Who are the new accountable institutions?

by Marianne Mokken | July 19, 2023

Accountable Institutions
The question might, at first glance, not interest a lot of people and for a long time the only real impact on the man in the street was when we dealt with banks or other financial institutions. If you wanted to do business with them, you had to provide them with certain information and documents, such as a copy of your ID and proof of residence.

But those days are gone. In the attempt to ward off grey listing, Schedule 1 of the Financial Intelligence Centre Act 38 of 2001 (“FICA”) was amended to expand some of the current definitions of accountable institutions and include a few new ones. Together with some of the other legislative changes, this amendment is set to have a far greater impact on ordinary people. For instance, trustees are now required in terms of the Trust Property Control Act to keep a register of accountable institutions. As a trustee you should therefore have a clear knowledge of who qualifies as an accountable institution to enable you to perform your duties.

Why are certain entities so called accountable institutions and others not?

Accountable institutions are identified as such because experience has shown that they are particularly vulnerable to being used to launder dirty money and support terrorist activities or proliferation financing1. Traditionally banks and other financial institutions were seen as the gatekeepers to the financial system. To start the process of money laundering would be money launderers want to place their illegal funds in the financial system by way of the banks and financial institutions.

Luxury items

Money launderers are also known to purchase and sell luxury items in order to launder their illicit funds. Accordingly, a profession such as property practitioners (previously known as estate agents) have also been considered vulnerable to being used for money laundering. You only need to look at the current property prices to realise why property is such an attractive option if you are keen to get rid of some illicit funds.

In line with this practice of using luxury items as a means of laundering money, a new category of accountable institutions was created known as high value goods dealers. This category includes those individuals and entities buying and selling items such as cars, jewelry, art, and any other tangible and movable item worth R100 000 or more. If you are watching the Tour de France at the moment, you will be correct in thinking that those bicycles certainly make the cut for this category! You can therefore expect, going forward, that any retailer where you buy an item worth R100 000 or more will also require you as individual to provide them with, for example, your ID and proof of residence, just like the banks do.

Legal structures

Attorneys have also been historically part of the list of accountable institutions. They have the knowledge and skills to assist in the setting up of intricate structures by way of trusts, companies and other vehicles which is ideal for an individual who wants to hide their identity for purposes of money laundering or terrorist financing. Under the new definition of this category of accountable institutions, all legal practitioners are included. That will for example mean that advocates are also now required to comply with the requirements in FICA for accountable institutions.

In the same vein the category for trust services providers has been broadened. Generally speaking, if part of your service offering is to create trusts and companies and help with the administration thereof, you are now an accountable institution. There is currently a draft Public Compliance Communication (“PCC”), PCC 6A, out that creates certain exceptions to this general statement2. One such an example is a trust created by a will.

Anonymity

Another interesting extension of the Schedule is money and value transfer providers. According to the related draft PCC 118 this category includes both the formal sector (such as banks) and the informal sector. Included in the definition of formal money and value transfer providers are non-bank issued open loop prepaid card providers such as gift cards and vouchers as well as airtime transfers. These products provide a sense of anonymity that is right up the alley of those trying to hide their identity or illegal money. You may therefore find yourself having to provide your ID or proof of residence next time you purchase a gift voucher.

The other new accountable institutions include co-operative banks, the South African Mint Company, crypto asset service providers, clearing system participants and also an extended definition of credit providers3.

Conclusion

The amendments to Schedule 1 of FICA have certainly been one of the cornerstones of compliance with the Financial Action Task Force’s 40 recommendations. It will hopefully also help pave the way for the effective combatting of financial crime.

Have you as an individual or business been impacted by these changes? Contact Dale Petersen on 021 819 7802 or at dpetersen@wauko.com. We’d love to connect with you.

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