FIC Annual Report Text bk3:Layout 1 Annual Report... · 2013. 5. 21. · FIC Annual Report 2010...

Private Bag X177Centurion, 0047

South AfricaTel +27 12 641 6000Fax +27 12 641 6435

ISBN: 978-0-621-39689-8

RP: 240/2010

FIC Annual Report 2010 Cover:Layout 1 9/1/2010 2:47 PM

annual report

2009/10fic

financial intelligence centre

A national partnership

to combat crime

FIC Annual Report Text bk3:Layout 1 9/1/2010 2:26 PM Page 1

PUBLISHED BY FINANCIAL INTELLIGENCE CENTRE

Private Bag X177

Centurion

0047

South Africa

Tel: +27 12 641 6000

Fax: +27 12 641 6435

Design and layout: Formeset Digital Tshwane (Pty) Ltd

Printing and binding: Formeset Print (Pty) Ltd

ISBN: 978-0-621-39689-8

RP: 240/2010


MISSION, VISION AND VALUES

Mission

To establish and maintain an effective policy and compliance framework and operational capacityto oversee compliance, and to provide high-quality, timeous financial intelligence for use in the fightagainst crime, money laundering and terror financing in order for South Africa to protect the integrityand stability of its financial system, develop economically and be a responsible global citizen.

Vision

We strive to be the leading player in the aggressive combating of money laundering and terrorfinancing to reduce crime for the benefit of South African citizens today and in the future. TheCentre will earn the trust, respect and support of our stakeholders for the quality of our information,and be recognised for the sustainability of our organisation with the loyalty and achievements ofskilled staff and the success of our efforts.

Values

The values of the Centre are as follows: • In the spirit of Ubuntu, to demonstrate integrity in everything that we do, with respect,

honesty, trust, discipline, humility and loyalty• To conduct our work with pride and discipline, accepting accountability and being prepared

to go “the extra mile”• To strive for excellence and professionalism, executing our mandate not only by identifying

problems, but providing solutions • To value individuals and allow space for creativity and growth• To optimise our relationships with stakeholders and partners • To ensure the security of organisational assets and information.

The Financial Intelligence Centre strives to ensure that these values are integrated into all aspectsof our work.

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CONTENTS

Submission of the Annual Report to the Executive Authority 1

Administrative Information 3

Acronyms 4

1. Report of the Accounting Authority 6

Introduction 6

Mandate 6

Building the AML/CFT System 8

Policy and Regulatory Environment 10

Impact, Enforcement and Partnerships 11

Reporting Period Highlights 14

Organisational Authority and Financial Management 15

Conclusion 16

2. Strategic Achievements 20

Becoming a Sustainable, Capable Institution 20

Developing and Commissioning the Information Technology System 25

Improving Consumption of FIC Products 28

Encouraging Greater Compliance by Accountable Institutions and the Public 33

Enhancing International AML/CFT Cooperation 40

Enhancing AML/CFT capacity in Eastern and Southern Africa 41

Increasing AML/CFT Capacity in South Africa 44

3. Structure of the FIC 48

Legal and Policy 48

Compliance and Prevention 49

Monitoring and Analysis 49

Administration and Support Services 49

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4. Typologies 52

Case 1: Abuse of Attorney’s Trust Account 52

Case 2: Fraudulent Company Scam 53

Case 3: Investment Scam 54

Case 4: 419 Scam 55

5. Audit Committee Report 58

6. Report of the Auditor-General 62

7. Financial Statements 66

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SUBMISSION OF THE ANNUAL REPORT

TO THE EXECUTIVE AUTHORITY

To the Minister of Finance, Mr Pravin Gordhan:

I have the honour of submitting to you, in accordance with the Public Finance Management Act

(1999), the annual report of the Financial Intelligence Centre for the period 1 April 2009 to

31 March 2010.

Murray Michell

Director and Accounting Authority


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ADMINISTRATIVE INFORMATION

DIRECTOR

Mr M Michell

CHIEF FINANCIAL OFFICER

Ms A Puoane

POSTAL ADDRESS

Private Bag X177

Centurion 0047

South Africa

TELEPHONE

+27 12 641 6000

FAX

+27 12 641 6435

WEBSITE

www.fic.gov.za

BANKERS

Standard Bank

INTERNAL AUDITORS

KPMG Services (Pty) Ltd

EXTERNAL AUDITORS

Auditor General SA

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ACRONYMS USED IN THIS REPORT

ADLA Authorised Dealer in Foreign Exchange with Limited AuthorityAML/CFT Anti-Money Laundering/ Combating of Financing of TerrorismCCR Cash courier reportCTR Cash threshold reportDPCI Directorate for Priority Crime InvestigationEFT Electronic funds transferESAAMLG Eastern and Southern Africa Anti-Money Laundering GroupFATF Financial Action Task ForceFIC Act Financial Intelligence Centre Act (2001)FIC Financial Intelligence Centre FIU Financial intelligence unit (generic term)FSB Financial Services BoardGDP Gross domestic productIT Information technologyMANCO Management CommitteeMOU Memorandum of understandingNGB National Gambling BoardOECD Organisation for Economic Cooperation and DevelopmentPCC Public compliance communicationsPMO Project Management OfficeSARS South African Revenue ServiceSTR Suspicious transaction report

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1. Report of the Accounting Authority


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1. REPORT OF THE ACCOUNTING AUTHORITY

INTRODUCTION

Money laundering and the financing of terrorism are global problems that require concerted globalsolutions. South Africa and the Financial Intelligence Centre (FIC) form an important part of thisworldwide effort. The FIC works closely with government, law enforcement and business to helpidentify the proceeds of unlawful activities, and to combat the scourge of money laundering andterror-related financing.

During the period covered by this report (1 April 2009 to 31 March 2010) the FIC took importantsteps forward in building a national partnership to combat money laundering and terror financing,and in strengthening the global framework covering these activities, with particular emphasis on theSouthern African region.

