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Financial Intelligence Centre - Annual Report 2006-07

This presentation to the Portfolio Committee on Finance provides an overview of the Financial Intelligence Centre's background, annual financial statements, and activities report for the year 2006-07. It highlights the effective anti-money laundering and countering the financing of terrorism (AML/CFT) environment in South Africa, increased compliance by institutions, and the FIC's international obligations.

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Financial Intelligence Centre - Annual Report 2006-07

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  1. financial intelligence centre REPUBLIC OF SOUTH AFRICA PRESENTATION TO PORTFOLIO COMMITTEE ON FINANCE ANNUAL REPORT 2006-07 FINANCIAL INTELLIGENCE CENTRE 5 SEPTEMBER 2007

  2. financial intelligence centre REPUBLIC OF SOUTH AFRICA PRESENTATION 1. Background to the Financial Intelligence Centre 2. Annual Financial Statements 3. Activities Report

  3. financial intelligence centre REPUBLIC OF SOUTH AFRICA Effective AML/CFT environment in RSA with reduced ML & TF activities RSA Authorities use the FIC regime to prevent and combat ML/TF crime Awareness of AML/ CFT risks and avoidance of activities of criminals and their networks FIC information boosts enforcement & supports regular, high impact enforcement successes There is increased compliance by accountable and reporting institutions Stakeholders have good relationships with the FIC The FIC meets and lives up to international obligations, commitment required of it SA International and regional approaches to AML/CFT contribute to SA solutions 1 FIC is a sustainable and a capable institution 2 Information from FIC (proceeds of crime - ML & TF) is recognised & used by Law Enforcement as relevant and of high quality 3 Stakeholders have an increased understanding of FIC - mandate, functions and responsibilities 4 Increased awareness of AML/CFT vulnerabilities and threats and need for prevention 5 Vulnerable institutions to be exploited by criminal or terror networks have culture of compliance 6 Combating of ML/FT relies on the legal framework (which is robust, relevant and adequate)

  4. 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.

  5. financial intelligence centre REPUBLIC OF SOUTH AFRICA Centre’s Responsibilities • Administers the Financial Intelligence Centre Act. • Analyses information obtained in reports from ‘accountable institutions’; • Refer information to Law Enforcement Authorities - eg. SAPS, DSO, 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;

  6. financial intelligence centre REPUBLIC OF SOUTH AFRICA • 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.

  7. financial intelligence centre REPUBLIC OF SOUTH AFRICA Financial Highlights 2006/2007

  8. financial intelligence centre REPUBLIC OF SOUTH AFRICA Financial highlights (cont) • The FIC did not receive its allocation vote from the National Treasury after agreement that the Centre should first deplete the accumulated surplus funds. • The surplus funds, amounting to R71.8m, were invested within a separate investment account - the balance now stands at R7.2m. • These funds were utilised in achieving the strategic objectives of the FIC for the year 2006/2007. • The main cost drivers are: • Personnel costs – skilled / professionals • Professional fees – unavailable skills internally/ transitional skills • IT costs – tool for collection and dissemination

  9. Financial highlights (cont) • The current year expenditure and/or cash outflow has increased significantly (by 37.73% in expenditure) from the previous financial period, with increases of: • 30.14 % increase in staff costs for both growth and staff retention • 312.23% in IT Capex • Since inception the FIC was granted exemptions on certain sections of National Treasury regulations, which expired on 31 March 2006. • This FY the Centre began the implementation of the above, including the establishment of the Audit Committee. • A clean audit opinion was received from the Auditor-General for the year ended 31 March 2007.

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

  11. financial intelligence centre REPUBLIC OF SOUTH AFRICA MANAGEMENT EQUITY PROFILE FOR F’07 AS AT 31 MARCH 2007 GRAND TOTAL = 9

  12. financial intelligence centre REPUBLIC OF SOUTH AFRICA STAFF EQUITY PROFILE FOR F’07 AS AT 31 MARCH 2007 GRAND TOTAL = 50

  13. financial intelligence centre REPUBLIC OF SOUTH AFRICA MANAGEMENT EQUITY PROFILE FOR F’08 AS AT 31 AUGUST 2007 GRAND TOTAL = 10

  14. financial intelligence centre REPUBLIC OF SOUTH AFRICA STAFF EQUITY PROFILE FOR F’08 AS AT 31 AUGUST 2007 GRAND TOTAL = 73

  15. financial intelligence centre REPUBLIC OF SOUTH AFRICA CONSOLIDATED EQUITY PROFILE FOR F’07 AS AT 31 MARCH 2007 GRAND TOTAL = 59

  16. financial intelligence centre REPUBLIC OF SOUTH AFRICA CONSOLIDATED EQUITY PROFILE FOR F’08 AS AT 31 AUGUST 2007 GRAND TOTAL = 83

  17. financial intelligence centre REPUBLIC OF SOUTH AFRICA Amendments to the Financial Intelligence Centre Act Reasons: • Provisions for effective administrative enforcement of obligations under FIC Act must be improved: • FIC Act makes supervision of compliance with its provisions the responsibility of various supervisory bodies, but does not expressly make this part of the functions of supervisory bodies; • FIC Act does not give supervisory bodies powers to exercise with regard to supervision of compliance with the Act; • FIC Act does not provide for administrative penalties in respect of compliance failures.

