The Financial Intelligence Centre (FIC) has published a compilation of case studies on the methods criminals use to launder money through the financial system.
The case studies are arranged according to crime type and provide insight on financial crimes uncovered between 2017 and 2022.
The 57-page report also includes indicators of potential money laundering associated with particular types of crime and economic sectors.
The FIC said the purpose of the report is to help the government, relevant business sectors and other stakeholders better understand and identify the risks they face and to assist with developing effective strategies to address those threats.
The Centre hopes the case studies and indicators will raise levels of risk awareness and assist business in adopting mitigation measures, such as implementing a risk-based approach, and stimulate the submission of detailed suspicious and unusual transaction and other regulatory reports to the FIC.
The Financial Intelligence Centre Act only permits the FIC to disclose information or intelligence under certain circumstances to mandated entities and stakeholders. For this reason, all the case studies have been “sanitised”, as the report put. This may be why, although the case studies cover a wide range of crimes, they provide limited details of the criminals’ modus operandi.
However, estate agents, motor vehicle dealers, legal practitioners, trust and company service providers, Krugerrand dealers, and casinos will find useful summaries of money laundering “red flags” relevant to their sector at the end of the report.
The report provides lists of activities and behaviours by type of crime that indicate potential money laundering. The crime types covered include cybercrime, illicit trade in wildlife, illegal mining, procurement fraud, corruption, pyramid and Ponzi schemes, tax-related crimes, and drug-trafficking.
Click here to download the case studies report.
Importance of regulatory reporting
The FIC’s report emphasises the importance of timeous regulatory reporting in depriving criminals of the profits from illicit activities.
Regulatory reports are essential to South Africa’s system for combating money laundering and countering the financing of terrorism and the proliferation of weapons of mass destruction, the report said. The resulting financial intelligence supports law enforcement and other government authorities in their investigations involving a range of different types of financial crime.
Over the past five years, most reports have related to fraud, followed by tax-related crime, narcotics, money laundering and corruption, the report said.
The regulatory reporting streams include:
- Suspicious and unusual transaction reports;
- Cash threshold reports;
- Terrorist property reports; and
- Reports on cross-border electronic funds transfers.
Suspicious and unusual transactions
Many businesses are familiar with cash threshold reports. Section 28 of Fica requires accountable and reporting institutions to report cash transactions exceeding R50 000 to the FIC.
What is often overlooked are the far-reaching requirements relating to suspicious and unusual transactions in section 29 of Fica. This section is not restricted to accountable and reporting institutions. It requires any person who carries on a business, who is in charge of or who manages a business, or who is employed by a business to report certain transactions to the FIC.
These transactions include those:
- Where the business has received or is about to receive the proceeds of unlawful activities;
- That have no apparent business or lawful purpose;
- That facilitate or are likely to facilitate the transfer of the proceeds of unlawful activities;
- That facilitate tax evasion or attempted tax evasion;
- Conducted for the purpose of avoiding a reporting duty in terms of Fica; or
- Whereby the business has been used or is about to be used in any way for money laundering purposes.
The obligation to report these types of transactions is placed on a person “who knows or ought reasonably to have known or suspected” such transactions.
A reporter is not required to have proof of a suspicious transaction; a mere reasonable suspicion is sufficient for reporting purposes, according to law firm Cliffe Dekker Hofmeyr (CDH).
“The reporter’s suspicion ought to be based on an assessment of all the known circumstances relating to the relevant transaction, including, for example, knowledge of the client’s business, financial history, background, and behaviour.”
It also important to note that there is no monetary threshold applicable to a suspicious transaction report (STR). A suspicious transaction must, accordingly, be reported regardless of the amount of the transaction.
A suspicious transaction must be reported as soon as possible and not longer than 15 working days after a person becomes aware of the facts that give rise to the suspicion.
Any person who fails to report a suspicious transaction is guilty of an offence and is liable to imprisonment for up to 15 years or a fine of up to R100 million.
Once an STR is filed with the FIC, the reporter may continue with the transaction, unless the FIC issues an intervention order directing the reporter not to do so. The purpose of the intervention order is to prevent the dissipation of funds or property that may be the proceeds of unlawful activity.
Section 29 also includes an “anti-tipping-off” provision. It is an offence for a person who makes a STR report to inform anyone, including the customer or any other person associated with a reported transaction, of the contents of a STR or even that such a report has been made.
The Act protects individuals and entities that make STRs and comply in good faith with Fica’s reporting obligations by prohibiting legal action, either criminal or civil, from being instituted against them.
The FIC’s Guidance Note 4B provides extensive information on how to meet the STR obligations.
RMCPs and suspicious and unusual transactions
Persons or entities that are designated as accountable institutions must implement and maintain a risk management and compliance programme (RMCP). The RMCP must address suspicious and unusual transactions and STRs.
The FIC says this should be done by, among other things:
- Setting out the process for identifying suspicious and unusual transactions;
- Providing client and transaction profile scenarios as examples of potential suspicious and unusual transactions;
- Setting out the internal procedures for reporting suspicious and unusual transactions; and
- Warning staff about tipping-off and not disclosing STRs to other persons.
