What The FICA

14 June 2017

What is the FICA Amendment Act? 

The Financial Intelligence Center Amendment Act is a piece of legislation that has been introduced to prevent money laundering and the financing of terrorism. Amendments were proposed to strengthen the FICA Act in certain areas that were deemed to be weak - these amendments have now been ratified.

 

Why is it important? 

A global body called the Financial Action Task Force has laid out guidelines and measures for countries to follow, to prevent the aforementioned illicit activities taking place in the modern, interconnected world. If these guidelines and measures are not followed and implemented by a country, that country is then viewed as uncooperative and is effectively viewed as a high-risk nation. Without ratification of the FICA Amendment Act, Illicit money flows into S.A could have continued, unperturbed, which would ultimately have further hurt investor sentiment and result in less foreign investment into S.A. 

“South Africa risked being kicked out of global fraud monitor, FATF, if the Act was not signed by June” Mfuneko Toyano, Business Day

 

Implications of Signing?

The implications of not signing the Act are almost unthinkable - thankfully the president has ratified the Amendments. Some of the noteworthy enhancements to the FICA Bill are listed below: 

  • The Act requires that accountable institutions (AIs) assess whether customers present a higher risk to the institution based on various risk factors such as country of origin and occupation. It then requires that a compliance process is followed whereby transactions must also be monitored on an ongoing basis (Example in Figure 1 below,) to ensure that any changes in risk are captured and dealt with;
  • Furthermore, they now need to understand their relationships with their customers, on an ongoing basis, rather than only identifying their customers;
  • Requiring the identification of beneficial owners to prevent natural persons from misusing legal entities for nefarious purposes like evading tax;
  • Provision is made for the recording of “foreign prominent public officials” and “domestic prominent influential persons” and their families and close associates.
  • Enhancing the customer due diligence requirements that will ensure that entities fully understand the nature and potential risk posed by their customers;
  • Providing for the adoption of a risk based approach in the identification and assessment of money laundering and terrorist financing risks, and assist in making customer compliance easier
  • Providing for the implementation of the United Nations Security Council Resolutions relating to the freezing of assets relating to persons associated with terrorism;
  • Safeguarding information in line with the Protection of Personal Information;
  • Providing for inspection powers for regulatory compliance purposes in accordance with the Constitution;
  • Enhancing certain administrative and enforcement mechanisms.
  • AIs must assess areas of their business that open up the risk of money laundering or the financing of terrorism. Steps must be taken to mitigate risky areas so that financial crimes are prevented; and
  • Increased liability for senior management: The board of directors, senior management or anyone else with significant authority can be held liable for failure to adhere with the core elements of the Act. In addition, senior level executives will be required to sign off certain high risk transactions before it it permitted to take place.

 

Figure 1: Simplified Risk Based Analysis Process

 

Figure 2: List of Domestic Prominent Influential Persons Source:https://www.moneyweb.co.za/news/industry/new-fica-Act-finds-its-teeth/ 

 

Industries Affected 

FICA covers a large group of different businesses, below is a table with the businesses affected by the Act. 

Industry

Risk Rating

Money Services Businesses

Moderate/High

Charities & Non-Profit Organisations

Moderate/High

Intermediaries/Commission Agents

Moderate/High

Real Estate Agents

Moderate/High

High Value Goods Dealers

Moderate/High

Precious Metals & Stone Dealers

Moderate/High

Gatekeepers

Moderate/High

Casinos including Online Gambling

Moderate/High

Arms Dealers

Moderate/High

Private Military Firms

Moderate/High

Digital Currency Providers or similar

Moderate/High

 

The Future

The recent ratification was an essential step for us to take as a nation, but the journey does not stop there. There is still a lot of work to be done to ensure that the amended Act is enforced, at the highest level, and that the FIC has the support that it needs to do so. The Act opens up opportunities for corruption to be found and prosecuted, for terrorist funding to be stopped and for illicit funds to be frozen. Support is needed from all stakeholders. Companies like ThisIsMe are continuously striving to provide the most innovative solutions to ensure that FICA is as easy and painless for your business as it is for you. We now have a genuine opportunity to shake off the stigma of corruption and illicit activity as a nation with this new Act and the stakeholders supporting it.

Juan Furmie
COO, ThisIsMe 

 

References 
http://www.cnbcafrica.com/news/financial/2017/04/24/sa-heading-worse-crisis-junk-status-president-zuma-delays-signing-fica-Act/ 
https://mg.co.za/article/2017-01-31-crib-notes-everything-you-need-to-know-about-the-fic-amendment-Act/ 
https://www.businesslive.co.za/bd/national/2017-04-29-zuma-signs-anti-money-laundering-bill-fica-into-law/

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