presentation to portfolio committee on finance annual report 2006-07 financial intelligence centre

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PRESENTATIONTO

PORTFOLIO COMMITTEE ON FINANCE

ANNUAL REPORT 2006-07FINANCIAL INTELLIGENCE CENTRE

5 SEPTEMBER 2007

financial intelligence centre REPUBLIC OF SOUTH AFRICA

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PRESENTATION

1. Background to the Financial Intelligence Centre

2. Annual Financial Statements

3. Activities Report


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RSA Authorities use the FIC regime to prevent and combat ML/TF crime

Awareness of AML/ CFT risks and avoidance of activities of criminals and their networks

FIC information boosts enforcement & supports regular, high impact enforcement successes

There is increased compliance by accountable and reporting institutions

Stakeholders have good relationships with the FIC

International and regional approaches to AML/CFT contribute to SA solutions

1 FIC is a sustainable and a capable institution

2 Information from FIC (proceeds of crime - ML & TF) is recognised & used by Law Enforcement as relevant and of high quality

3 Stakeholders have an increased understanding of FIC - mandate, functions and responsibilities

4 Increased awareness of AML/CFT vulnerabilities and threats and need for prevention

5 Vulnerable institutions to be exploited by criminal or terror networks have culture of compliance

6 Combating of ML/FT relies on the legal framework (which is robust, relevant and adequate)

The FIC meets and lives up to international obligations, commitment required of it SA

Effective AML/CFT environment in RSA with reduced ML & TF activities

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THE FINANCIAL INTELLIGENCE CENTRE

Legal obligations, location and accountability:

• The Financial Intelligence Centre is defined as a juristic person;

• Located outside the public service, but within the public administration in terms of section 195 of Constitution;

• Accountable directly to Minister of Finance;

• Funded from national budget;

• Physically located in the National Treasury, Pretoria.


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• Administers the Financial Intelligence Centre Act.

• Analyses information obtained in reports from ‘accountable institutions’;

• Refer information to Law Enforcement Authorities - eg. SAPS, DSO, AFU, SARS, the Intelligence Services;

• Coordinates SA’s policy on AML/ CFT - thus liaises closely with National Treasury and all stakeholders in public and private sector and internationally;

• Monitors the Supervisory Bodies (SARB, FSB, NGB, etc) & gives guidance to accountable institutions, supervisory bodies and others;


Centre’s Responsibilities

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• Monitors and inspects for compliance where no supervisory body exists, eg. parastatals, Post Bank;

• Exchanges information with similar bodies in other countries – other financial intelligence units;

• Participates in and liaises with Financial Action Task Force (FATF) and other non-SA bodies.


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Financial Highlights 2006/2007

2007 % 2006 % Revenue R’000 R’000 R’000 R’000 Parliamentary allocation - - 23,617 82.33% Other Income 350 7.65% 200 0.70% Interest Received 4,227 92.35% 4,869 16.97% 4,577 100.00% 28,686 100.00% Expenditure Amortisation 323 0.72% 263 0.81% Audit Committee Members fees 33 0.07% - - Depreciation 955 2.13% 1,220 3.74% Other operating costs 15,227 33.93% 12,888 39.55%

- Professional Fees 6,648 14.80% 1,544 4.74% - Staff Costs 21,692 48.28% 6,668 51.16%

44,878 100.00% 32,583 100% Operating expenditure (excl non-cash items) 49,708 30,834 Capital expenditure 3,832 2,787 Total cash outflow 53,540 33621 Total cash outflow % to Parliamentary allocation

(100%)

142%


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Financial highlights (cont)

• The FIC did not receive its allocation vote from the National Treasury after agreement that the Centre should first deplete the accumulated surplus funds.

• The surplus funds, amounting to R71.8m, were invested within a separate investment account - the balance now stands at R7.2m.

• These funds were utilised in achieving the strategic objectives of the FIC for the year 2006/2007.

• The main cost drivers are:– Personnel costs – skilled / professionals– Professional fees – unavailable skills internally/ transitional skills– IT costs – tool for collection and dissemination


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Financial highlights (cont)

• The current year expenditure and/or cash outflow has increased significantly (by 37.73% in expenditure) from the previous financial period, with increases of:– 30.14 % increase in staff costs for both growth and staff retention– 312.23% in IT Capex

• Since inception the FIC was granted exemptions on certain sections of National Treasury regulations, which expired on 31 March 2006.