The worldwide costs of money laundering and terror financing are impossible to quantify accurately,but it is safe to say that the amount of money laundered each year exceeds the gross domesticproduct (GDP) of many countries.1 In South Africa alone during 2009/10, the FIC reported to theauthorities R66.1 billion in financial transactions that were suspected to be proceeds of crime andmoney laundering. Such funds represent real losses to our developing economy, and may be usedto promote additional criminal or terrorist activity.

MANDATE

The FIC was established in terms of the Financial Intelligence Centre Act (2001) (the FIC Act). Thisstep was in keeping with international standards as defined by the Financial Action Task Force(FATF),2 which recommends the creation of such bodies internationally. The FIC Act works inconcert with two other laws – the Prevention of Organised Crime Act (1998) and the Protectionof Constitutional Democracy against Terrorist and Related Activities Act (2004). Together, theseform a comprehensive anti-money laundering/combating of financing of terrorism (AML/CFT)legislative framework.

1 There is no agreed methodology to measure or quantify the extent of money laundering and the financing of terrorism. In 1998 MichelCamdessus, then managing director of the International Monetary Fund, estimated that the global money laundering figure could reach 2-5percent of world GDP on an annual basis, which would amount to trillions of dollars. While this estimate has been challenged, there is littledoubt that the scope of the problem is vast and has continued to increase.

2 The FATF is a global standards-setting body that consists of: Argentina, Australia, Austria, Belgium, Brazil, Canada, China, Denmark, theEuropean Commission, Finland, France, Germany, Greece, the Gulf Cooperation Council, Hong Kong, Iceland, Ireland, Italy, Japan,Luxembourg, Mexico, Netherlands, New Zealand, Norway, Portugal, the Russian Federation, Singapore, South Africa, South Korea, Spain,Sweden, Switzerland, Turkey, the United Kingdom and the United States. India has observer status.


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Report of the Accounting Authority

The FIC Act established the Centre to assist in: • Identifying the proceeds of unlawful activities • Combating money laundering activities• Combating financing of terrorist and related activities.

The primary activities of the FIC are to: • Make information that it collects available to investigating authorities, intelligence services

and the South African Revenue Service (SARS) to facilitate the administration andenforcement of the laws of the Republic

• Exchange information with similar bodies in other countries • Monitor and give guidance to accountable institutions, supervisory bodies and individuals

regarding their compliance with the provisions of the FIC Act• Contribute to the global AML/CFT framework.

The FIC Act also introduces a regulatory framework of measures concerning client identification,record-keeping, reporting of information and internal compliance structures. These requirementsapply to a broad range of financial and non-financial institutions, and define the anti-money launderingresponsibilities of supervisory bodies.

In the seven years since the FIC was established, much progress has been made. This is noted inthe February 2009 Mutual Evaluation Report – South Africa, published jointly by the FATF and theEastern and Southern Africa Anti-Money Laundering Group (ESAAMLG).3 The report states: “Thedevelopment of AML/CFT systems in South Africa represents work in progress. South Africa hasdemonstrated a strong commitment to implementing AML/CFT systems which has involved closecooperation and coordination between a variety of government departments and agencies. Theauthorities have sought to construct a system which uses as its reference the relevant UnitedNations Conventions and the international standards … Since 2003, South Africa has takennumerous steps to address many of the recommendations that were made in its first FATF mutualevaluation report.”

Understanding the challenge in South Africa

The FATF/ESAAMLG Mutual Evaluation Report identifies the following money launderingchallenges in South Africa:

“Major profit-generating crimes include fraud, theft, corruption, racketeering, precious metalssmuggling, abalone poaching, ‘419’ Nigerian-type economic/investment frauds and pyramid

3 ESAAMLG is the FATF-style regional body subscribing to global AML/CFT standards. It consists of 14 member states: Botswana, Kenya,Lesotho, Malawi, Mozambique, Mauritius, Namibia, South Africa, Seychelles, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe.



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While South Africa’s legal and regulatory framework is extensive, over the medium to long term itneeds to become used more widely. An effective system requires that all those individuals andentities involved in money laundering or terror financing be prosecuted. A successful system willresult in changed behaviour, reduced criminality and proceeds of crime, and consequently lessmoney laundering.

The FIC’s role is to ensure that the information it provides to law enforcement authorities is usedin a non-partisan manner, particularly where successful prosecution can have a high impact. This inturn requires a great degree of compliance and accountability from all those businesses that arerequired to implement the provisions of anti-money laundering laws and report to the Centre. Thedegree of business compliance shows the extent to which systemic prevention has been entrenchedin the private sector.

This requires the FIC’s mandate and responsibilities to be understood by all of its partners, andimposes a greater responsibility on the Centre to communicate its mandate to a broader audience.Business and the general public should be aware of money laundering and terror financing threats,and understand why certain measures are needed to reduce them.

BUILDING THE AML/CFT SYSTEM

The FIC is mandated to facilitate and enable South Africa’s AML/CFT system. The Centre performsa range of functions to achieve this long-term goal.

Crucially, this work is not carried out in isolation: the FIC functions as part of a value chain to ensurethat a total system is in operation. This system ranges from businesses that may come into contactwith attempted money laundering to the prosecuting authorities. The FIC sits at the centre of thisvalue chain.

The FIC Act requires businesses such as banks to conduct customer due diligence procedures – thatis, to know their customers – and to report suspicious transactions to the FIC. The Centre scrutinisesthese reports. If the FIC believes the transaction to be suspect, it makes a referral to the relevant

schemes, with increasing numbers of sophisticated and large-scale economic crimes and crimesthrough criminal syndicates. South Africa remains a transport point for drug trafficking.Corruption also presents a problem. However, the South African authorities are committed topursuing this issue through a range of initiatives such as the introduction of measures to entrenchgood governance and transparency. Security agencies indicated that the current threat frominternational and domestic terrorism is low, and will remain low for the foreseeable future.Nevertheless, the authorities are vigilant about the concern that South Africa could be used asa transit or hideaway destination for people with terrorist links.”



