Money laundering and crime syndicates: FICA and POCA

South Africa

When one reads media headlines relating to money laundering and organized crime, it can strike fear of the unknown in any reader. It should come as no surprise that South Africa has one of the highest organised crime rates in the world, with criminal syndicates (organised and structured groups, which are involved in different criminal activities such as corruption, fraud and theft) being responsible for most financial crime currently happening within the country.

Money laundering is the process where the origin of the money accumulated through these various illegal means is concealed or disguised in order to make it seem as if the money acquired has been acquired through legitimate means.

The purpose of effectively “cleaning the money” is to avoid unnecessary attention such illegal funds may draw to the holders thereof. The impact of the above, is not one which is isolated, in that many companies are usually victims of not only fraud, theft and corruption in South Africa, but also victims in the final process of cleaning the money.

In order to prevent this, several pieces of South African legislation have been enacted to combat various illegal activities of crime syndicates, and it is important for every company to take note of these pieces of legislation to not only protect themselves but to maintain constant vigilance in a society in which crime is forever evolving and the syndicates running them are becoming smarter.

The Financial Intelligence Centre Act No 38 of 2001 (“FICA”) and Prevention of Organised Crime Act No 121 of 1998 (“POCA”) are South Africa’s key pieces of legislation aimed at addressing the scourge of money laundering and organized crime, respectively. These pieces of legislation are complemented by, amongst others, the Prevention and Combating of Corrupt Activities Act No 12 of 2004 and the Protection of Constitutional Democracy against Terrorist and Related Activities Act No 33 of 2004.

FICA provides for the establishment of the Financial Intelligence Center (“FIC”) in order to combat money laundering activities and the financing of terrorist and related activities. The FIC is overall responsible for oversight of compliance with FICA. FICA also imposes certain duties on institutions and other persons who might be used for money laundering purposes. It places obligations on ‘accountable institutions’ (as defined in FICA) to conduct Know‑Your‑Client (KYC) due diligence measures on their clients using a risk-based approach to client identification and verification. Accountable Institutions include banks, estate agents and attorneys.

An accountable institution is therefore required to know and understand not only who their clients are, but what business such a client conducts. The purpose of this is to enable accountable institutions to identify behavior and/or transactional activity which does not align with the accountable institutions’ knowledge of that particular client, which could potentially indicate an abuse of the accountable institution's products or services for illegal activity such as money laundering, terrorism financing or related forms of financial crime.

POCA on the other hand, criminalises, amongst others, activities in relation to the benefits of crime. In terms of POCA, any person who knows or ought reasonably to have known that property came from unlawful activities and still chooses to enter into the transaction with a person will be guilty of a criminal offense if the transaction is likely to have the effect of concealing, or disguising the nature, source, location or movement of the property, or the ownership thereof, or any interest which anyone may have in respect thereof. A company or person may also be found guilty of contravening POCA if the transaction is likely to enable or assist any person to avoid prosecution, or to remove or diminish any property acquired as the result of the criminal offence.

POCA further provides for crimes such as racketeering. In terms of POCA, any person who retains any form of property which was produced as a result of a pattern of racketeering and knew or ought to have reasonably known the origin of such property, and still chooses to invest any part of such property to acquire any interest in, or the establishment, operation or activities of any enterprise, will be guilty of an offence.

Both FICA and POCA go a long way in addressing the scourge of crimes perpetrated by organised criminal syndicates. However, whilst the legislation does help in the fight against organised crime, it is important for businesses to take a proactive approach in managing their risks in relation to commercial crime by implementing meaningful measures to mitigate the risk of becoming the victim of organised crime and/or other types of commercial crime.