STRENGTHENING SOUTH AFRICA's FINANCIAL INTEGRITY: The Evolution of Money Laundering Legislation

In recent years, South Africa has been at the forefront of bolstering its financial integrity by implementing robust measures to combat money laundering. Recognizing the grave implications of illicit financial activities, as a country we have undergone a significant transformation in our money laundering legislation to protect our economy and safeguard against criminal endeavours. These changes have marked a defining shift in our efforts to tackle financial crime and uphold international standards.

One of the key milestones in this journey was the enactment of the Financial Intelligence Centre Act (FICA) in 2001. FICA laid the foundation for anti-money laundering (AML) and counter-terrorism financing (CTF) efforts in South Africa. The Act required financial institutions to establish stringent customer due diligence measures, maintain comprehensive transaction records, and report suspicious activities to the Financial Intelligence Centre (FIC). This marked the first step towards a more transparent and accountable financial system.

However, as money laundering techniques became increasingly sophisticated, a need arose for more proactive and adaptive legislation. To address these evolving challenges, South Africa amended FICA in 2017, enhancing its capabilities further. The revised Act broadened the definition of accountable institutions and introduced a risk-based approach to AML and CTF efforts. This approach allowed for the prioritization of high-risk entities and activities, optimizing the allocation of resources and strengthening the overall effectiveness of the FIC.

In February 2023, South Africa was grey-listed by global financial crime watchdog the Financial Action Task Force (FATF) for not fully complying with international standards. To mitigate the impact of being on the FATF grey list, the FIC undertook significant reforms to strengthen the anti-money laundering and counter-terrorism financing frameworks. This included enhancing customer due diligence procedures, improving the reporting of suspicious transactions and establishing robust supervisory mechanisms.

How does this affect our Buyers and Sellers?

Customer Due Diligence (CDD) now involves the collection of certain documents and information from customers upfront to ensure that we understand our clients' identities, activities, and risk profiles. The specific documents required for CDD may vary depending on the type of customer and the nature of the business relationship. However, the following are some common documents that are often required for CDD purposes in South Africa:

1. Identification Documents:

• South African citizens: A valid South African identity document (ID) or a valid passport.
• Non-South African citizens: A valid passport and a relevant visa or residence permit.

2. Proof of Residential Address:

• Utility bill (e.g., electricity, water) issued within the last three months.
• Bank or credit card statement showing the residential address, issued within the last three months.
• Lease agreement or rental contract, accompanied by a utility bill or bank statement in the landlord's name.

3. Business Information (for legal entities):

• Certificate of Incorporation or Registration.
• Memorandum of Incorporation (MOI) or Articles of Association.
• Shareholders' register or details of ultimate beneficial owners (UBOs).
• Proof of the physical address of the business premises.

4. Source of Funds or Wealth:

• Bank statements showing the source of income and transactions.
• Pay slips or employment contracts.
• Investment account statements.
• Property ownership documents.

5. Purpose and Nature of the Business Relationship:

• Explanation of the intended business relationship and transactions.
• Details of the expected frequency and volume of transactions.

It's important to note that the specific requirements for CDD may differ among financial institutions and other accountable institutions, depending on their internal policies and risk assessments. In some cases, additional documentation or information may be requested, especially for high-risk customers or transactions.

In addition to the above, the FICA legislation in South Africa places an obligation on accountable institutions to conduct ongoing monitoring of their customers' activities and to update customer information periodically. By adhering to these CDD procedures and collecting the necessary documentation, we can better identify and mitigate potential money laundering and terrorist financing risks, contributing to the overall integrity of South Africa's financial system.