law enforcement agencies Investigation & Prosecution • These are a set of Dependencies in which there are: • Close working relationships • Collaboration is needed for successful impact

5. The System: Elements in an 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: must have the legal capacity to investigate and prosecute and other measures; availability of resources. Financial Intelligence Unit must be established to receive data, analyse and refer to law enforcement. It must function independently and be properly resourced. International cooperation: mutual legal assistance, extradition, and information sharing.

6. Benefits of AML/ CFT system • For country, generally : • good governance and integrity of institutions leads to: • enhanced financial market stability; • costs of borrowing (credit ratings) lower; • increased investor confidence; • facilitates trade, commercial activities and banking; • increased revenue collection; and • thus a sounder basis for economic & social development. • For the business community: • compliance culture of financial institutions and business indicates soundness and integrity; and • reinforces above by helping to reduce market distortions, promote investor confidence, reduce cost of borrowing. • For the law enforcement community: • impacts on organised crime and terrorist networks, reduces crime; and • has impact on reducing financial crime.

7. South African Component of the AML/ CFT system

8. Centre’s role in the SA’n AML/ CTF architecture • Centre’s legislative mandate is to assist in identifying the proceeds of crime and combating money laundering and terror financing • The Centre is responsible for creating systems and processes to: • To ensure that criminals who seek to abuse financial institutions are • identifiable and are, in fact, identified; and to • - Protect financial institutions from being abused by criminals seeking to launder the proceeds of their crimes or fund terrorist activities through their implementation of various administrative measures. • Centre’s functions place it at pivotal point between the business community and supervisory bodies, and law enforcement agencies and prosecutors.

9. AML/ CFT Architecture International Standard – Financial Action Task Force 40+9 Rs International Links/ FIU’s Investigative Authorities & Intelligence Agencies, e.g.. Accountable Institutions eg Policy & country eval sharing SAPS Bank Centre Supervisory Bodies (FSB, SARB, JSE, etc) Monitor Compliance of Accountable Inst’s Data storage Analysis Referrals NPA Referrals Requests Insu- rance Reports Requests Intelligence Agencies SARS Casino Investigations & Prosecutions

10. Accountable institutions • Financial and other institutions most vulnerable to money laundering – • 19 categories of different institutions – eg. banks, • insurance industry, casinos, financial advisors, • lawyers, estate agents Banks Centre Insurance sector • Data storage • Analysis • Referrals Suspicious Transaction Reports sent to the Centre Casinos

11. Supervisory Bodies Supervisory Bodies • Supervisory bodies listed in Schedule 2 of the FIC Act • The Financial Services Board; SA Reserve Bank; Companies and Intellectual Property Registration Organisation; Estate Agency Affairs Board; Independent Regulatory Board for Auditors; National Gambling Board, JSE Securities Exchange, & SA Law Society. • Obliged to monitor the level of compliance by accountable institutions • The FIC as a supervisor • The Centre is obligated to act as ‘supervisor of last resort’ where no supervisor exists; and • The Centre conducts compliance reviews on accountable institutions with supervisory bodies, or on its own. • Amended FIC Act will give supervisors administrative enforcement powers Banks Monitor Compliance Insurance sector Casinos

12. Law Enforcement Authorities Referrals sent from the Centre SAPS - Data capture - Analysis - Reports Centre • The Law Enforcement Agencies are empowered to: • Investigate cases involving proceeds of crime • Prosecute cases • Receive referrals from the Centre • Make requests to the Centre for additional information • Appoint Authorised Officers • To protect integrity of information • Provide access to government databases to verify information • Ability to search criminal databases • Ensure regular feedback on progress made in investigations and prosecutions • Collect and report statistics SASS NPA NIA SARS

13. FATF/ESAAMLG and South Africa • Financial Action Task Force (FATF) is the international standards-setting and policy-making body to combat money laundering and financing of terrorism • Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) is the FATF-style Regional Body which aims to promote the implementation of policies and practices against money laundering and terror financing in accordance with international standards within the region

14. FATF/ESAAMLG and South Africa • South Africa is a member of both FATF and ESAAMLG which means that that the country has committed itself at a political level to participate in the activities of FATF and ESAAMLG and to align its policies with actions of FATF and ESAAMLG • In the context of FATF this includes: • Implementing standards and best practices to combat money laundering and terror financing, and • Implementing FATF decisions e.g. in response to G20 decisions concerning global financial and economic crisis • These impact on policies and actions of the South African government in areas connected with combating money laundering and terror financing

15. FATF and ESAAMLG Mutual Evaluation • South Africa underwent mutual evaluation (peer-review) process over a period of about 12 months by FATF and ESAAMLG to measure implementation of international standards against money laundering and terror financing • The Evaluation Report commented favourably on the work South Africa has done thus far in developing measures against money laundering and terror financing • Evaluation led to recommendations for improvements to the system against money laundering and terror financing in areas such as: • Increased priority to be given to money laundering investigations & prosecutions relative to underlying profit generating offences • Legislative improvements (e.g. amendments to FIC Act etc. to improve customer due diligence provisions in line with new standard)