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authorities for investigation, which can be followed by prosecution, asset forfeiture or taxinvestigation. If the suspicion points to a security threat, the referral is made to intelligence agencies.The steps in the process are dependent on one another. The system as a whole cannot becomefully functional or effective if the component parts do not work together smoothly. Moreover,information does not flow in one direction: different agencies can request information from variousparties.

Building the AML/CFT framework in South Africa is the product of a dynamic partnership betweenthe private sector, the FIC, and a range of institutions across the public sector. The FIC has theresponsibility to act as the pivot in the transfer of information, and to ensure that the total AML/CFTenvironment becomes and remains functional, helping to provide the “glue” for the total system.

The FIC Act mandates the Centre to work with the supervisory bodies listed in the schedule to theact to ensure that they monitor levels of compliance by accountable institutions. The businesssectors required to report to the Centre include banks and other financial service providers,authorised foreign exchange dealers, insurance companies, investment schemes, stock and bondbrokers, casinos, bookmakers, estate agents, accountants, auditors, attorneys and motor vehicledealers.

Given the broad range of oversight required, the FIC functions in an “all-of-government” system tosupport AML/CFT. This approach goes far beyond liaison with law enforcement agencies, andincludes the National Treasury (responsible for financial sector policy and remittance matters), theDepartments of International Relations and Cooperation (foreign policy), Home Affairs (identity andimmigration), Social Development and Welfare (registration and oversight of non-governmentalorganisations), Trade and Industry (policy and monitoring of gambling, real estate and companyregistration), and public entities such as the South African Post Office.

To fulfil its mandate, the FIC has access to various sources of financial, administrative and lawenforcement information, including: • Suspicious transaction reports (STRs), which constitute the primary source of financial

intelligence. The FIC obtains these reports from accountable institutions, businesses orindividuals with statutory reporting obligations

• Non-publicly available databases maintained by other government departments or agencies.Access to these is by arrangement

• Commercial databases, which provide information about registered legal entities, thecomposition of their governing structures, credit histories and property ownership

• Secondments, memoranda of understanding and information shared with other financialintelligence units (FIUs) via the Egmont4 secure web infrastructure

• Open information sources.

4 The Egmont Group of Financial Intelligence Units includes members from more than 120 countries.



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Working with these information sources, the FIC produces balanced reports in which it identifiesmoney laundering and terror financing activities – including the proceeds of such crimes and wherethese might be found – and is mandated to disseminate this information to domestic authorities forinvestigation or action. The FIC can provide such reports on its own initiative, or upon writtenauthority of an authorised officer in these government entities.

The FIC’s reputation depends on the integrity, accuracy and reliability of the information that itreceives and disseminates. We maintain strict safeguards to prevent violations of informationintegrity. To ensure that the FIC disseminates information in accordance with the relevant legalprovisions, referrals of information must be approved by the Director or a designated senior officialof the Centre, and be collected by an authorised officer of the recipient agency, with formalacknowledgement of receipt. Only an authorised officer from a law enforcement authority mayrequest information from the FIC.

The FIC analyses selected STRs before disseminating information in the form of intelligence reports.Such reports typically include the demographic profile of the subject, and banking exposure andtransacting patterns, with specific reference to any unusual or suspicious transacting. We also seekto pinpoint the location of the proceeds of such activities.

POLICY AND REGULATORY ENVIRONMENT

During 2009/10 there were several important changes in the FIC’s operating environment. TheCentre interpreted these changes and made appropriate adjustments in accordance with itsmandate.

Following the April 2009 elections, the new administration introduced a number of policy shifts and

steps to improve intergovernmental cooperation and service delivery. Government’s medium-term strategic framework identifies several core objectives that relate to the FIC’s work. Theseinclude: • Intensifying the fight against crime and corruption – The FIC provides services and products

to law enforcement authorities, intelligence services and SARS in their battle against crimeand terrorism financing. The Centre promotes public awareness of the threat of moneylaundering and terror financing, and simultaneously enhances the levels of compliance bythe private sector

• Economic growth and transformation – The FIC works to increase the level of AML/CFTcompliance, and the stability of South Africa’s financial system, helping to reduce the extentto which financial institutions can be exploited by criminal networks. This reduces systemicrisk and boosts investor confidence

• An improved international environment and greater development on the African continent –The FIC works closely with our counterparts in African countries and internationalorganisations, strengthening global information exchange.



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The most far-reaching global financial crisis in decades has prompted initiatives to strengthen theinternational regulatory system. Efforts have focused on tightening up the global financial architecture,reducing the risk of worldwide contagion, and reinforcing the stability of banking systems. There isalso a drive to identify high-risk jurisdictions where weak financial controls are in place, particularlyconcerning money laundering and terror financing. The FIC coordinates South Africa's involvementin the FATF, which supports and aligns its actions with Group of 20 (G20) initiatives. One FATFfocus area has been to identify and monitor countries and jurisdictions with weak or non-existentAML/CFT frameworks that pose a threat to the global financial system. This has placed increaseddemands on the FIC for additional research, better coordination and greater communication withdepartments such as International Relations and Cooperation, and the National Treasury.

The financial crisis also led to the exposure of various fraud schemes and associated criminalactivities, including those within South Africa, which resulted in large investment losses, moral outrageand growing pressure to bring perpetrators to book.

During 2009/10 an amendment to the South African Police Service Act (1995) created the legalplatform for an integrated approach when dealing with priority offences. The amendment establishedthe Directorate for Priority Crime Investigation (DPCI) and allows for the police to make use ofspecialised skills and powers from other government agencies to combat priority crimes. Thesechanges will help strengthen the national partnership to combat money laundering and terrorfinancing. The FIC took steps to align itself fully with the amended act, including making its resourcesand capabilities available to the DPCI for the investigation of priority crimes.