  18. financial intelligence centre REPUBLIC OF SOUTH AFRICA Amendments Proposals: • FIC developed proposals to amend FIC Act so as to achieve the following: • Provide a clear mandate for supervisory bodies to supervise compliance with the obligations on accountable institutions under the Act; • Provide the FIC and supervisory bodies with a broad range of powers to determine when compliance failures occur; • Provide a broad range of administrative penalties which may be applied to address compliance failures; • Provide for an appeal procedure concerning the sanctions imposed by the Centre or another supervisory body.

  19. financial intelligence centre REPUBLIC OF SOUTH AFRICA Amendments Process: • FIC consulted affected parties on its proposals and is in the process of developing a recommendation to the National Treasury; • Will assist the National Treasury during the legislative process which is expected to commence during the 2007/2008 financial year; • Aim to commence implementation during the 2008/2009 financial year, including establishment of FIC Inspectorate for non-supervised or weakly supervised industries.

  20. financial intelligence centre REPUBLIC OF SOUTH AFRICA Mutual Evaluation Preparation • As a FATF/ ESAAMLG member, South Africa will undergo an evaluation of its AML/ CFT system; • Evaluation will measure the adequacy of South Africa’s laws on money laundering and terror financing as well as implementation of those laws by its authorities; • Assessment will be done by a combination of experts from other FATF and ESAAMLG member countries and will use the FATF’s 40 + 9 Recommendations as the benchmark; • Result will be a public reflection of South Africa’s commitment to combat money laundering and terror financing across the range of policy-making, law enforcement and regulatory authorities.

  21. financial intelligence centre REPUBLIC OF SOUTH AFRICA Mutual Evaluation Preparation • FIC commenced with a process to prepare the various authorities for their role in the evaluation process: • Held workshops for public and private sector participants • Commenced with a mock review and gap analysis on the basis of information supplied in relation to a mutual evaluation questionnaire; • Conducted a number of high-level meetings with authorities that will participate in the mutual evaluation to increase understanding of the process and steps that need to be taken to close gaps; • Process will continue through-out the 2007/08 FY (when the evaluation will start with the completion of the questionnaire) and into the 2008/09 FY (when an on-site visit will take place and the evaluation will culminate in the discussion at FATF of the evaluation report).

  22. financial intelligence centre REPUBLIC OF SOUTH AFRICA ESAAMLG • The Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) is a regional body to promote the implementation of measures to combat money laundering and terror financing in accordance with international standards; • ESAAMLG Secretariat, based in Dar Es Salaam, suffers from serious capacity shortage which affects all aspects of the Organisation’s work; • South Africa led a team to review the efficiency of the Secretariat and develop proposals to improve its capacity; • Proposals will be submitted and probably adopted during the 2007/2008 financial year and will probably entail a role for South Africa in supplying additional capacity to the Secretariat.

  23. financial intelligence centre REPUBLIC OF SOUTH AFRICA ESAAMLG • Experience in ESAAMLG that member countries have difficulty in taking a holistic approach to implementation all measures required to combat money laundering and terror financing in accordance with international standard; • Problem exacerbated by evaluations of AML/CFT systems against full range of international standards which cast a very negative light on implementation efforts; • South Africa pioneered a proposed process in ESAAMLG to assist countries in process of implementation of AML/CFT measures in following a stepwise process assisted by an assessment of priorities.

  24. financial intelligence centre REPUBLIC OF SOUTH AFRICA ESAAMLG • In addition to support for the regional body, the FIC provided technical support to members of the organisation on a bilateral basis: • Centre hosted delegations from Namibia, Tanzania and Mozambique which visited South Africa on fact finding missions as part of their implementation processes; • Shared experiences in establishing legal frameworks as well as specific experience in establishing an organisation such as the FIC; • In cases of Tanzania and Mozambique, the contact has resulted in longer-term commitments to engage and provide on-going advice during their respective processes.

  25. financial intelligence centre REPUBLIC OF SOUTH AFRICA Compliance Monitoring • Monitored compliance implementation through regular engagement with supervisory bodies and designated accountable institutions; • Facilitated FSB directive on exemption 4 under FICA; • The KYC identification and verification process ended in banks 30 Sept 2006.