16. Mutual Evaluation continued • Improved powers for supervisors to supervise and enforce compliance should be improved and increased action by supervisors to ascertain compliance levels & sanction non-compliance among financial and non-financial institutions • Extending the scope of the measures against money laundering and terror financing by including additional categories of institutions • Improvement on transparency of the ownership and control structures of legal persons and trusts • Developing unique SA trend & typology reports, case studies & best practices • Steps to improve areas identified by FATF cut across wide range of government departments and agencies • The Centre will be centrally responsible for coordination of this process and reporting back to FATF on progress by February 2011

17. The Egmont Group • The Egmont Group is an organisation of 116 FIU’s which aims to: • improve interaction on communications • information sharing, and training coordination. • Provide technical assistance • The Centre has 22 MOU’s in place to facilitate information exchange with foreign FIU • Six (6) MOU’s are held within the SADC region

18. The Financial Intelligence Centre

19. Accountability and location • The Financial Intelligence Centre is defined as a juristic person; • It is a PFMA Schedule 3A entity; • Accountable directly to Minister of Finance; and is • Funded from national budget.

20. Core Responsibilities • Analyses information obtained in reports from ‘accountable institutions’; • Refer information to Law Enforcement Authorities - eg. SAPS (DPCI - Hawks), AFU, SARS, IntelligenceServices; • Coordinates SA’s policy on AML/ CFT - liaises closely with National Treasury, other govdepts and all stakeholders in public and private sector and internationally; • Monitors and give guidance to the Supervisory Bodies (SARB, FSB, NGB, etc), accountable institutions and others; • Monitors and inspects for compliance where no supervisory body exists, eg. parastatals, Post Bank; • 6. Exchanges information with similar bodies in other countries – other financial intelligence units; • 7. Leads SA participation in the standard-setting body FATF and its regional body ESAAMLG; and • 8. Participates as a member of Egmont Group of financial intelligence units (along with 115 other countries)

21. FIC structure and staffing components

22. Staffing complement

23. Strategic Objectives: 2009 - 2012 The Centre is a sustainable and a capable institution; Information from the Centre (proceeds of crime - ML & TF) is recognised & used by law enforcement as being relevant and of high quality; Stakeholders have an increased understanding of the Centre – mandate, functions and responsibilities; Increased awareness of AML/ CFT vulnerabilities and threats and need for prevention; Vulnerable institutions have a culture of compliance thus reducing their abuse by criminals or terror financiers; Maintain a robust legal framework to combat money laundering a terror financing;

24. Strategic objectives Improved consumption and use of the financial intelligence products from the Centre by law enforcement agencies; Establishment of strategic partnerships with specialised units of law enforcement agencies; Design and implement a framework for Cash Threshold Report (CTR); Review financial transaction reporting procedures to optimise Cash Conveyance Reporting (CCR). Facilitate the Administrative Enforcement function among supervisory bodies

25. Strategic objectives (cont) • Review and make proposals to update the FIC Act in order to improve the country’s framework to combat money laundering and terror financing • Engaging with international and regional policy making bodies on money laundering and terror financing • Roll out of next generation ICT infrastructure and capability • Pilot an IT replicable model at all infrastructure levels • Provide IT Technical Assistance to neighbouring countries.

26. Annual Performance: 2008/2009

27. Achievements • The Centre has received a total of 112 829 suspicious transaction reports, commonly known as “STRs”, since 2003. • During the 2008/ 2009 financial year, 22 762 STR’s were received and 1 221 referrals were made to the law enforcement authorities. • The value of these referrals amounted to nearly R6 billion, which • represents a 195% increase year-on-year. • Centre conducted 235 joint audit reviews of businesses and 30 independent audits of post office branches • Increase in quality reporting from sectors subject to audits

28. Achievements • A successful peer review assessment - Mutual Evaluation - was concluded in February by the Financial Action Task Force (FATF) and the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG). • Amendments to the FIC Act were completed and draft regulations have been under preparation. • Creating infrastructure and capability to give effect to the changes envisaged. • Next-generation ICT systems have been designed and completed, and a roadmap developed for future ICT enhancements. • To date the Centre has received unqualified audit reports from the Office of the Auditor-General.

31. Focus areas • More effective supervision of accountable institutions • Implement administrative enforcement measures • Increased collaboration with national bodies to support the strategy to combat money laundering and terror financing • Expanded national footprint for the Centre • Review of the legislative framework • Continued development of integrated ICT infrastructure

32. THANK YOU Murray Michell Director: Financial Intelligence Centre