The year 2024 has been marked by significant events that have impacted South Africa's financial landscape. From global cocaine smuggling operations to local financial crimes, these events have underscored the importance of vigilance and proactive measures in combating financial crime.

Strengthening FICA 
Compliance in the Fight Against Financial Crime.png.png

Headline Recap of 2024

Global Cocaine Smuggling Operation 

A recent investigation revealed a connection between Durban, Dubai and a global cocaine smuggling operation. The cartel's operations extend to various countries, including Ireland, Bosnia, and Colombia. This case highlights the connection between global drug trafficking and South Africa, with significant implications for money laundering and terrorist financing in the country. 
 

Fake Mining Operations

Another significant case involved fake mining operations in South Africa. Fake mines claimed VAT refunds on gold production costs, despite not conducting any real mining activities. What we can learn from this case is that the fight against financial crime in the gold industry is ongoing, and it is the responsibility of Accountable Institutions (AIs) to stay proactive in identifying and mitigating risks. 

Banxso Saga

The Banxso saga, which is still ongoing, involves a trading platform that was allegedly used for fraudulent activities. The Financial Intelligence Centre (FIC) ordered banks to freeze all the accounts that belonged to Banxso, and the company's license was provisionally withdrawn. This case highlights the importance of ensuring compliance with the Financial Intelligence Center Act (FICA). It is important that processes are kept up to date and able to deal with financial fraud in the technological era.

Key Public Compliance Communications (PCCs)

The FIC issued several new PCCs this year, providing guidance on various aspects of FICA compliance: 

  • PCC 59 was issued earlier this year and provides clarity on beneficial ownership and the application of Section 21B of FICA, which obliges AIs to collect the ownership and control structures of their clients.  

  • PCC 57 breaks down the definition of Crypto Asset Service Providers (CASPs) and what their obligations are under FICA. 

  • PCC 6A replaces PCC 6 to reflect the revised definition of Trust and Company Service Providers (TCSPs). 

  • PCC 5D provides guidance on registration with the FIC in terms of section 43B of FICA and specifically includes new AIs under Schedule 1.
     
  • PCC 44A sets out guidance on the interpretation and implementation of Targeted Financial Sanctions (TFS) requirements in South Africa. 

  • PCC 58 explains who qualifies as a high-value goods dealer and which transactions would trigger FICA obligations.

  • PCC 47A clarifies the interpretation and application of the definition of 'legal practitioner' for purposes of FICA. 

Risk and Compliance Returns

The FIC issued Directive 6 and 7 requiring Designated Non-financial Businesses and Professions (DNFBPs) to complete and submit a Risk and Compliance Return (RCR). The FIC conducted inspections and found several  institutions that had not submitted their RCRs, resulting in non-compliance, fines and remedial action. 

Rise of FIC Inspections

During the 2023/2024 period, the FIC conducted 558 inspections, with 269 of these focusing specifically on institutions that failed to submit their RCRs. These returns are crucial for meeting the obligations set out in Directive 6 and Directive 7. 

The inspections uncovered a total of 191 non-compliant institutions, leading to the issuance of 186 formal notices. Of these, 83 institutions took corrective action by submitting their overdue RCRs, bringing them back into compliance. 

In addition, 18 institutions opted to settle their non-compliance by paying fines, while the remaining institutions submitted representations for reconsideration, which are now pending review by the FIC’s adjudication panel. 

Common areas of non-compliance: 
    • Failure to develop or implement a Risk Management and Compliance Programme (RMCP) 
    • Failure to register with the FIC on time or update registration details 
    • Failure to properly identify and verify beneficial owners 
    • Failure to provide evidence of client screening against the United Nations Targeted Financial Sanctions (TFS) lists

Progress Towards Getting Off the Grey list

According to the Financial Action Task Force (FATF), South Africa has made significant progress in strengthening its Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) framework. The country has successfully addressed 16 out of 22 action items outlined in its action plan, with six remaining items to be completed by February 2025.

2024 has been a year of significant challenges and developments in financial crime. The FIC has been active in issuing new PCCs, conducting inspections, and imposing administrative sanctions. South Africa has made progress in strengthening its AML/CFT framework, but there is still much work to be done. It is essential for AIs to stay informed and proactive in identifying and mitigating risks and to work together to build a stronger, more resilient South Africa. 

We look forward to the year ahead! Remember to sign up to our newsletter to stay informed of continuous changes in the ever evolving anti-money laundering and FICA landscape.