[PARTNER CONTENT] Money or value transfer services (MVTS) play a significant role in advancing financial inclusion, offering individuals and business easy and affordable access to financial products.
Some of the features that make money or value transfer services attractive to law abiding citizens, however, also appeal to criminals for money laundering or terrorist financing purposes.
Providers of MVTS are listed as accountable institutions in Schedule 1 to the Financial Intelligence Centre Act (FIC Act) and are therefore obliged to meet certain regulatory requirements. By complying with their FIC Act obligations, MVTS providers actively play their part in combating money laundering, terrorist financing and proliferation financing of weapons of mass destruction.
The categories of persons or institutions involved in MVTS is broad and encompass both formal and informal types of persons and entities. Formal MVTS providers include banks and authorised dealers in foreign exchange. Informal providers of these services, which sometimes have ties to geographic regions, are known as hawala, hundi, and fei-chen.
Transactions performed by MVTS providers can involve one or more intermediaries and a final payment to a third party and may include any payment method, making the use of MVTS services vulnerable to abuse. If institutions are unsure whether they should be registered, they should contact the Financial Intelligence Centre for assistance.
Risk management and compliance programme
MVTS providers are required to develop, document, maintain and implement a risk management and compliance programme (RMCP) in terms of section 42 of the FIC Act.
An MVTS provider must conduct assessments of their business, clients, new products and processes to identify and understand the money laundering, terrorist financing and proliferation financing risks specific to their business. The monitoring, mitigating and management controls that must be applied in terms of a risk-based approach has to be clearly noted in the RMCP. For comprehensive guidance on the development of an RMCP refer to the FIC’s Guidance Note (GN) 7 and public compliance communication (PCC) 53.
Customer due diligence
MVTS providers must conduct customer due diligence (CDD) on their clients, beneficial owners, and persons acting on behalf of clients, as well as enhanced due diligence where a high-risk business relationship or single transaction has been identified.
What are targeted financial sanctions?
The FIC Act places certain obligations on MVTS providers relating to targeted financial sanctions (TFS). Sections 26A, 26B, 26C read together with 28A of the FIC Act form the basis of the TFS regime in South Africa.
South Africa’s TFS regime originates from resolutions of the United Nations Security Council (UNSC) under Chapter VII of the Charter of the United Nations. The type of sanctions introduced by the UNSC resolutions include, but are not limited to, targeted financial sanctions, arms embargoes, and travel bans.
In terms of section 26B, no one may provide financial or other services to persons listed on a TFS list. The TFS list includes persons or entities that are known or suspected terrorists, or associated to threats to international peace and security, this includes the proliferation of weapons of mass destruction, oppressive regimes or human rights abuses.
An accountable institution must scrutinise its client information to determine whether the client, beneficial owner, person acting on behalf of the client or party to a transaction is a designated person or entity on the TFS list. Client information must be scrutinised regardless of the risk assigned to the business relationship or single transaction.
The comprehensive TFS list is published on the FIC website, and accountable institutions must scrutinise clients against this list. The website has a search functionality where MVTS providers can search against the full TFS lists and download an audit trail of the searches or report for their records, at no cost. The TFS list on the FIC website is updated when changes are made to UNSC resolutions.
Freezing of funds
MVTS providers are prohibited from releasing any property to the person or entity designated on the TFS lists, and to persons acting on behalf of the designated person or entity. This is referred to as a “freeze”.
An accountable institution does not have to obtain consent from either the FIC or through a court order to freeze the designated person or entity’s property in terms of section 26B of the FIC Act. An accountable institution must have processes in place to ensure that freezing occurs immediately without delay where it is in possession or control of such property.
Regulatory reporting to the FIC
Section 28A of the FIC Act requires an accountable institution to file a report with the FIC if the accountable institution knows that it possesses or controls property linked to terrorism or designated persons and entities. Guidance Note 6A provides information regarding terrorist property reports.
In addition, Guidance Note 4B provides information on suspicious and unusual transaction reporting and Guidance Note 5C deals with cash threshold reporting. For more specific guidance related to a money or value transfer services, read draft PCC 118.
For more information and guidance refer to the FIC website (www.fic.gov.za), for various guidance notes and public compliance communications. Alternatively, contact the FIC’s compliance contact centre on +27 12 641 6000 or log an online compliance query on the FIC website.
