South Africa’s terror-financing risk profile increased from “moderate” to “high”, according to the recently completed Terror Financing National Risk Assessment (TF NRA).
The TF NRA 2024 describes the threats, vulnerabilities, and possible impact of terrorist financing on South Africa’s safety and stability. The assessment is meant to help accountable institutions identify terror-financing risks and develop appropriate responses to reduce them and improve their preventive, monitoring, and enforcement mechanisms.
The Financial Intelligence Centre (FIC) describes “terrorist financing” as the collection or provision of funds for the purpose of enhancing the ability of an entity or anyone who is involved in terrorism or related activities to commit a terrorist act. Funds may be raised from legitimate sources – such as personal donations, profits from businesses, charitable organisations – and from criminal sources, such as the drug trade, smuggling weapons and other goods, fraud, kidnapping, and extortion.
“Terrorist financing risk” refers to the probability that funds or assets intended for a terrorist organisation are raised, moved, stored, or used in or through a jurisdiction, whether legitimate or illegitimate. Assets or funds that are owned or controlled by individuals or groups involved in terrorist activities are referred to as “terrorist property”.
It is worth noting that section 4 of the Protection of Constitutional Democracy Against Terrorism and Related Activities (POCDATARA) Act defines a range of crimes relating to acquiring, owning, trading, using and making available any property (including funds) knowing it is intended for use in, or in support of, terrorist activities. Section 4(2) criminalises any act intended to facilitate transactions in any property intended to support terrorist activity.
Primary risk is from the Islamic State
Based on the results of the TF NRA 2024, South Africa’s terror-financing threat and risk profile increased from “moderate” (2014-2018) to “high” (2019-2024). It was established that South Africa is a hub and may be specifically targeted for terrorist fund-raising through the criminal exploitation of the formal, informal, illicit, and alternative economies.
According to the TF NRA 2024, the activities of the Islamic State (IS) and its affiliates have seen them become one of the deadliest global terror groups. South Africa’s current terror-financing threat emanates predominantly from IS and its affiliates, supporters, and ideology.
“Following the demise of the IS caliphate in Syria and Iraq, there has been a decentralisation of activities and solicitation of support, including fund-raising, to regions that were not previously affected, including central and southern Africa. IS-linked terrorism theatres in the Democratic Republic of Congo and northern Mozambique are key areas of concern for South Africa’s national security, particularly as there are links to IS supporters in South Africa.
“Similar security concerns exist regarding the activities and impact of al-Shabaab in East Africa, which thrives on illicit economic activities, including the leveraging of taxes to fund its activities,” the report says.
“Given South Africa’s large émigré and diaspora communities from geographic areas associated with conflict and terrorism, the South African authorities consider that organisations not necessarily identified in resolutions of the United Nations Security Council (UNSC) and thus not universally considered to be terrorist organisations and operate in contested geographical areas, pose a threat of raising and/or moving funds for terror related purposes in and through South Africa.”
The FSCA urges accountable institutions to consider TF NRA 2024 as they develop, maintain, and implement their Risk Management and Compliance Programmes (RMCPs) and to help deepen their understanding of terror-financing risks.
“This is vital to ensure that they implement appropriate controls to mitigate the risk of their businesses being exploited by terrorists, terrorist financiers, or those involved in terrorist-related activities,” the FSCA says.
To foster awareness about terror-financing, the FSCA has recorded an in-depth webinar on the TF NRA, which is available on the Authority’s YouTube channel.
Check clients against the TFS list
The Financial Intelligence Centre Act (FICA) imposes risk-mitigation and reporting obligations on accountable institutions in respect of terror-financing.
The Financial Action Task Force requires countries to implement targeted financial sanctions (TFS) to comply with resolutions by the UNSC relating to the prevention, suppression, and disruption of proliferation of weapons of mass destruction and their financing.
The consolidated TFS list published by the FIC includes individuals and entities that are terrorists or terrorist financiers and subject to sanctions imposed by the UNSC.
Accountable institutions must scrutinise their clients to check whether they are on the TFS list.
If there is a positive match on the TFS list, the accountable institution must “freeze and report”. It must not release any property to the person or entity, or to people acting on their behalf, and the client must not be onboarded.
The TFS list can be accessed on the FIC’s website via the online search tool.
Accountable institutions can also use other automated systems that use third-party service providers to access the TFS list. The accountable institution remains responsible for complying with its obligation to scrutinise clients, by making sure that the screening lists are accurate and up-to-date and that the results are true.
Reporting obligations
An accountable institution must file a terrorist property report with the FIC if it has in its possession or under its control property owned or controlled by or on behalf of:
- Any entity that has committed, or attempted to commit, or facilitated the commission of an offence defined in the POCDATARA Act.
- A person or an entity identified in the TFS list.
An accountable institution must also report to the FIC if:
- The business has received or is about to receive property which is connected to terrorism and related activities.
- A transaction or series of transactions to which the business is a party to facilitate, or is likely to facilitate, the transfer of property that is connected to an offence relating to the financing of terrorist and related activities.
Accountable institutions must maintain adequate record-keeping of their compliance with these obligations. This is important because accountable institutions must be able to demonstrate compliance with these requirements, which will be assessed when supervisory bodies, including the FSCA, undertake their AML/CFT supervisory activities.
Accountable institutions must risk-rate the products, distribution channel, client type and geographic location used for the financing of terrorism or proliferation financing as high risk in the accountable institution’s business risk assessment. This should result in enhanced customer due diligence for business relationships which are identified as high risk for the financing of terrorism or proliferation financing.
Resources for accountable institutions
To provide guidance to accountable institutions, the FIC issued Guidance Note 6A on Terrorist Financing and Terrorist Property Reporting Obligations in terms of section 28A of FICA and Public Compliance Communication 44A on the implementation of TFS in South Africa.
PCC 44A provides that accountable institutions’ RMCPs must make provision for the manner in, and processes by, which they will:
- scrutinise clients’ information;
- freeze designated persons and entities’ property without delay; and
- report to the FIC as soon as possible.
Furthermore, the FIC published Guidance Note 4B on reporting suspicious and unusual transactions and activities.