IMPACT, ENFORCEMENT AND PARTNERSHIPS

Over the past year the FIC has focused, with some success, on increasing the impact of its work,strengthening enforcement of the AML/CFT regime, and enhancing partnerships with private sectororganisations that are obligated to comply with the FIC Act. We intend to make further progressin all these areas over the next reporting period.

The FIC has reinforced its working relationships with supervisory bodies, and much effort has goneinto developing partnerships that go beyond the banking and financial services industries – such asorganisations representing estate agents, casinos and attorneys. The FIC continues to enjoy cordialand productive working relationships with the National Treasury, the Reserve Bank and the FinancialServices Board (FSB), as reflected in several new initiatives to strengthen anti-money launderingmeasures. The FIC also supported the National Treasury in reforming supply chain processes byproviding analysis of alleged tender fraud. We remain committed to efforts that will lead tostrengthening of the financial regulatory framework, including enforcement, and seek betterfunctioning and cooperation among entities reporting to the Minister of Finance.


All of these initiatives are part of the FIC’s concerted drive to reinforce the impact of South Africa’sAML/CFT framework. More focused data analysis and monitoring have led to a continuousimprovement in the quality of reports that we provide to law enforcement and prosecuting agencies,with a greater monetary value identified that is potentially linked to money laundering or terrorismfinancing. The emphasis has been on increasing the quality of FIC products available to partnersboth in the private sector and in government.

Financial Intelligence Centre Amendment Act

During the reporting period, the FIC did a great deal of work preparing for a legislative amendmentthat will support a vast increase in the impact of South Africa’s AML/CFT provisions. One of thelimitations of the FIC Act has been the absence of administrative enforcement tools. This hashampered proper administration of the act, limiting the effectiveness of the AML/CFT regime,particularly in the areas of compliance and enforcement. The Mutual Evaluation Report alsohighlighted this deficiency. The FIC Act provides for enforcement of its provisions through criminalsanctions alone. While such sanctions are essential, they need to be complemented by anadministrative process that provides a more flexible and efficient means to address certaincontraventions of the Act.

The Financial Intelligence Centre Amendment Act (2008) addresses this deficiency. Theamendments will support increased levels of business compliance with reporting obligations andstrengthen collective AML/CFT efforts. The amendments, once in force, will give supervisory bodiesthe ability to inspect accountable institutions, and to impose administrative sanctions for non-compliance with the FIC Act. The Centre itself may be called upon to conduct inspections and, ifnecessary, to impose sanctions.

Promoting good corporate citizenship

Compliance with the provisions of the FIC Act is the first step in building a fully operational systemto combat money laundering and terrorism financing. Compliance alone, however, is not enough.The FIC’s initiatives stress the need for businesses to go beyond formal compliance, and to take thenext steps in good corporate citizenship. This implies an investment of resources and time tobecome compliant, and a more engaged stance in relation to the provisions of the Act – includinghow businesses explain these requirements to their customers. The box below summarises theseprovisions for individual clients.

How the FIC Act works

To comply with the requirements of the FIC Act, accountable institutions, such as banks, needto obtain proof of their customers’ identity and residential address.

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In most cases, this should be a straightforward process. It involves some responsibility on the partof both the business and the client, but the burden is not an onerous one. There has been publicfrustration with the process, however, as reflected in the letter to one media outlet excerptedbelow.

To establish identification, the primary document is the original, green, bar-coded ID book. Inexceptional circumstances, a valid South African driver’s licence, or a valid South Africanpassport, are acceptable. To prove residential address an individual can use a document showinghis or her name and full address (i.e. not a post box). A good practice would be to requiredocumentation that is less than three months old. Acceptable documents may differ from onebusiness to the next. The following are generally accepted to prove residential address: • Utility bill • Bank statement from another bank, provided the other bank was registered in terms of

the Banks Act (1990) and had confirmed the person’s particulars• Recent lease or rental agreement • Municipal rates invoice • Mortgage statement from another institution • Telephone or cell phone bill • Valid TV licence • Recent insurance policy document issued by an insurance company • Recent motor vehicle licence documentation.

If none of these are available, an affidavit from a person living with the client, or an employerof the client, may be taken. It must include the client’s name, ID number and residential address;the deponent of the affidavit; and the relationship between client and deponent.

Fed up with FICA*

Dear Editor,

I am sure I am not the only one that is thoroughly fed-up with FICA or at least the way it isbeing applied by the banks in particular. As a small business owner I am being harassedperiodically by my bank to provide copies of IDs of all the members, proof of their residentialaddresses, proof of the address where the business is situated, etc. etc.

This despite the fact that all these details were given to them a few months ago and nothinghas changed in the meantime; this despite the fact that our so-called business consultant hasalready visited our business premises and accordingly knows exactly where we trade from….

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The legislation was designed to be part of a strategy of "know your client" and, if properlyapplied might be of some benefit. But to merely fire off e-mails with veiled threats that if youdo not comply within a certain time, your accounts will be frozen are counter-productive in theextreme. If the banks really get to know their clients, they may be able to provide a betterservice….

*Financial Intelligence Centre Act

Know your customer

The letter excerpted above is not an anomaly. Poor application of the FIC Act by accountableinstitutions, particularly financial institutions, generates unnecessary public irritation, creates astumbling block for those seeking easy and affordable access to finance, and undermines properapplication of AML/CFT controls. One reason for this is that many institutions identify their clientson the basis of each separate service or product offered, rather than having a “single view” of theclient regardless of the products acquired. As it happens, this also hinders the ability of customersto switch from one bank to another.

There have been calls for a single national “know your customer” hub. While a hub could alleviatesome of the immediate aggravation experienced by clients, it would not provide a complete answerfor institutions if they are to satisfy client confidentiality considerations, retain market competivenessand reduce frustration with the identification process. Instead, businesses will need to invest in newtechnology and systems to develop single views of their respective client bases, with the potentialspinoffs of improved risk management and marketing opportunities. Such a course would enablefinancial institutions to comply with the FIC Act in a way that reduces intrusion upon and aggravationto their clients.

