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Cross-Border Financial Flows

Cross-Border Financial Flows. Financial Surveillance Department September 2015. The role of the Financial Surveillance Department. Delegated functionary of the Minister of Finance Responsible for the monitoring of cross-border transactions to prevent the loss of foreign currency resources

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Cross-Border Financial Flows

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  1. Cross-Border Financial Flows Financial Surveillance Department September 2015

  2. The role of the Financial Surveillance Department • Delegated functionary of the Minister of Finance • Responsible for the monitoring of cross-border transactions • to prevent the loss of foreign currency resources • constitute an effective system of control over the inward and outward movement of financial and real assets • avoid interference with the efficient operation of the commercial, industrial and financial system • Powers and functions in terms of the Exchange Control Regulations promulgated under the Currency and Exchanges Act, 1933 (Act No. 9 of 1933) • Supervisory body in terms of the Financial Intelligence Centre Act, 2001 (Act No. 38 of 2001) 2

  3. Relevant powers and functions • Requirement that all foreign exchange transactions are reported by Authorised Dealers • Investigation of unauthorised foreign exchange transactions • “Freezing” of bank accounts • Recoupment of capital exported illegally • Forfeiture of funds/assets to the National Revenue Fund • Seizure of unauthorised currency at ports of entry/exit • Wide discretion to impose conditions in respect of cross-border transactions • prior approvals for specific transactions entered into • Prohibit certain transactions • e.g. online gambling 3

  4. Illicit financial flows • Illicit financial flows versus capital flight • illicit financial flows involve criminal activity or breach of a statutory duty/law • capital flight not necessarily related to criminal activity • Trade misinvoicing/mispricing • misrepresenting the price or quantity of imports or exports in order to hide or accumulate money in other jurisdictions • motivated by tax evasion, avoiding Customs duties, transfer a kick-back or launder money 4

  5. Successes and challenges • Successes • Dramatic increase in the detection of IFF, especially relating to trade mispricing • in excess of R100 million blocked over the past nine months • deterred further IFF • several matters referred to other agencies • Challenges • Preservation of audit trail versus removal of red tape • Legal barriers in setting up effective multi-agency task teams and sharing of information • Proactive approach versus reactive approach (need to act immediately when possible IFF or BEPS identified) 5

  6. Possible future role of the South African Reserve Bank • Flexibility in our legal framework – can incorporate anti-BEPS and IFF measures • e.g. tax clearance; disclosure of beneficial ownership of legal entities; exchange of information; prohibition of loop structures • consider a general provision in the Regulations that transactions concluded for the purpose/intention of BEPS is void ab initio • As the regulator of cross-border transactions, SARB is well positioned to play a more prominent role in the detection, deterrence and disruption of illicit financial flows 6

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