• This FY the Centre began the implementation of the above, including the establishment of the Audit Committee.

• A clean audit opinion was received from the Auditor-General for the year ended 31 March 2007.

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COMPLIANCE AND PREVENTION

Liaises and Inspects for compliance of• Accountable institutions• Supervisory Bodies• Non-supervised accountable institutions• Capacity building, such as develop ‘FIC Academy’

Public Awareness• Provides awareness and training

MONITORING & ANALYSIS

Analyses and Refers• Collects & stores STRs and other reports• Analyses data and adds value• Develops referrals to law enforcement• Exchanges information with international fius and law enforcement agencies;• Maintains statistics

ADMINISTRATION & SUPPORT SERVICESProvides various support functions and services to the Centre, including:

• Financial and Administrative management; Procurement; Human Resources; • Registry and document storage services; In-house staff training and development; Security services; • Communication and marketing; In-house Legal services; • Information & Communication Technology;

LEGAL & POLICY

Administers Act and Develops coherent policy framework• Develops legislation;• Liaises with standards setter: FATF and Esaamlg;• Monitors typologies and trends; • Liaises with National Treasury & other relevant government departments• Liaises with MLAC and provides admin support

DIRECTOROversees policy & strategic direction, is FIC Accounting Authority• Communication/ Press liaison• Strategic Research

FIC STRUCTURE AND STAFFING COMPONENTS


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MANAGEMENT EQUITY PROFILE FOR F’07AS AT 31 MARCH 2007


GRAND TOTAL = 9

RANK BLACK WHITE INDIAN COLOURED TOTAL

Females Males Females Males Females Males Females Males Females Males

Top Management 1 0 1

Senior Management 1 1 1 1 2

Middle Management 3 1 1 3 2

TOTAL 3 1 1 2 0 1 0 1 4 5

TOP MANAGEMENT

SENIOR MANAGEMENT

MIDDLE MANAGEMENT

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GRAND TOTAL = 50

Professionals Admin Support



Professionals 9 10 2 5 4 1 0 1 15 17

Admin Support 10 3 2 1 0 0 2 0 14 4

TOTAL 19 13 4 6 4 1 2 1 29 21

STAFF EQUITY PROFILE FOR F’07AS AT 31 MARCH 2007

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MANAGEMENT EQUITY PROFILE FOR F’08AS AT 31 AUGUST 2007


GRAND TOTAL = 10



Top Management 1 0 1

Senior Management 1 1 1 1 2

Middle Management 3 1 1 1 3 3

TOTAL 3 1 1 2 0 1 0 1 4 6

TOP MANAGEMENT

SENIOR MANAGEMENT

MIDDLE MANAGEMENT

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GRAND TOTAL = 73


Female

s Males Females Males Females Males Females Males Females Males

Professionals 14 17 3 8 3 3 1 2 21 30

Admin Support 11 5 3 1 2 0 17 5

TOTAL 25 22 6 8 4 3 3 2 38 35

STAFF EQUITY PROFILE FOR F’08AS AT 31 AUGUST 2007

Admin Support

Professionals

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CONSOLIDATED EQUITY PROFILE FOR F’07AS AT 31 MARCH 2007


GRAND TOTAL = 59



Management 3 1 1 2 0 1 0 1 4 5

Professional 9 10 2 5 4 1 0 1 15 17

Admin Other 10 3 2 1 0 0 2 0 14 4

TOTAL 22 14 5 8 4 2 2 2 33 26

Professionals Admin SupportManagement

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CONSOLIDATED EQUITY PROFILE FOR F’08AS AT 31 AUGUST 2007


GRAND TOTAL = 83



Management 3 1 1 2 0 1 0 2 4 6

Professional 14 17 3 8 3 3 1 2 21 30

Admin Other 11 5 3 0 1 0 2 0 17 5

TOTAL 28 23 7 10 4 4 3 4 42 41

Professionals Admin SupportManagement

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Reasons:• Provisions for effective administrative enforcement of obligations under

FIC Act must be improved:

– FIC Act makes supervision of compliance with its provisions the responsibility of various supervisory bodies, but does not expressly make this part of the functions of supervisory bodies;

– FIC Act does not give supervisory bodies powers to exercise with regard to supervision of compliance with the Act;

– FIC Act does not provide for administrative penalties in respect of compliance failures.

