At the end of 2023 the Financial Intelligence Centre (FIC) released a Public Compliance Communication (PCC) 44A that provides guidance to Accountable Institutions (AI’s) regarding their obligations to implement United Nations Security Council Resolutions (UNSCR) and domestic designations asset freezing requirements of Targeted Financial Sanctions (TFS), which are aimed at combating the financing of terrorism (CFT) and of combating the financing of proliferation (CFP) of weapons of mass destruction (WMD).
AI’s in South Africa are required to screen against the TFS list on an ongoing basis. Information must be scrutinized at onboarding, when conducting transactions and as and when the TFS list is updated.
The obligation of this requirement extends itself to the application of freezing of assets of designated persons or entities without delay, and then file a terrorist property regulatory report with the Financial Intelligence Centre. The AI has the discretion of how to communicate with the designated person / entity if their funds or other assets have been frozen. This is not considered tipping off, as they would most likely be aware of their TFS listing. No person may provide or make funding available to designated persons or entities. Where a person or entity has been delisted from the TFS list an AI has the obligation to unfreeze the property/assets.
While the requirement in SA is to screen against the TFS list only, AI’s may screen clients against other internationally recognised sanctions lists in accordance with its risk-based approach and with its obligations with correspondent relationships.
Sections 26A, 26B, 26C and 28A of the FIC Act does not apply where the person or entity is not designated on the TFS list as published on the FIC website and UNSC Consolidated Sanctions list.
However, we would suggest that if one of your clients is on another sanctions list besides the UN TFS list, it is still a reputational and economic risk to enter into business with a sanctioned individual. To mitigate risk, DocFox offers comprehensive screening including lists such as EU, OFAC, Interpol, World Bank and UK lists amongst many others.
In addition, where there may be a hit against any other sanction list besides the TFS list, an AI is strongly recommended to submit a section 29 suspicious and unusual transaction report.
AI’s must adopt a risk-based approach to ensure their controls are proportionate to the Terrorist Financing (TF) and Proliferation Financing (PF) risks. The approach, manner and full sanctions related process should then be documented within the AI’s Risk Management and Compliance Programme (RMCP). AI’s must conduct business risk assessments, client level risk assessments, as well as new product and process risk assessments to identify and assess the risk of TF, and implement controls to monitor, mitigate and manage the risk of TF.
AI’s can proactively develop controls aimed at identifying transactions or activity that pose a heightened TF risk by understanding the terrorist financing methods, this includes methods of raising the terrorist funds as well as methods of moving the terrorist funds.
Financing methods that are generally used to fund terrorism include:
Terrorists receive funds directly from wealthy private donors or entities making direct donations. Caution should be exercised where funds are transferred to high-risk jurisdictions by wealthy individuals.
Terrorists often abuse non-profit organisations (NPOs) for terrorist financing by diverting donations, abusing legitimate NPO’s, creating shell NPOs, establishing an NPO under a legitimate NPO and operations in high-risk jurisdictions.
Various predicate crimes; such as credit card fraud, smuggling of precious metals and stones as well as drug trafficking are some of the channels used for TF. Terrorists are also known for looting and stealing of goods.
Markets, fundraising events and concerts may be used by terrorists as these are cash intensive.
Member organisations are known to charge membership fees and some communities are subject to levies.
Immigrants or people who have moved from high risk jurisdictions may be extorted by terrorists in their country of origin. AI’s must conduct enhanced due diligence on cross border transfers to high-risk geographic areas.
Kidnapping is another common method used by terrorists, ransom payouts are made in large amounts and usually in the form of cash. AI’s should consider large withdrawals and even negative media that may highlight ransom payouts.
Front or shell companies are a popular method used by terrorists, AI’s should take reasonable steps to identify the Ultimate Beneficial Owner (UBO). Complex legal structures are often used to conceal the UBO, and therefore it becomes increasingly more important to establish the identity of those UBOs.
Fundraising platforms through social media, public donation requests and crowd-funding platforms publish account information. These accounts should be monitored for suspicious or unusual activity as the true purpose of the activity may be for terrorist financing.
You may also refer to the Financial Action Task Force (FATF) guidance for emerging trends.
There are various methods in which funds are moved by terrorists, including:
Traditional Banking: Often large and frequent transactions make it difficult to identify small amounts being used in TF. Transaction monitoring and the ability to assess suspicious or unusual activity is important.
Money Value and Transfer Services (MVTS): A distinction should be drawn between formally registered and informal MVTS or hawaladars, the risk increases when dealing with informal MVTS as there is a lack of regulatory control and oversight making them susceptible to TF. AI’s are encouraged to perform enhanced monitoring on these client accounts.
Crypto-Currency: New technology including crypto assets are being used for TF due to the anonymity and nature of cross-border transfers. Crypto transactions are also subject to less scrutiny making them easier to be used in TF.
Cash: Allows for anonymous transfers without an audit trail. Cash-based economies enable anonymity and the risk of operation of terrorists within high cash-based geographic areas is heightened. Money mules and cash couriers may be used by terrorists to transit funds.
Third-Party Payment Providers (TPPPs): AI’s should remain aware of the potential abuse of TPPPs as intermediaries for MVTS transfers.
Alternative payment methods: The AI should consider the various payment methods and how they may be exploited for the purposes of TF, these include contactless payments, prepaid cards and mobile money.
DocFox screens your clients daily against sanctions and other watchlists, and combs through billions of online news articles searching for relevant media. Our comprehensive DocFox watchlist is included in our screening and provides global coverage for identifying Domestic Politically Exposed Persons (DPEPs), Foreign Politically Exposed Persons (FPEPs) and Prominent Influential Persons (PIPs), including their known close associates. Read more here.