November 14, 2003
By Qarnita Nordien
You might think money-laundering legislation is no concern of yours, but if you have dealings with attorneys, estate agents, stockbrokers, unit trust management companies, banks, insurance companies, financial advisers or asset managers, the Financial Intelligence Centre Act affects you.
Money-laundering sounds like something the Mafia does in movies … certainly not something you would need to consider when you deal with banks, investment companies, insurance companies, stockbrokers or lawyers.
But money-laundering can be broadly defined as any activity that has, or is likely to have, the effect of concealing the movement of the proceeds of unlawful activities. That encompasses a pretty wide range of possibilities, and the Financial Intelligence Centre Act of 2001 (Fica), which came into effect on June 30 this year, has to cast a very wide net to catch them all. This it does by placing special obligations on all institutions that carry out financial transactions on your behalf.
And that’s where you come in. Since June 30, these "accountable institutions", as the legislation calls them, have to keep much more detailed records relating to their clients and the sources of their funds. And not only do they have to gather the information, but they have an obligation to verify it, too.
This means that every time you enter into a new business relationship or transact for the first time with a company that is classified as an accountable institution, you need to provide more information than you’ve ever had to provide before – with the documentary evidence to support it. This information must be kept by the institution for five years and updated from time to time. Institutions with which you have an existing business relationship have until June 30 next year to bring their records up to date.
The information and verification requirements are too complex to be discussed in detail here, but they include, for example, disclosure not just of your name, identity number and contact information, as before, but your source of income and the source of funds to be used in a transaction. Corporate clients now have to disclose the details of all persons authorised to transact, as well as those of shareholders with more than a 25 percent interest. In the case of trusts, full details must be provided of all trustees and beneficiaries, and these would be verified by reference to, for example, the trust deed.
Apart from gathering and verifying information routinely, accountable institutions are obliged to report to the Financial Intelligence Centre any transactions that may be deemed "suspicious transactions", in that they are being used, or are suspected of being used, for money-laundering purposes. In future, accountable institutions will also have to report transactions that exceed a certain prescribed cash amount, but this regulation is still in the pipeline.
In fact, the obligation to report suspicious transactions applies to any person – not just accountable institutions. A transaction is regarded as suspicious if, for example, it is known or suspected to have no legitimate business purpose or is relevant to an investigation of tax evasion or attempted tax evasion.
Reporting of a suspicious transaction must be done within 15 business days of the person or institution becoming aware of the facts on which the suspicion is based. An internet-based reporting portal is provided by the centre at www.fic.gov.za
It is important to note that the institution does not have to warn you that a transaction is going to be reported to the centre. And once a report has been made, it may not be disclosed to you or anyone else, and the person making the report is protected from criminal or civil action.
While the obligation to report suspicious transactions overrides any kind of confidentiality agreement, it does not affect the common law right to legal professional privilege. In other words, if a client consults with an attorney and that consultation falls within the definition of privileged information, the attorney is not under an obligation to report it. Once the report has been submitted, the institution may continue with the transaction until the centre directs otherwise.
A third set of obligations on accountable institutions does not affect clients directly, but is reassuring to know about because it is designed to protect clients from inappropriate or over-zealous reporting of transactions. The institution is required to formulate rules concerning the processes of identification, verification, record-keeping and general compliance to Fica.
Business has a real interest in ensuring compliance to Fica as there are penalties of imprisonment for up to 15 years and fines to a maximum of R10 million. As a client, you should expect requests from service providers for additional information and verification documents. If you fail to provide such information, the institution will not be able to transact with you.
While compliance with anti-money-laundering legislation could be perceived as administratively intensive and cumbersome, it should be seen in the context of global markets. Over the past two decades, the international campaign against money-laundering has gained momentum due to concerns about organised crime and, more recently, terrorism.
Preventive legislation on money-laundering enhances the integrity of the South African financial system in the international community, which, it goes without saying, is good for both clients and business.
Qarnita Nordien is a practising attorney at the firm Sonnenberg Hoffmann Galombik.
This article was first published in Personal Finance magazine, 3rd Quarter 2003.See what’s in our latest issue
  
 
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