Financial Crime Compliance

A South African Case Study

The South African Reserve Bank recently issued a notice declaring that administrative sanctions had been imposed on two life insurers following an investigation that found weaknesses in their anti-money laundering control measures. This case study, which forms Part 2 of our Financial Crime Compliance series, takes a closer look at these sanctions, specifically the section 28 finding, and how the Rahn Financial Compliance Platform can be employed to strengthen anti-money laundering control measures in your business.

Section 28 of the FIC Act

“28. Cash transactions above the prescribed limit

An accountable institution and a reporting institution must, within the prescribed period, report to the Centre the prescribed particulars concerning a transaction concluded with a client if in terms of the transaction an amount of cash more than the prescribed amount—

(a) is paid by the accountable institution or reporting institution to the client, or to a person acting on behalf of the client, or to a person on whose behalf the client is acting; or

(b) is received by the accountable institution or reporting institution from the client, or from a person acting on behalf of the client, or from a person on whose behalf the client is acting.

28A. Property associated with terrorist and related activities and financial sanctions pursuant to Resolutions of United Nations Security Council

(1) An accountable institution which has in its possession or under its control property owned or controlled by or on behalf of, or at the direction of—

(a) any entity which has committed, or attempted to commit, or facilitated the commission of a specified offence as defined in the Protection of Constitutional Democracy against Terrorist and Related Activities Act, 2004;

(b) a specific entity identified in a notice issued by the President, under section 25 of the Protection of Constitutional Democracy against Terrorist and Related Activities Act, 2004; or

(c) a person or an entity identified pursuant to a resolution of the Security Council of the United Nations contemplated in a notice referred to in section 26A(1), must within the prescribed period report that fact and the prescribed particulars to the Centre.

(2) The Director may direct an accountable institution that has made a report under subsection (1) to report —

(a) at such intervals, as may be determined in the direction, that it is still in possession or control of the property in respect of which the report under subsection (1) had been made; and

(b) any change in the circumstances concerning the accountable institution’s possession or control of that property.

(3) An accountable institution must upon—

(a) publication of a proclamation by the President under section 25 of the Protection of Constitutional Democracy against Terrorist and Related Activities Act, 2004; or

(b) notice being given by the Director under section 26A(3),

scrutinise its information concerning clients with whom the accountable institution has business relationships to determine whether any such client is a person or entity mentioned in the proclamation by the President or the notice by the Director.”

What must happen, in order to meet Financial Crime Compliance

An accountable institution must monitor all incoming and outgoing transactions concluded with or by clients to identify cash transactions in any of the institution’s bank accounts, this is applicable retrospectively and ongoing. Once identified it must be determined if any of the transactions breach the stipulated threshold level. In the event of a breach, the CTR report must be completed and submitted via the GoAML portal to the regulator. It is at this point where many institutions run into issues in so far as identifying the client who made the deposit (banking industry excluded). The issue here lies in the fact that many clients use their own reference to complete the deposit slip which can be difficult to assign to a specific client.

Many accountable institutions are made up of numerous other reporting institutions which may or may not have various bank accounts which serve some purpose within the business context. This leads to further complications which may lead to adverse findings during a regulatory visit.

The next part of the section stipulates the actions which are required when it is identified that an accountable institution is in control or manages properties (investments, insurance policies, pension funds, etc.) that belong to an individual who is listed under the Protection of Constitutional Democracy against Terrorist and Related Activities Act and the UN Security Council listings. This follows the same logic as the DPIP case study in so far as identifying clients who are listed as sanctioned individuals and may fall under the scrutiny of financial crime and money laundering risks. Accountable institutions are expected to screen their current and prospective clients against these listings to ensure that the property of listed individuals under their control is reported to the regulator and that any lawful instruction pertaining to these assets is executed in accordance with the Act.

How does the Rahn Financial Crime Compliance Platform solve for this?

The transaction monitoring module of the RAHN Financial Crime Compliance platform has been designed to consume the account statements as supplied by ABSA, FNB, Nedbank and Standard Bank. We have working relationships with the teams within these banks to ensure automated integration and consumption of the data. Cash threshold breaches are automatically identified via overnight batch runs and can be applied historically. Submission of CTR reports is automated through the workflow process in so far as population and preparation of the XML templates with built-in gated reviews to ensure all reporting is transparent and visible to senior management committees and compliance functions.

The bank account management module is the direct result of the need to prove coverage in complex banking and treasury environments. Each bank account is managed and maintained within the context of the reporting institution to which it belongs and the accountable individual who controls the account.

The bank reconciliation module was developed to assist in identifying the client who made the deposit. The system makes use of the same matching engine as used to identify sanctioned individuals and thus provides an outcome that follows an accuracy hierarchy. Unmatched or low accuracy matches are resolved through the workflow process where business SMEs are empowered through exception reporting to identify and clear these cases.

The sanctions matching engine is again applied in the same manner as case study 1 and thus provides the accountable institution with hits against the required sanctions listings. This enables the institution to identify potential terrorist and related activity, and financial sanctions within the client base and thus ensure compliance. The portfolio module allows case managers to build a complete view of a client’s portfolio and thus enables the development of a holistic property holding for everyone who poses the potential to qualify under clause 28A of the Act.

Conclusion

Under Section 28 of the Act, accountable institutions are expected to develop an effective process to identify, manage and monitor cash transactions and identify property holdings for individuals who are deemed to be involved in terrorist and related activities. The Rahn Compliance Platform can assist in this through:

Identifying cash transactions which breach the prescribed threshold entirely or through aggregation.
Identify the client who made the deposit through the bank reconciliation module and or the exception workflow process.
Automated CTR reporting following an approval workflow process and uploaded via the GoAML portal.
Identification of individuals who are listed on the specified sanction lists with automated workflow process to notify senior management and responsible committees.
Portfolio view build up capability to identify and ring fence assets belonging to individuals identified under point 4 above.