Amendments to the Financial Intelligence Centre Act

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Proposals:• FIC developed proposals to amend FIC Act so as to achieve the following :

– Provide a clear mandate for supervisory bodies to supervise compliance with the obligations on accountable institutions under the Act;

– Provide the FIC and supervisory bodies with a broad range of powers to determine when compliance failures occur;

– Provide a broad range of administrative penalties which may be applied to address compliance failures;

– Provide for an appeal procedure concerning the sanctions imposed by the Centre or another supervisory body.

Amendments

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Process:• FIC consulted affected parties on its proposals and is in the process

of developing a recommendation to the National Treasury;

• Will assist the National Treasury during the legislative process which is expected to commence during the 2007/2008 financial year;

• Aim to commence implementation during the 2008/2009 financial year, including establishment of FIC Inspectorate for non-supervised or weakly supervised industries.

Amendments

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• As a FATF/ ESAAMLG member, South Africa will undergo an evaluation of its AML/ CFT system;

• Evaluation will measure the adequacy of South Africa’s laws on money laundering and terror financing as well as implementation of those laws by its authorities;

• Assessment will be done by a combination of experts from other FATF and ESAAMLG member countries and will use the FATF’s 40 + 9 Recommendations as the benchmark;

• Result will be a public reflection of South Africa’s commitment to combat money laundering and terror financing across the range of policy-making, law enforcement and regulatory authorities.

Mutual Evaluation Preparation

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• FIC commenced with a process to prepare the various authorities for their role in the evaluation process:– Held workshops for public and private sector participants

– Commenced with a mock review and gap analysis on the basis of information supplied in relation to a mutual evaluation questionnaire;

– Conducted a number of high-level meetings with authorities that will participate in the mutual evaluation to increase understanding of the process and steps that need to be taken to close gaps;

– Process will continue through-out the 2007/08 FY (when the evaluation will start with the completion of the questionnaire) and into the 2008/09 FY (when an on-site visit will take place and the evaluation will culminate in the discussion at FATF of the evaluation report).

Mutual Evaluation Preparation

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• The Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) is a regional body to promote the implementation of measures to combat money laundering and terror financing in accordance with international standards;

• ESAAMLG Secretariat, based in Dar Es Salaam, suffers from serious capacity shortage which affects all aspects of the Organisation’s work;

• South Africa led a team to review the efficiency of the Secretariat and develop proposals to improve its capacity;

• Proposals will be submitted and probably adopted during the 2007/2008 financial year and will probably entail a role for South Africa in supplying additional capacity to the Secretariat.

ESAAMLG

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• Experience in ESAAMLG that member countries have difficulty in taking a holistic approach to implementation all measures required to combat money laundering and terror financing in accordance with international standard;

• Problem exacerbated by evaluations of AML/CFT systems against full range of international standards which cast a very negative light on implementation efforts;

• South Africa pioneered a proposed process in ESAAMLG to assist countries in process of implementation of AML/CFT measures in following a stepwise process assisted by an assessment of priorities.

ESAAMLG

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• In addition to support for the regional body, the FIC provided technical support to members of the organisation on a bilateral basis:– Centre hosted delegations from Namibia, Tanzania and Mozambique

which visited South Africa on fact finding missions as part of their implementation processes;

– Shared experiences in establishing legal frameworks as well as specific experience in establishing an organisation such as the FIC;

– In cases of Tanzania and Mozambique, the contact has resulted in longer-term commitments to engage and provide on-going advice during their respective processes.

ESAAMLG

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Compliance Monitoring

• Monitored compliance implementation through regular engagement with supervisory bodies and designated accountable institutions;

• Facilitated FSB directive on exemption 4 under FICA;

• The KYC identification and verification process ended in banks 30 Sept 2006.


