Corporate investigations: The obligation to report suspicious transactions in terms of section 29 of The Financial Intelligence Centre Act, no 38 of 2001

Similarly, reporting of suspicious and unusual transactions are widely recognised as an essential mechanism to proactively monitor transactions suspected to be linked to money laundering or the financing of terrorist activities.

South Africa is a member of the Financial Action Task Force (FATF) in terms of which it has expressed a level of commitment to anti-money laundering (AML) and counter-terrorist financing (CFT) initiatives. FATF is an independent intergovernmental body which was established by the G-7 summit held in Paris in 1989. Its mandate includes developing policies to combat money laundering and terrorist financing in the global financial system.

FATF’s recommendations provide a comprehensive framework of AML and CFT measures which are recognised internationally as the AML standard of best practice. FATF’s recommendations 20 and 21 address the obligation on institutions to report suspicious or unusual transactions and the protections afforded to persons who report suspicious and unusual transactions, respectively.

FATF’s Recommendation 20 recommends that Financial Institutions (FIs) and designated non-financial business and professions (DNFBPs) which reasonably suspect that funds are the proceeds of a criminal activity, or are associated with terrorist financing, should be required by law to promptly report their suspicion to the local branch of the Financial Intelligence Unit (FIU).

FATF’s Recommendation 21 recommends that FIs and DNFBPs, including their directors and employees, be protected from criminal and civil liability if they report suspicious transactions in good faith to the FIU. To maintain confidentiality of the suspicious transaction report (STR) and the identity of the reporter, it is recommended that disclosure of an STR to any third party should be prohibited by law.

In compliance with its international obligations to combat, amongst others, money laundering and terrorist financing, South Africa promulgated the Financial Intelligence Centre Act, No 38 of 2001 (FICA) and the Prevention of Organised Crime Act, No 121 of 1998 (POCA).

Section 29 of FICA incorporates FATF’s recommendations on reporting suspicious or unusual transactions. It requires any person carrying on, managing or who is employed by a business to report certain transactions to the Financial Intelligence Centre (FIC). These transactions are set out in s29 and include, amongst others, those:

• where the business has received or is about to receive the proceeds of unlawful activities;
• which have no apparent business or lawful purpose;
• which are facilitated or likely to facilitate the transfer of the proceeds of unlawful activities;

conducted for the purpose of avoiding giving rise to a reporting duty in terms of FICA; or

• by which the business has been used or is about to be used in any way for money laundering purposes.

Examples of suspicious or unusual transactions include, amongst others:

• a deposit of funds accompanied by a request for immediate transfer elsewhere;
• the purchase of commodities at prices substantially above or below market prices;
• an unwarranted involvement of structures such as trusts and corporate vehicles in transactions; and
• an unwarranted desire to involve entities in foreign jurisdictions in transactions.

The obligation to report these types of transactions is placed on a person “who knows or ought reasonably to have known or suspected” such transactions. In terms of FICA, a reporter is not required to have actual proof of a suspicious transaction and a mere reasonable suspicion is sufficient for reporting purposes. The reporter’s suspicion ought to be based on an assessment of all the known circumstances relating to the relevant transaction including, for example, knowledge of the client’s business, financial history, background and behaviour.

The term ‘proceeds of unlawful activities’ referred to in s29 is not specifically defined in FICA. In terms of FICA, the definition of this term as defined in POCA is applicable. It is defined in POCA as “any property or any service, advantage, benefit or reward which was derived, received or retained, directly or indirectly, in [South Africa] or elsewhere, at any time before or after the commencement of [POCA], in connection with or as a result of any unlawful activity carried on by any person, and includes any property representing property so derived”.

There is no monetary threshold applicable to STRs. A suspicious transaction must, accordingly, be reported regardless of the amount of the transaction. An STR may be made in respect of a single transaction or a series of transactions to accommodate instances where a large amount is split into several smaller amounts to avoid triggering a cash threshold report (which is a reporting obligation placed on accountable and reporting institutions to report transactions above R24,999.99 to the FIC in terms of s28 of FICA).

A suspicious transaction must be reported as soon as possible and not longer than 15 working days after a person becomes aware of the facts which gives rise to the suspicion.

Once an STR is filed with the FIC, the reporter may continue with the transaction, unless the FIC issues an intervention order directing the reporter not to do so. The purpose of the intervention order is to prevent the dissipation of funds or property which may be the proceeds of unlawful activity.

A reporter is also prohibited from informing anyone of the contents of an STR. This is to maintain the strictest confidentiality of the STR and the reporter. FICA offers protection to individuals and entities who participate in making STRs and comply in good faith with FICA’s reporting obligations by prohibiting legal action, either criminal or civil, from being instituted against them.

Any person who fails to report a suspicious transaction is guilty of an offence in terms of FICA and is liable to imprisonment for a maximum period of up to 15 years or a fine of up to R100 million. STRs must be made online using the FIC’s web reporting platform “goAML”.

The sufficiency of a reasonable suspicion for the purposes of reporting a suspicious transaction coupled with the absence of a monetary threshold applicable to suspicious transactions casts a net wide enough to ensnare the complex, structured transactions across multiple jurisdictions and involving multiple entities, individuals or beneficiaries typically used to disguise money laundering activities.

Consequently, the obligation to report suspicious and unusual transactions is a fundamental practice in strengthening the South African financial system against the dangers posed by economic crime through proactive detection and prevention.