Money laundering. A concept that you may have heard of, but the exact meaning thereof may be inexplicable to the man on the street. Yet, section 29 of the Financial Intelligence Centre Act 38 of 2001 (FICA) places an obligation on “a person who carries on a business or is in charge of or manages a business or who is employed by a business” to report suspicious and unusual transactions.1 The statistics on how many formal and informal businesses exist in South Africa are not exact, but this section puts a lot of informants on the street, so to speak, because this means your dentist, hairdresser and the local petrol station should report suspicious and unusual transactions.
What is money laundering?
A quick Google search of the term indicates that “money laundering is the process of making large amounts of money generated by a criminal activity, such as drug trafficking or terrorist funding, appear to have come from a legitimate source”2. Even Hollywood educates us in movies such as Lethal Weapon 2 and The Shawshank Redemption about the fundamentals of money laundering. For a fun mash-up video of movie explanations on the topic, follow this link: https://www.youtube.com/watch?v=NqlXmeEa9ls
If we get more technical for a moment, money laundering means “an activity which has or is likely to have the effect of concealing or disguising the nature, source, location, disposition or movement of the proceeds of unlawful activities or any interest which anyone has in such proceeds and includes any activity which constitutes an offence in terms of section 64” of FICA or section 4, 5 or 6 of the Prevention of Organised Crime Act 121 of 1998 (POCA)3.
Business owners and employees should be aware though of more than just the concept of money laundering. The first obvious question would be, what does ‘suspicious and unusual transactions’ mean?
The Oxford dictionary defines suspicious as a “feeling that somebody has done something wrong, illegal or dishonest, without having any proof”4.
The Financial Intelligence Centre (FIC) provides examples of factors that can indicate that a transaction could be suspicious and unusual:
- Performing cash deposits at multiple branches of the same bank,
- Unexpected large cash deposits with immediate withdrawals,
- A client tries to convince a bank employee not to complete required documents,
- Where a customer tries to perform a transaction but then cancels it without any good reason,
- A client refuses to provide some form of personal identification, etc.5
First, take note that the list the FIC provides is not a complete list and that businesses should also rely on their knowledge of their industry and clients to conclude that something out of the ordinary is happening. Secondly, all the applicable circumstances should be considered, and not just one factor in isolation. A good example would be where Bill starts to spend money beyond his usual means. At first sight, this may seem suspicious, but he may have had a windfall due to an inheritance or winning the Lotto. And lastly, you do not have to prove a case of money laundering. A suspicion is sufficient. You do not have to have proof, but if you do, you should submit the proof or any other supporting documents to the FIC with your report.
The unlawful activities referred to in FICA can be any crime committed or contravention of a law in South Africa or in another country. Section 29 of FICA is however not aimed at reporting the crime (except money laundering and terrorist activities), but rather focuses on what happens to the proceeds of the crime. “Follow the money”, they say. But the FIC does not only follow the money. Proceeds also have a wider meaning here. Proceeds can also be goods, and the illegal wildlife trade would be of specific interest in South Africa where we are all too familiar with the effect of rhino poaching on the dwindling numbers of these animals.
Section 64 of FICA and The Prevention of Organised Crime Act 121 of 1998 (POCA)
The definition of money laundering in FICA also refers to section 64 of FICA and offences in terms of POCA.
In short section 64 of FICA makes it a crime to conduct more than one transaction with the object of avoiding any reporting duty set in FICA.
Sections 4, 5 and 6 of POCA also sets out the following crimes:
- Money laundering.6
- Assisting another person to benefit from the proceeds of unlawful activities.
- Acquiring, using, or possessing proceeds of unlawful activities.
How do I submit a report?
Once you have decided that an activity or transaction is suspicious or unusual, you need to report this to the FIC. The FIC’s website offers a handy YouTube video7 or a step-by-step guide8 for those who have not submitted a report before. Once you have submitted the report:
- You can continue with your business as usual, unless the FIC instructs you otherwise,
- The FIC may require you to provide more information to them, and
- Mum’s the word! Follow Maverick’s example in Top Gun: “It’s confidential. I could tell you but then I’d have to kill you”. No, seriously, neither the fact that you have submitted a report, nor the contents of the reports should be shared with anyone, especially those individuals who were reported as this could be considered as tipping them off.
The effects of money laundering
The Financial Action Task Force (FATF) indicate on their website that it would be impossible to provide an accurate figure of the amount of money laundered every year due to the illegal nature thereof. They quote the United Nations Office on Drug and Crime’s 2009 figure of $1.6 trillion of criminal proceeds being laundered9.
FATF indicates that “the banking and financial services marketplace depends heavily on the perception that it functions within a framework of high legal, professional and ethical standards” and that evidence of complicity by banks and financial institutions with criminals “will have a damaging effect on the attitudes of other financial intermediaries and of regulatory authorities, as well as ordinary customers”10. Money laundering also has potential negative effects on macroeconomics and foreign direct investment for countries with perceived weak anti-money laundering controls11.
With the Protection of Personal Information Act 2013 stealing the limelight (and our time!) at the moment, don’t forget to take care of the laundry!
- Section 29 of FICA
- Section 1 of FICA
- Page 19 and further of Guidance Note 4A on Reporting of Suspicious and Unusual Transactions and
Activities to the FIC in terms of Section of the FICA, 2001.
- See Section 4 of POCA for a full description.