30 June 2004
The Financial Intelligence Centre Act requires South Africa’s banks to comply with “know your client” provisions aimed at preventing money laundering and maintaining the integrity of the country’s financial systems.
The original 30 June 2004 deadline for banks to verify the identities of their clients has been deferred to an array of new cut-off points starting on 31 December 2004.
The provisions require all financial institutions to verify the personal details of their customers.
While the the onus is on banks to verify this information, banking customers risk having their accounts frozen if they do not provide their banks with the necessary proof of identity and residence – and banks are encouraging their clients come forward with this in good time.
Existing and potential account holders should provide their banks with the following documentation:
- Proof of identity (by means of a green bar-coded ID document).
- Proof of residential address (by means of a municipal rates bill, Telkom bill or valid TV licence displaying the account holder’s name and residential address).
Announcing the deferral of the 30 June 2004 deadline, Finance Minister Trevor Manuel said banks would have to confirm the identities of their “highest-risk clients” by year-end 2004. The profile of this category of client would have to be determined by the banks themselves.
By 31 May 2005, banks would have had to verify the details of at least 50% of their clients, Manuel said.
The deadline for reporting on “lowest-risk clients” – people with a monthly turnover of less than R5 000 and a balance ceiling not higher than R25 000 – was delayed to 30 September 2006.
The requirement for clients’ residential addresses to be verified alongside their identity documents would not be dropped, Manuel said.
“Mere reliance on ID numbers is clearly inadequate, partly because the issue of ID numbers itself has been the subject of dispute because of theft of blank ID books and so on”, the minister said.
While it was true that many South Africans had no permanent addresses, “we identify that as a challenge that we have to respond to in a variety of ways rather than an obstacle that will see us walking away from compliance”.
With up to 22 million bank accounts in the country, it is not yet known how many people the Act will affect.
Blocking money launderers
The regulations, Manuel said, were aimed at ensuring “that those who earn their keep by foul means are prevented from using the facilities of the financial services institutions”.
Financial Intelligence Centre acting director Murray Mitchell says the Act, passed in 2001, aims to prevent money launderers from using bank accounts to defraud South Africa’s economy, so breaking the cycle used by organised criminal groups to benefit from illegitimate profits.
The Act, the result of five years of investigation and development, complements the Prevention of Organised Crime Act of 1998, which details the money laundering offences.
The new legislation “has brought South Africa into line with top international standards of financial crime fighting”, says Kim Jenkins, head of strategic delivery at First National Bank.
Record-keeping, reporting obligations
Besides the “know your client” obligations, the Act also imposes record-keeping and reporting obligations on South Africa’s banks.
By 31 July 2004, banks have to supply the Reserve Bank with a complete risk framework, and to report on progress quarterly. By 31 October 2004 they have to identify all trusts, partnerships and the top 20% of private and corporate clients – those responsible for the bulk of transactions.
Brokers and investment managers have to report by 31 October 2004 on the verification of partnerships and trusts and the top 20%, by transaction value, of their clients.
Financial Intelligence Centre
The Act also requires financial institutions to compile reports on any unusual transactions – such as unusually large deposits or withdrawals – and to forward these to the appropriate law enforcement agencies if any transgressions are found.
The Financial Intelligence Centre, established to identify the proceeds of unlawful activities and to combat money laundering, started receiving suspicious and unusual transaction reports from businesses in February 2003.
Its objectives will expand to include combating of terrorist financing offences when the Anti-terrorism Bill is enacted.
The Centre makes its information available to the country’s investigating authorities: the SA Police Service; the National Prosecuting Authority through the Directorate of Special Operations (Scorpions) and the Asset Forfeiture Unit; the intelligence services; and the SA Revenue Service.
The Centre also exchanges information with similar bodies in other countries.