  26. financial intelligence centre REPUBLIC OF SOUTH AFRICA Joint Compliance Audits Implemented • National Gambling Board of 29 casinos; • SARB Exchange Control Department of 18 authorised dealers in foreign exchange with limited authority (ADLAs); • Estate Agency Affairs Board of 12 estate agencies; and • On-site visits to Post Office Bank and Ithala.

  27. financial intelligence centre REPUBLIC OF SOUTH AFRICA Compliance Guidance and Public Awareness • Facilitated draft guidance notes for suspicious transaction reporting and terror financing reporting; • Facilitated BSD Circular 6 of 2006 on cell-phone banking; • Enhanced public awareness through various methods such as responding to public queries and through various media on issues such as fighting crime, identifying customers; suspicious reporting; obligations of estate agents; and • Several Local Radio talks on FICA Act & identification of low risk customer’s deadline of 30 September 2006.

  28. financial intelligence centre REPUBLIC OF SOUTH AFRICA Compliance Training outreach • Conducted compliance training: • Estate agents through EAAB national imbizos; • Auctioneers; • Bookmakers and totalisators; • Regulators.

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

  30. financial intelligence centre REPUBLIC OF SOUTH AFRICA Reporting and Analysis • 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 R1,4 billion.

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

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

  33. financial intelligence centre REPUBLIC OF SOUTH AFRICA Purchase property from estate agent utilising a front company through an intermediary Case example 7 Coin dealer deposits cash in bank account Car dealer deposits cash in bank account Coin dealer withdraws cash from bank to purchase coins 6 2 4 Conduct threshold based casino transactions with cash 8 Buy a Expensive sports car from dealer for cash Sell coins to 2ndcoin dealer for cash Buy Kruger Rands from coin dealer 5 1 3 Invest in securities and collective investment schemes through broker 9 Criminal Syndicate Cash-in-transit heist Cash All institutions marked in red have a reporting obligation to the FIC

  34. financial intelligence centre REPUBLIC OF SOUTH AFRICA Information and Communications Technology development Where process started? • In 2003 implemented a basic IT system to facilitate the collection, storage of reports and ability to analyse; • Established with assistance of National Treasury; • Initial work begun on analysis of business processes and workflows for development of new IT system for long-term. Present situation • Master System Specification has been defined; and • Completed designs for Applications, Technical and Security Architecture. Next Phases? • To conduct a detailed design of various systems components; and • To execute the build, test and deployment of an integrated, secure system for operational and support business units.

  35. financial intelligence centre REPUBLIC OF SOUTH AFRICA Challenges and next steps Ensure that the Centre becomes a sustainable and capable organisation • Staffing and skills • Physical location • Policies and procedures • Budget. Ensuring that the information from the Centre is regarded as being of high quality by law enforcement • Ensuring integrity of data • IT basis to receive, analyse and refer • International cooperation • Regional technical assistance. Increasing the understanding that all stakeholders have of the FIC mandate functions and responsibilities • Liaison and feedback • Training and capacity building.

  36. financial intelligence centre REPUBLIC OF SOUTH AFRICA Challenges and next steps (2) Preventing AML/ CFT by increasing the understanding of vulnerabilities to threats of laundering and financing of terrorism • Awareness and training. Ensure increased compliance by vulnerable institutions • Monitoring • Inspections • Imposition of penalties. Ensuring the legal system remains robust and relevant • Amendments of FIC Act • Mutual Evaluation • Threats analysis • International standards.

  37. 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

  38. financial intelligence centre REPUBLIC OF SOUTH AFRICA Mutual Evaluation Preparation

  39. financial intelligence centre REPUBLIC OF SOUTH AFRICA 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);

  40. financial intelligence centre REPUBLIC OF SOUTH AFRICA FICA • 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

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

  42. OBLIGATIONS ON ACCOUNTABLE INSTITUTIONS financial intelligence centre REPUBLIC OF SOUTH AFRICA • These are institutions most vulnerable to money-laundering - • 19 categories of different institutions – eg. banks, insurance industry, brokers, casinos, accountants, lawyers, estate agents FIC Banks Data storage Analysis Reports Suspicious Transaction Reports sent to FIC Insurance sector • Obligations of Accountable Institutions: • 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? Casinos

  43. financial intelligence centre REPUBLIC OF SOUTH AFRICA SUPERVISORY BODIES Supervisory Bodies • Listed in Schedule 2 of the Act • 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. non-supervised 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. Banks Monitor Compliance Insurance sector Casinos

  44. financial intelligence centre REPUBLIC OF SOUTH AFRICA LAW ENFORCEMENT AUTHORITIES Referrals sent from FIC FIC Data capture Analysis Reports NPA - AFU - DSO • 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; • Provide access to government databases to verify info; • Ability to search criminal databases; • Ensure regular feedback on progress made in investigations and prosecutions • Collect and report statistics. SASS SAPS NIA SARS

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