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Joint Compliance Audits Implemented

• National Gambling Board of 29 casinos;

• SARB Exchange Control Department of 18 authorised dealers in foreign exchange with limited authority (ADLAs);

• Estate Agency Affairs Board of 12 estate agencies; and

• On-site visits to Post Office Bank and Ithala.


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Compliance Guidance and Public Awareness

• Facilitated draft guidance notes for suspicious transaction reporting and terror financing reporting;

• Facilitated BSD Circular 6 of 2006 on cell-phone banking;

• Enhanced public awareness through various methods such as responding to public queries and through various media on issues such as fighting crime, identifying customers; suspicious reporting; obligations of estate agents; and

• Several Local Radio talks on FICA Act & identification of low risk customer’s deadline of 30 September 2006.


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Compliance Training outreach

• Conducted compliance training:

• Estate agents through EAAB national imbizos;

• Auctioneers;

• Bookmakers and totalisators;

• Regulators.


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FIC “Value – Add” Chain

FIC

(1) Compliance measures

(3) Reporting to FIC

(4) Analysis by FIC

(5) Referral by FIC to LEA’s

(6) Investigation & Prosecutions by

LEA’s & NPA

(7) Trends analysis by FIC with partners

(8) Policy development

(9) Legislation development

(2) Compliance monitoring


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Reporting and Analysis

• 21 466 suspicious transaction reports received;

• Majority of these reports were received from financial service providers such as banks, brokers, foreign exchange dealers, insurance providers, investment managers and services, and money remitters (18 799 reports constituting 88% of all reports);

• 12% (2667 reports) were received from other sectors such as casinos, estate agents, coin dealers, companies, accountants and auditors, attorneys, car dealers and individuals;

• 549 referrals to investigating authorities, with a value in excess of R1,4 billion.


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STRs received year on year99

1 7480

1575

7

1979

3

2146

6

6548

7

0

10000

20000

30000

40000

50000

60000

70000

Years

Am

ount

2002/2003 2003/2004 2004/2005 2005/20062006/2007 Total


STRs received year-on-year

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Financial and non-financial reports for financial year 2006/2007

Non-Financial Institutions, 12%

Financial Innstitutions, 88%

Financial Institutions Non-Financial Institutions


Financial/ Non-financial reporting for year

33Cash-in-transit

heist

Buy a Expensive sports car

from dealer for cash

Coin dealer withdraws cash from

bank to purchase

coins

Purchase property from estate agent

utilising a front company

through an intermediary

Buy Kruger Rands from coin dealer


Criminal Syndicate

Conduct threshold

based casino transactions

with cash Sell coins to 2nd coin

dealer for cash

Car dealer deposits cash in

bank account

Coin dealer deposits cash in bank account

All institutions marked in red have a reporting obligation to the FIC

Cash

Case example

Invest in securities and

collective investment schemes through broker

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Information and Communications Technology development

Where process started? • In 2003 implemented a basic IT system to facilitate the collection, storage of

reports and ability to analyse;• Established with assistance of National Treasury;• Initial work begun on analysis of business processes and workflows for

development of new IT system for long-term.

Present situation • Master System Specification has been defined; and• Completed designs for Applications, Technical and Security Architecture.

Next Phases?• To conduct a detailed design of various systems components; and • To execute the build, test and deployment of an integrated, secure system

for operational and support business units.


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Challenges and next steps

Ensure that the Centre becomes a sustainable and capable organisation

• Staffing and skills• Physical location• Policies and procedures• Budget.

Ensuring that the information from the Centre is regarded as being of high quality by law enforcement

• Ensuring integrity of data• IT basis to receive, analyse and refer• International cooperation• Regional technical assistance.

Increasing the understanding that all stakeholders have of the FIC mandate functions and responsibilities

• Liaison and feedback• Training and capacity building.


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Challenges and next steps (2)

Preventing AML/ CFT by increasing the understanding of vulnerabilities to threats of laundering and financing of terrorism

• Awareness and training.

Ensure increased compliance by vulnerable institutions• Monitoring• Inspections• Imposition of penalties.

Ensuring the legal system remains robust and relevant• Amendments of FIC Act• Mutual Evaluation• Threats analysis• International standards.


