The FIC’s role in assisting SA exit the grey list

As part of the government-led interdepartmental committee to combat money laundering, terrorist financing and proliferation financing, the Financial Intelligence Centre (FIC) plays a pivotal role in supporting SA’s efforts to exit the Financial Action Task Force’s (FATF) grey list.

The global watchdog grey-listed SA last year off the back of the results of its 2021 mutual evaluation report. This report found there was a lack of understanding among the country’s accountable institutions, particularly designated non-financial businesses and professions (DNFBPs), of their money laundering and terrorist financing risks. 

The country is required to take specific steps according to the agreed grey-listing action plan to remedy shortcomings as captured in this report. SA is expected to have resolved all deficiencies and be fully compliant by February 2025, with the country submitting enhanced follow-up reports to FATF in the period up to then. 

SA has made progress in addressing the action items recommended by FATF. These measures aim to strengthen the country’s efforts to combat money laundering, terrorist  financing and proliferation financing.

Schedule updates

Among the eight strategic actions that SA committed to resolving by January 2025 was the requirement to improve risk-based supervision of DNFBPs. 

To effectively apply risk-based supervision, certain business types had to be designated as accountable institutions in terms of Schedule 1 to the FIC Act.

The amendment of the Schedules to the FIC Act, which came into effect in December 2022, included broadening the scope of the FIC’s work in respect of supervision of the DNFBP sector and also integrated more sectors as accountable institutions.

These sectors included high-value goods dealers (such as dealers in precious metals and stones and motor vehicles), crypto asset service providers, company service providers (including accountants that provide this service), credit providers, cooperative banks and advocates who practise with trust accounts.

Other legal practitioners, estate agents and trust service providers were already listed as accountable institutions. 

All accountable institutions listed in Schedule 1 of the FIC Act must register with the FIC via its registration and reporting platform, called goAML. The FIC has issued public compliance communication 5D and a goAML user guide to assist accountable institutions on how to register. 

Risk assessments

Directives 6 and 7, issued by the FIC, require certain accountable institutions to submit information regarding their understanding of their FIC Act obligations, as well as their money laundering, terrorist financing and proliferation financing risks: 

• Legal practitioners, trust and company service providers, estate agents and gambling institutions are covered in directive 6.
  
• Credit providers, high-value goods dealers, the SA Mint, the South African Postbank Ltd and crypto asset service providers are covered in directive 7.

Thus, once registered with the FIC, such accountable institutions must complete the risk and compliance (RCR) questionnaire on the FIC website without delay. An accountable institution must submit a separate RCR for each Schedule item it is registered under with the FIC.

Where an accountable institution has not completed the 2023 RCR questionnaire, it must do so without delay as it is already in a state of noncompliance and may face sanctions. (The FIC has not yet launched a 2024 version of the RCR questionnaire and will communicate any updates on this in the future.)

The FIC continues to conduct risk assessments on various sectors, including crypto asset service providers, estate agents, trust and company service providers and legal practitioners, to better understand their money laundering, terrorist financing and proliferation financing risks.

An updated national terrorism financing risk assessment, which discusses the terrorist financing risk level in SA, was released in June 2024 . In addition, the risk assessment on terrorist financing risks and vulnerabilities in the NPO sector was published in April 2024.

FIC Act amendments

The FIC Act was amended after the passing of the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act in December 2022, and the Protection of Constitutional Democracy Against Terrorit and Related Activities Amendment Act in January 2023.

These amendments covered aspects of targeted financial sanctions (TFS), beneficial ownership and politically exposed people (PEPs). Accountable institutions must familiarise themselves with these amendments and comply with their FIC Act obligations in this regard.

The FIC’s website features a TFS list of designated persons and entities as identified by the resolutions of the UN Security Council. Accountable institutions are required to screen client information against this TFS list without delay as UN Security Council resolutions now have immediate effect in SA (see FIC’s public compliance communication (PCC) 44A). 

The definition of beneficial owner in terms of the FIC Act was amended to expand on the requirements in respect of every natural person (human), who is a beneficial owner of the client, that is a legal person (organisation), partnership, or trust. FIC’s PCC 59 contains practical guidance on beneficial ownership and the application of a 5% ownership interest threshold to determine beneficial owners. 

Furthermore, the “once a PEP, always a PEP” principle now applies. The lists of the different categories of PEPs and prominent influential people are covered in Schedule 3A, 3B and 3C of the FIC Act. 

Risk management and compliance programme

Section 42 of the FIC Act places an obligation on accountable institutions to develop, document, maintain and implement a risk management and compliance programme (RMCP). Accountable institutions must ensure their RMCPs are updated in line with the requirements after the amendments to the FIC Act. Accountable institutions are cautioned that noncompliance with these compliance obligations may result in penalties.

Crypto asset service providers and the travel rule

Directive 9, recently issued by the FIC, requires crypto asset service providers that engage in crypto asset transfers for or on behalf of their clients to implement certain obligations.

This means an originator crypto asset service provider must obtain, hold and submit certain information about originators and beneficiaries when processing crypto asset transfers to the beneficiary crypto asset service provider before or with the transaction.

Accountable institutions needing more information and guidance about their FIC Act obligations can refer to the FIC website for various guidance notes and PCCs. Alternatively, they can call the FIC’s compliance contact centre on 012 641 6000 or log an compliance query online.

This article was sponsored by the Financial Intelligence Centre.