The FIC will give further consideration to these matters over the year ahead. We have also takennote of a number of complaints about attorneys – particularly conveyancers – charging fees toidentify clients. The FIC Act contains no requirement that fees be charged and the Centre will takesteps to eliminate this practice.

REPORTING PERIOD HIGHLIGHTS

The FIC’s strategic achievements during the reporting period are reviewed in Section 2. Below areseveral highlights:• The Centre made considerable efforts during the reporting period preparing for new data

that it will receive under the FIC Amendment Act, which is expected to come into effect

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during 2010/11. As discussed above, the FIC worked to develop draft regulations and newreporting mechanisms that will be enforced under the Act

• The FIC enhanced its information technology (IT) platform to synthesise new reportingstreams, which will include cash threshold reporting (CTR) and cross-border reporting. Thisdata will provide a new source of information that can be analysed and passed on to lawenforcement and investigative authorities

• Businesses and individuals submitted 29 411 STRs – a 28 percent increase on the prior year,indicating a growing awareness of the need to combat money laundering and terror financing.The FIC also responded to 368 queries from the public.

• The Centre has sharpened the focus of its intelligence reports, emphasising quality overquantity. The FIC passed on 331 such reports to law enforcement and investigating agencies,identifying R66.1 billion in financial transactions suspected to be related to crime, moneylaundering or terrorism financing. The number of reports was 73 percent lower comparedwith the prior year, but the value of transactions identified rose by 1 028 percent

• The FIC identified links between criminal conduct and financial benefit in 43 matters, andaccordingly froze R128 million in the bank accounts of those involved

• Acting on the understanding that South Africa’s AML/CFT regime cannot be fully effectiveunless we work in concert with our global counterparts, the FIC strengthened its internationalcooperation through interactions with the Egmont Group, the FATF and ESAAMLG, withparticular focus on Africa. We contributed to 83 foreign investigations – a 16 percentincrease on the prior year. Information-sharing pacts were completed with Namibia, Senegaland Swaziland, and the FIC co-sponsored Malawi’s admission to the Egmont Group. At year-end, the Centre had cooperation agreements in place with the FIUs of 24 countries.

ORGANISATIONAL AUTHORITY AND FINANCIAL MANAGEMENT

The FIC is a statutory body that operates outside the public service, but within the publicadministration, as envisaged in section 195 of the Constitution. It is registered as a section 3(a)entity in terms of the Public Finance Management Act. The Director of the FIC, who is also theaccounting authority, reports directly to the Minister of Finance and to Parliament for theperformance of the Centre.

The FIC, which is funded from the national fiscus, develops its own budget and manages its ownfunds. The organisation operates within the government’s three-year planning and budgeting cycle,which includes the formulation of strategic goals for annual performance reporting. Section 2discusses our achievements against these goals.

The Financial Intelligence Centre has considerably underspent its budget by an amount of R15 613 000, for two main reasons.


Firstly, this is as a result of cost saving measures and sound financial decision making by the FICmanagement in relation to the acquisition and implementation of the Centre’s ICT systems andsolution. The Centre was able to acquire the systems and solution at a significantly reduced cost.

Secondly, the underspend was also as a result of slower-than-anticipated progress to complete thefinal planning and implementation for full business continuity within the FIC.

During the year the FIC identified certain instances of misconduct, with one case of fraudulentmisconduct by an employee of the Centre who has since been dismissed. The FIC has institutedcriminal proceedings against this former employee.

In addition, after the close of the reporting period, the Chief Financial Officer was suspended forpossible charges of misconduct, pending the outcome of the ongoing investigation.

CONCLUSION

Over the period ahead, the FIC plans new steps to strengthen the impact of its work, bolsterenforcement of the AML/CFT regime and enhance partnerships with the private sector.

As new reporting streams and new IT systems begin operating, the FIC will enhance its ability tocollect and analyse information, providing colleagues in the law enforcement and prosecutingauthorities with the ability to make better sense of the financial components of criminal activity.

The Centre is working in partnership with the DPCI to develop operating models in which FICinformation and expertise can be used in the service of priority crime investigations. These newlevels of coordination, and the enhanced use of financial intelligence, will bring the country in linewith international best practice. The FIC is considering how it might establish operational capacityto support the DPCI on a national basis.

The FIC Amendment Act preparations are nearing completion and the Act will come into effect in2010/11. This will enable supervisory bodies to conduct improved oversight and monitoring ofcompliance. We anticipate that the use of administrative penalties for the FIC Act non-complianceby accountable institutions will also result in changed behaviour by clients and institutions over time.

The FIC has continued to develop closer relations with a wider range of government departments.As a result of these initiatives, there is a growing awareness that the AML/CFT system is not theresponsibility of a single entity, but requires cooperation, coordination and sharing of informationacross government.

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The FIC has increased its staffing levels more slowly than anticipated, primarily because we havestruggled to find people with the necessary skills. The Centre needs to expand rapidly, but ourinability to source adequate expertise retards the pace of this expansion. We are considering howto overcome this problem, and holding discussions with other departments and private sectororganisations that face similar challenges in the labour market.

In summary, the FIC has taken further steps to become a well-established, smoothly functioningorganisation, as envisaged by Parliament when the FIC Act was passed in 2001. We are now at thethreshold of new levels of capability, service and impact in the achievement of our mandate.

Murray Michell

DIRECTOR

FINANCIAL INTELLIGENCE CENTRE


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2. Strategic Achievements


BECOMING A SUSTAINABLE, CAPABLE INSTITUTION

During the reporting period, the FIC registered important advances in the capabilities of its ITsystems, and in developing its staff and skills complement.

IT infrastructure investments

The FIC Amendment Act requires all accountable and reporting institutions to register with theCentre. Over the past financial year, the FIC has worked to develop a database that will house theinformation supplied electronically by these organisations. Work on the accountable and reportinginstitutions register included improvements, design changes and testing periods. By the close of thereporting period the database was ready to go live, allowing for both electronic and manualregistration.