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THANK YOU

Murray MichellDirector: Financial Intelligence Centre

012 – 3099200www.fic.gov.za

[email protected]


http://www.fic.gov.za/

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Mutual Evaluation PreparationRatings

Compliant Largely Compliant

Partially Compliant

Non-compliant

FATF Members

Australia 12 14 13 10

Belgium 21 20 6 1

Denmark 7 16 18 8

Ireland 16 12 16 5

Norway 13 17 12 4

Spain 10 22 12 3

Sweden 6 21 15 5

Switzerland 11 21 13 3

United States 15 28 2 4

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THE FINANCIAL INTELLIGENCE CENTRE ACT

The FIC Act (Act No. 38 of 2001)

• Helps create an anti-money laundering environment in South Africa to: – Maintain and protect the integrity of financial sector;– Identify proceeds of unlawful activities and combat money

laundering activities (and since 2005, combating terrorist financing);

– Build a partnership between the private and public sectors.

• Complements the Prevention of Organised Crime Act (POCA), 1998 which defines the crime of money laundering and anti-terror legislation (POCDATARA, 2005);


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FICA

• Imposes ‘know your customer’ and other obligations on wide range of accountable institutions

– Client identification and verification;– Record keeping;– Reporting transactions and sharing information;– Measures to promote compliance.

• Imposes obligations on supervisory bodies and give law enforcement further responsibilities

• Creates the Financial Intelligence Centre


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AML/ CFT ARCHITECTURE

Bank

Insur-ance

Casino

SAPS

NPA-DSO-AFU

SARS

Reports

Referals

Accountable Institutions,

eg.

Investigative Authorities & Intelligence

Agencies, eg.

Investigations & Prosecutions

Data storageAnalysisReferrals

Awareness

InternationalLinks/ fiu’s

FICsharing

Su

per

viso

ry B

od

ies

(FS

B, S

AR

B, J

SE

, etc

)M

onito

r C

ompl

ianc

e of

Acc

ount

able

Ins

t’s

International Standard – Financial Action Task Force 40+9 Rs

Policy &

country eval

Intellig

ence A

gen

ciesfinancial intelligence centre REPUBLIC OF SOUTH AFRICA

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Insurancesector

Casinos

Banks

FIC

Data storageAnalysisReports

Obligations of Accountable Institutions:• Required to submit Suspicious Transactions Reports (STRs)• Required to:

• Keep records for 5 years • Identify and verify clients • Appoint Compliance Officer • Training for staff

• Future Reporting obligations• Add more accountable institutions – eg. diamonds/ gold dealers?

Suspicious Transaction Reports sent to FIC

These are institutions most vulnerable to money-laundering -• 19 categories of different institutions – eg. banks, insurance industry, brokers, casinos, accountants, lawyers, estate agents

OBLIGATIONS ON ACCOUNTABLE INSTITUTIONS


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SUPERVISORY BODIES

• Listed in Schedule 2 of the Act– These are: the Financial Services Board; SA Reserve

Bank; Companies and Intellectual Property Registration Organisation; Estate Agency Affairs Board, Independent Regulatory Board of Auditors (PAAB), National Gambling Board, JSE Securities Exchange, & SA Law Society;

• Obliged to monitor the level of compliance by accountable institutions

• ‘Statutory’ vs. ‘self-regulatory’ bodies vs. non-supervised bodies;– FIC obligated to act as ‘supervisor of last resort’ where no

supervisor exists;

– Establish regional offices to monitor compliance and conduct compliance inspections;

• FIC to conduct compliance inspections on acc inst’s and sup bodies.

Banks

Insurancesector

Casinos

Mo

nito

r Co

mp

liance

SupervisoryBodies


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LAW ENFORCEMENT AUTHORITIES

FICData capture

AnalysisReports

NPA- AFU- DSO

SAPS

SARS

SASS

NIA

Referrals sent from FIC

• Investigate and prosecute cases involving proceeds of crime• Receive referrals from FIC• Makes requests to FIC for additional information• Appoint Authorised Officers

- To protect integrity of information;• Provide access to government databases to verify info;

- Ability to search criminal databases;• Ensure regular feedback on progress made in investigations and prosecutions• Collect and report statistics.


presentation to portfolio committee on finance annual report 2006-07 financial intelligence centre

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