FIC zones in on companies’ geological footprints to combat money laundering

You can also listen to this podcast on iono.fm here.

JIMMY MOYAHA: Off the back of the recommendations by the Financial Action Task Force, the FATF – the body responsible for taking us off that naughty grey list that South Africa was on for almost three years – some of those recommendations included potentially relooking at what we have in place from a policy and a structure perspective that can prevent us going back on the grey list in the future.

One organisation in South Africa that happily obliged [with] some of these recommendations was the Financial Intelligence Centre, the FIC, which oversees a lot around the anti-money laundering and proper financial practices of accountable institutions in South Africa.

The FIC has put together a draft directive which could potentially shed some light on how monies are being moved between various corporations, various countries, and how financial flows are being monitored.

For more on this I’m joined on the line by the acting director at the Financial Intelligence Centre, Pieter Smit, to look at this and see what we make of it. Well, Pieter, lovely having you on the show. Thanks so much for taking the time.

Let’s start with an overview of this draft directive. What specifically brought about the need for this directive and what is the directive?

PIETER SMIT: The need for the directive stems from the fact that we have to continue making improvements to the effectiveness of our anti-money laundering data-financing system – even after coming off the grey list – and that’s a never-ending process.

There are always more improvements that can be made, and these will be assessed again in the not-too-distant future by the FATF in the next round of evaluation.

They will want to see how we’ve progressed from the point where we were removed from the grey list.

Listen/read: Are the FIC’s teeth sharp enough to combat corruption?

What the directive is about is for us as the FIC, the Financial Intelligence Centre, but also for our supervisory partners – the likes of the Prudential Authority, the Financial Surveillance Department in the Reserve Bank and the Financial Services Conduct Authority – to have better transparency and a view of where our accountable institutions operate and what structures they operate.

That’s very important for us, because that gives us a better sense of how to risk-base our supervision of those institutions.

Because the geographic location and the structure in which they operate obviously affect the risk of that institution being susceptible to being exploited by money launderers for money laundering or terror financing, both within South Africa and elsewhere in the world.

Read:
SA removed from another ‘naughty list’, this time by the EU
IMF impressed with SA inflation target and removal from grey list, but …
‘SA is serious about fighting financial crime and corruption’ – Ramaphosa

That’s critical information for us as supervisors to have.

Also, when they report to the FIC, that gives them better information that they can include in their reports based on their geographic registration – that helps us understand where suspicious activities may originate, from the reporting, and what the geographic significance is of those reports.

JIMMY MOYAHA: Now, Oom Pieter, you and I have spoken about this off air, but perhaps you can give us some context around the importance of being able to have an element of transparency where it relates to these complex corporate structures, especially in a day and age where companies have shell companies; they’ve got offshore operations, they’ve got branch entities that might not necessarily operate in South Africa or which might be headquartered in other countries.

Give us a sense of how important it is to be able to have transparency and openness around these corporate structures.

PIETER SMIT: Yes, certainly. For financial intelligence units such as ours, the FIC, and for a supervisor as well, it is of immense importance to understand the transparency of where and how our accountable institutions operate – especially where they operate across borders.

Read: What our FATF exit teaches us about effective reform

The principle that we apply is that South African accountable institutions must comply with South African law, regardless of wherever they operate.

So even their branch in the Isle of Man, for example, must, for argument’s sake, comply with the requirements that apply to the head office here in South Africa.

But we don’t have transparency of that operation unless we know about it and unless as a supervisor [here] we know that we need to collaborate with the supervisor in that particular jurisdiction to ensure that the compliance is up to standard.

Similarly, when transactions flow between the head office and the branch-structure subsidiaries elsewhere in the world, we need to understand the geographic distribution of those, because that is very important information to know whether there is something at risk, maybe from a terror-financing perspective if something is linked to a conflict area, and we need to then be able to factor that information into our analysis process.

JIMMY MOYAHA: Oom Pieter, let’s look at the implications this will then have on companies, on entities which might have operations in multiple geographical areas, or which might have complex company structures.

Let’s go through the potential implications should this directive proceed as planned.

At the moment we know it is out for public comment and for engagement around how to move forward here. But let’s go through some of the potential impact this will have on these companies and how companies can better prepare themselves.

PIETER SMIT: Initially, it will have some impact in the sense in that companies or accountable institutions would have to provide us with this information sort of as a start to this process, as an update to the current registration information that we already received when they initially registered with the FIC. It would require a bit of work to supply the information.

The information in and of itself is not onerous. It’s basically five information items – to describe the name, the location, the registration business address and those sort of very practical particulars about the head office and each branch or each subsidiary.

Obviously, if an institution has hundreds and hundreds of branches and subsidiaries, that will multiply the number of entities about which they have to provide the information.

Read: The FIC is making life difficult for criminals

After that, once this is on our records, it’s basically a matter of maintaining the updating of that information.

So, should anything change in future, they would then have a certain period – in this current draft we propose 90 days – within which they would then have to update that information with the FIC, and we would then capture that on our registration system.

JIMMY MOYAHA: Oom Pieter, from a Financial Intelligence Centre point of view this new directive might be new for South Africa, but I can imagine it does follow global best practice around these anti-money laundering policies and procedures which other organisations might have in place already. How much more does this then align South Africa with what is globally best practice?

PIETER SMIT: It certainly is aligned with global best practice, and South Africa has followed the global principle of home and host requirements.

In other words, the country that is domiciled in South Africa, whose home is in South Africa, must apply the South African rules and regulations wherever they operate – even in their host countries.

That is the general principle that’s applied across the world by all countries that implement anti-money laundering terror-financing systems according to their standard.

Read: Grey list exit: SA can’t rest on its laurels

It also applies the principle of groupwide supervision – in other words, a group supervised by its head office supervisor on a consolidated basis across the whole group. One supervisor supervises the activities of the whole group structure.

Listen: From grey list to growth: How SA is shaping up for 2026

Those two principles have been applied in South Africa for many years. But this directive gives more practical expression to the transparency requirement and the information that we need to apply those principles effectively.

So that’s why – it’s an added step in the process to improve our effectiveness in these two aspects.

JIMMY MOYAHA: Putting in place preventive measures to ensure that we do not find ourselves in predicaments we have before as a country, and strengthening the overall security of our financial infrastructure – that is the goal of the Financial Intelligence Centre with this latest directive aimed at shedding some light on complex company structures and ensuring that accountable institutions report all of the relevant information that they need.

We’ll leave the conversation on that note.

Thanks so much to the acting director at the FIC, Pieter Smit, for joining us to take a look at their latest draft directive and its potential implications on businesses.

Follow Moneyweb’s in-depth finance and business news on WhatsApp here.