The FIC also conducted extensive work in preparation for the rollout of a CTR system. The purposeof CTR is to monitor and report on cash transactions that may be linked to money laundering, sothat the proceeds of crime are identified and investigated in a timely manner. Under CTR, anytransaction of R25 000 or more must be reported. This feature, which will enhance both theCentre’s capabilities and the quality of information available to law enforcement, can be automatedfor large organisations. CTR is due to start with casinos, attorneys and motor vehicle dealers during2010/11, and to expand thereafter. The FIC developed an electronic process for filing CTR claimsthrough a portal on its website.

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2. STRATEGIC ACHIEVEMENTS

This section of the annual report emphasises the FIC’s progress in realising the strategic objectivesoutlined in its 2009 strategic plan.

Strategic objectives

The FIC’s six strategic objectives during the reporting period were to:• Become a sustainable, capable institution• Develop and commission the FIC’s IT system• Improve consumption of FIC products• Encourage greater compliance by accountable institutions and the public • Enhance AML/CFT capacity in East and Southern Africa • Increase AML/CFT capacity in South Africa


Strategic Achievements

21

ficannual report

2009/10

Project Management Office

During 2009/10 the FIC established the Project Management Office (PMO). The PMO participatedin several key projects, such as a web-based technical solution that enables registration ofaccountable and reporting institutions, the creation of secure communication channels for STRsand other reports, strengthened functionality for large-scale data receipt and a financial analysis toolthat eliminates manual intervention. The PMO also participated in a successful effort, in partnershipwith the South African Police Service’s Special Commercial Crime Unit in the Western Cape, toenable off-site analytical assistance.

Staff, skills and training

The FIC continued to develop its staff to build a sustainable and capable institution. Bringing in thenecessary personnel and skills remained a focus. The staff complement grew marginally, from 117in 2008/09 to 140 in 2009/10 (see Figure 1). Our target is to employ 250 staff by 2015. Althoughthere was some improvement in obtaining appropriately skilled staff, we continued to confront abroader lack of specialised financial and analytical skills.

To address this shortage, the FIC revised its approach to staff development and recruitment,preparing a learning and development strategy to build capacity internally. This approach aims todevelop talent and achieve strong depth of management at all levels of the organisation in an organicmanner. In line with our vision to empower and develop staff, the FIC granted bursaries to 44employees, and 88 percent of employees received some form of training. The value of the bursariesamounted to R309 390, representing 13 percent of the available bursary budget allocation. Thisachieved the target of providing bursaries to at least 80 percent of those staff members who appliedfor them.

To acquire and retain high-quality staff, the FIC developed a talent acquisition strategy during thereporting period. Not all vacant positions were filled as planned, mainly due to our difficulty insourcing suitably experienced and knowledgeable candidates, and the filling of certain vacancies waspostponed. The current staffing plan will be reviewed and updated during 2010/11, and vacancieswill be advertised. The positions will be filled if suitable candidates are identified.

The FIC’s strong commitment to employment equity is reflected in Figure 2 on the next page. As of 31 March 2010, the FIC’s staff complement included one disabled person, 52 percent womenand 78 percent African, Coloured and Indian persons.



22

ficannual report

2009/10

Figure 1: FIC staff complement (2003/04 – 2009/10)

Figure 2: Equity profile (2009/10)

0

2003–2004 2004–2005 2005–2006 2006–2007 2007–2008 2008–2009 2009–2010

Staff

Complement

50

100

150

Staff Complement

FIC Staff Equity Profile

African

Coloured

Indian

White



23

ficannual report

2009/10

PER

FO

RM

AN

CE A

GA

INST

TA

RG

ET

S: T

HE C

EN

TR

E IS A

SU

STA

INA

BLE A

ND

CA

PAB

LE IN

ST

ITU

TIO

N

Obje

ctiv

es

Perf

orm

ance

indic

ators

Outp

ut

targ

ets

2009/1

0

2009/1

0 a

chie

vem

ents

Reas

ons

for

devi

atio

n a

nd c

orr

ect

ive

action p

lan

1.1

To c

apac

itate

the

Cen

tre

with

ski

lls in

the

new

are

as o

f wor

kby

dev

elop

ing,

impl

emen

ting

and

revi

ewin

g a

staf

fing

plan

(i)

App

rove

d st

affin

gpl

an fo

r ne

war

eas

of w

ork

impl

emen

ted

(i)

App

rove

d st

affin

gpl

an im

plem

ent-

ed –

Q4

Onl

y 32

of t

he 1

08 v

acan

cies

as

per

the

appr

oved

sta

ffing

pla

n (3

0% o

f the

tota

l)w

ere

fille

d.

Not

all

vaca

nt p

ositi

ons

wer

e fil

led

aspl

anne

d, m

ainl

y du

e to

diff

icul

ty in

sou

rcin

gsu

itabl

e ca

ndid

ates

with

the

requ

ired

skills

,an

d th

e po

stpo

nem

ent o

f filli

ng c

erta

inva

canc

ies

to th

e ne

w fi

nanc

ial y

ear.

The

curr

ent s

taffi

ng p

lan

will

be r

evie

wed

and

upda

ted

durin

g 20

10/1

1, a

nd v

acan

-ci

es w

ill on

ce a

gain

be

adve

rtise

d an

d fil

led

if su

itabl

e ca

ndid

ates

are

iden

tifie

d.

(ii)

Revi

sed

staf

fing

plan

for

new

area

s of

wor

kap

prov

ed

(ii)

Revi

sed

plan

for

follo

win

g ye

arap

prov

ed –

Q2

The

curr

ent s

taffi

ng p

lan

was

not

rev

ised.

Due

to th

e ch

alle

nges

exp

erie

nced

in fi

lling

the

exist

ing

vaca

ncie

s, th

ere

was

no

need

to r

evisi

t the

cur

rent

sta

ffing

pla

n. T

hecu

rren

t sta

ffing

pla

n w

ill be

rev

iew

ed a

ndup

date

d du

ring

2010

/11.

