The Financial Intelligence Centre Act 38 of 2001

Mar 19, 2024 | News

The Financial Intelligence Centre Act 38 of 2001 (‘FICA’) was instituted to combat and prevent the commission of financial crimes within South Africa. The purpose of this Act includes, but is not limited to, the establishment of a Financial Intelligence Centre (‘FIC’) equipped with regulative measures to prevent money laundering, fraud, tax evasion, terrorist financing activities, and identity theft. The previous ambit of the regulations established by this Act, and as provided to Financial Intelligence Centres, was viewed as insufficient in assisting to combat financial crimes within South Africa. 

The Financial Action Task Force (“FATF”) is an inter-governmental organisation providing international standards and promoting policies to combat money laundering, terrorist financing, and the financing of weapons proliferation. FATF added South Africa to its “grey list” on 24 February 2023 in response to a 2021 Mutual Evaluation Report. This report highlighted South Africa’s inferior performance and institutional weaknesses within the Financial Sector, particularly that of law enforcement as highlighted by the state capture period in 2019. South Africa’s financial services sector generally holds that this has done damage to South Africa’s investment reputation and led to a global perception of incompetence in combatting financial crimes. This perspective carries significant long-term consequences as it impedes foreign attraction and investment, crucial components for fostering economic growth in a developing country. 

In response to the ‘grey’ listing, South Africa enacted The General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act 22 of 2022 on 22 December 2022. The Act was aimed at amending and realigning South Africa’s current legislative framework with current international standards, and to impose a more onerous duty on Accountable Institutions to prevent the commission of money laundering and terrorist financing. Accountable Institutions include attorneys, estate agents, banks, financial service providers, trust property administrators, and stockbrokers. This Act extends the duties imposed on Accountable Institutions to prevent money-laundering and terrorist financing. The previous “rules-based approach” was amended to a new “risk-based approach” in terms of customer due diligence, customer identification, and verification. This approach requires that every Accountable Institution must have a system in place which enables it to assess whether a client is possibly laundering money, or financing terrorism using a risk-based assessment. This would enable the Accountable Institution to fully understand the risks such institutions are exposed to, and to pro-actively identify and report suspicious conduct to a Financial Intelligence Centre as soon as possible. This “risk-based approach” must provide guidelines towards the application of measures to combat these crimes.  

Section 42 of FICA provides that Accountable Institutions are obliged to develop, maintain, and implement a Risk Management and Compliance Program (‘RMCP’) setting out the “risk-based approach” as referred to above. Section 42 of FICA further provides that the RMCP must enable the Accountable Institution to identify, assess, monitor, mitigate, and manage the risk that the provision of new and existing services may involve or facilitate money laundering activities, the financing of terrorist and related activities or proliferation financing activities. 

Section 42A(1) of FICA provides that the Board of Directors of an Accountable Institution must ensure compliance with the provisions of this Act. This includes the development of an RMCP programme as set out in Section 42 of FICA, and must ensure that its employees receive the requisite training to facilitate the implementation of its RMCP. Additionally, Section 61B of FICA now provides that if a Board of Directors fails to ensure compliance with Section 42A(1) of FICA, they will be liable for an administrative sanction imposed by a Financial Intelligence Centre. This includes a caution not to repeat the conduct, a reprimand, a directive to take remedial action, the restriction and/or suspension of business activities, or even a fine not exceeding R10 Million in respect of Natural Persons or R50 Million in respect of Juristic Persons as provided by Section 45C(3) of FICA. 

Clearly, The General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act 22 of 2022 has opted for a more aggressive approach to combat and prevent the commission of money laundering and terrorism financing. By imposing the responsibility of developing and implementing a RMCP on Directors of Accountable Institutions, coupled with harsh financial implications or even suspension of business activities if failing to do so, will ensure that the presence and commission of financial crimes is drastically reduced within our country. As a by-product of these actions, a reduction in the commission of money laundering and terrorist financing will ultimately result in the removal of South Africa from the FATF “Grey List” and would facilitate foreign investment and financial growth. 

Jodi Poswelletski | Corporate Director and Jannes van der Berg | Candidate Attorney