1.2

To p

rovi

de a

ppro

-pr

iate

pre

mise

s fo

rC

entr

e op

erat

ions

inth

e m

ediu

m to

long

term

App

rove

d re

view

of

the

Cen

tre’

s fu

ture

acco

mm

odat

ion

need

sin

term

s of

siz

e an

dlo

catio

n

Acc

omm

odat

ion

need

s an

alys

isap

prov

ed –

Q4

A fo

rmal

acc

omm

odat

ion

need

s an

alys

isw

as n

ot c

ompl

eted

dur

ing

the

finan

cial

year

.

The

Cen

tre’

s en

tire

staf

f com

plem

ent w

asre

loca

ted

to n

ew p

rem

ises

in M

arch

200

9.Th

e em

phas

is ac

cord

ingl

y sh

ifted

from

final

ising

the

need

s an

alys

is to

ens

urin

g th

at th

e av

aila

ble

offic

e sp

ace

was

opt

i-m

ally

util

ised.

U

pon

achi

evem

ent o

f thi

s go

al, a

new

proj

ect c

hart

er w

ill be

dev

elop

ed d

urin

g20

10/1

1 to

focu

s on

the

follo

win

g ke

yiss

ues:

– C

ompl

etio

n of

the

Cen

tre’

sac

com

mod

atio

n ne

eds

anal

ysis

for

post

-20

13 o

ccup

atio

n (i.

e. w

hen

the

curr

ent

leas

e ex

pire

s).

– D

rafti

ng a

nd im

plem

entin

gac

com

mod

atio

n-re

late

d co

ntin

genc

ypl

ans

that

will

ensu

re th

at th

e C

entr

e’s

oper

atio

ns a

re s

usta

ined

unt

il m

id-2

013.

– Fi

nalis

ing

and

impl

emen

ting

the

regi

onal

offic

e st

rate

gy.


PER

FO

RM

AN

CE A

GA

INST

TA

RG

ET

S: T

HE C

EN

TR

E IS A

SU

STA

INA

BLE A

ND

CA

PAB

LE IN

ST

ITU

TIO

N (

continued)

Obje

ctiv

es

Perf

orm

ance

indic

ators

Outp

ut

targ

ets

2009/1

0

2009/1

0 a

chie

vem

ents

Reas

ons

for

devi

atio

n a

nd c

orr

ect

ive

action p

lan

1.3

To m

aint

ain

ITca

paci

ty to

sus

tain

the

busin

ess

of th

e C

entr

e

(i)

Dow

ntim

e of

inte

rnal

sys

tem

s(i)

M

aint

ain

dow

n-tim

e of

less

than

5% b

ench

mar

ked

from

ser

vice

prov

ider

s’se

rvic

e-le

vel

agre

emen

ts

Infra

stru

ctur

e ha

rdw

are

supp

ort a

gree

-m

ents

wer

e co

nclu

ded

with

all

seve

nex

tern

al s

ervi

ce p

rovi

ders

. The

FIC

lost

only

0.2

23%

of a

vaila

ble

hour

s du

e to

dow

ntim

e.

Targ

et a

chie

ved

(ii)

Turn

arou

nd ti

me

on b

usin

ess

syst

em q

uerie

s

(ii)

Mai

ntai

n tu

rn-

arou

nd ti

me

ofle

ss th

an 2

4ho

urs

for

80%

of q

uerie

s

2 62

0 in

tern

al q

uerie

s w

ere

logg

ed fo

rth

e 20

09/2

010

finan

cial

yea

r. Tu

rnar

ound

time

was

onl

y m

onito

red

from

Oct

ober

2009

,dur

ing

whi

ch 1

873

inte

rnal

que

ries

wer

e lo

gged

. 156

4 of

the

1873

que

ries

wer

e re

solv

ed w

ithin

24

hrs.

(83.

5%)

Targ

et a

chie

ved

1.4

To m

aint

ain

hum

anre

sour

ce c

apac

ity to

sust

ain

the

busin

ess

ofth

e C

entr

e

(i)

Ove

rall

staf

fco

mpl

emen

tm

aint

aine

d

(i)

10%

incr

ease

inst

aff n

umbe

rsye

ar-o

n-ye

ar

The

tota

l sta

ff co

mpl

emen

t of t

he F

ICin

crea

sed

to 1

40 d

epic

ting

a ne

t inc

reas

eaf

ter

resig

natio

ns o

f 16.

4%.

Targ

et a

chie

ved

(ii)

Staf

f tur

nove

r(ii

) St

aff t

urno

ver

less

than

15%

per

annu

m

Six

staf

f mem

bers

res

igne

d (5

.1%

of

the

tota

l sta

ff es

tabl

ishm

ent o

f 117

as

at 1

Apr

il 20

09).

Targ

et a

chie

ved

(iii)

Burs

arie

saw

arde

d(ii

i) 80

% o

f bur

sary

budg

et s

pent

The

FIC

app

rove

d 44

bur

sary

appl

icat

ions

to th

e va

lue

of R

309

390

for

staf

f. Th

e to

tal b

udge

t for

sta

ff tr

aini

ngan

d bu

rsar

ies

was

R2

351

250.

R35

0000

of th

is bu

dget

was

allo

cate

d to

bur

sarie

s.Th

is re

sulte

d in

88%

of t

he b

udge

t spe

nt.

Targ

et a

chie

ved

(iv)

Staf

f tra

inin

gpr

ovid

ed(iv

) Ex

pose

80%

of

staf

f to

trai

ning

87.8

% o

f sta

ff w

ere

expo

sed

to tr

aini

ng.

Targ

et a

chie

ved

ficannual report

2009/10

24



DEVELOPING AND COMMISSIONING THE INFORMATION

TECHNOLOGY SYSTEM

IT systems are essential tools for the FIC to build a sustainable and capable organisation, and toachieve its mandate of strengthening the AML/CFT system.

During the reporting period, the FIC delivered a new information and communication technologyplatform to enhance analysis of reports received. This application integrates data collection of STRs,CTRs, terrorist property reports, cash conveyance reports (CCRs), and electronic funds transfer(EFT) reports. The application also supports collation, analysis, case management, graphical chartingand referrals dissemination.

The FIC activated an intelligence reporting form. Electronic registration of accountable institutionsand money laundering reporting officers has been developed.

The FIC also took the following steps in developing its IT system: • Successfully piloted a reporting mechanism for CCRs and CTRs. Development of these

reporting streams will strengthen the FIC’s partnership with reporting organisations, andbroader AML/CFT compliance by the private sector

• Defined and implemented best practice standards for applications, network and databases.These steps contributed to the overall stability and efficiency of the IT system. Definedsecurity services enabled by technology solutions are still to be implemented

• Implemented monitoring applications for network and server devices. These applicationsrecord uptime, downtime and perform systemic IT “health checks”

• Provided technical assistance to Mozambique’s FIU. The Centre helped to developinfrastructure design for the unit’s information and communications technology capability.

ficannual report

2009/10

25




26

ficannual report

2009/10

PER

FO

RM

AN

CE A

GA

INST

TA

RG

ET

S: D

EV

ELO

PIN

G A

ND

CO

MM

ISSIO

NIN

G T

HE IN

FO

RM

AT

ION

TEC

HN

OLO

GY

SY

ST

EM

Obje

ctiv

es

Perf

orm

ance

indic

ators

Outp

ut

targ

ets

2009/1

0

2009/1

0 a

chie

vem

ents

Reas

ons

for

devi

atio

n a

nd c

orr

ect

ive

action p

lan

2.1

To e

nhan

ce th

e in

for-

mat

ion

and

com

mun

i-ca

tion

tech

nolo

gypl

atfo

rm to

sup

port

the

busin

ess

proc

esse

san

d go

als

of th

eC

entr

e

(i)

New

and

enha

nced

busin

ess

sys-

tem

s be

com

eop

erat

iona

l

(i)

The

Cen

tre’

spr

iorit

y ne

xt-

gene

ratio

nbu

sines

s sy

stem

sco

mpl

eted

inac

cord

ance

with

the

appr

oved

plan

– Q

4

The

proj

ect c

hart

er fo

r th

e FI

C’s

next

-ge

nera

tion

busin

ess

syst

ems

was

app

rove

ddu

ring

June

200

9. T

he fo

llow

ing

busin

ess

appl

icat

ions

wer

e pi

lote

d an

d su

cces

sful

lyte

sted

with

spe

cific

ext

erna

l sta

keho

lder

sas

pla

nned

:–

Ana

lysis

app

licat

ion

(GoA

ML)

.–

New

web

form

for

subm

ittin

g ST

Rs a

ndte

rror

ist p

rope

rty

repo

rts

– Re

gist

ratio

n of

acc

ount

able

inst

itutio

nsan

d re

port

ing

inst

itutio

ns–

Regi

stra

tion

of a

utho

rised

offi

cers

.

The

FIC

initi

ally

pla

nned

to p

ilot a

n au

to-

mat

ed c

all c

entr

e to

dea

l with

any

com

-pl

ianc

e qu

erie

s re

ceiv

ed fr

om th

e pu

blic

.Th

is di

d no

t tak

e pl

ace

as th

e sc

ope

of th

epr

ojec

t was

ext

ende

d to

incl

ude

a ca

llce

ntre

for

the

entir

e FI

C. T

his

is to

be

final

ised

durin

g 20

10/1

1.

The

cont

ent m

anag

emen

t sys

tem

was

not

impl

emen

ted

due

to th

e im

plem

enta

tion

of th

e G

oAM

L an

d C

TR r

epor

ting

syst

embe

ing

prio

ritise

d. T

he c

onte

nt m

anag

emen

tsy

stem

will

be in

itiat

ed d

urin

g th

e co

urse

of 2

010/

11 o

nce

the

docu

men

t sub

-m

issio

n, fi

ling

and

cont

ent m

anag

emen

tpr

oces

ses

have

bee

n m

appe

d.

(ii)

Plan

for

addi

-tio

nal b

usin

ess

syst

ems

ap-

prov

ed –

Q4

The

plan

for

addi

tiona

l bus

ines

s sy

stem

sw

as n

ot d

evel

oped

and

app

rove

d as

plan

ned.

Follo

win

g fe

edba

ck fr

om in

tern

al a

ndex

tern

al s

take

hold

ers,

no a

dditi

onal

busin

ess

syst

ems

wer

e id

entif

ied.

Acc

ordi

ngly

, no

plan

was

dev

elop

ed.

To in

tegr

ate

FIC

sys

-te

ms

with

thos

e of

targ

eted

ext

erna

lst

akeh

olde

rs to

obt

ain

addi

tiona

l and

im-

prov

ed r

epor

ting

stre

ams

to e

nhan

ceth

e C

entr

e’s

abilit

y to

colle

ct r

elev

ant i

nfor

-m

atio

n

(i)

Rece

ipt a

ndpr

oces

sing

ofda

ta fr

omex

tern

alst

akeh

olde

rses

tabl

ished

and

inte

grat

ed in

toFI

C s

yste

ms

(i)

A fi

rst-

gene

ratio

nC

CR

and

CTR

repo

rtin

g sy

stem

esta

blish

ed –

Q4

The

CC

R an

d C

TR r

epor

ting

syst

em,

alth

ough

not

yet

fully

inte

grat

ed w

ith th

esy

stem

s of

ext

erna

l sta

keho

lder

s, w

aspi

lote

d, te

sted

and

rev

iew

ed d

urin

gFe

brua

ry 2

010

with

sel

ecte

d st

akeh

olde

rs.

Targ

et a

chie

ved.

The

sys

tem

has

bee

npi

lote

d an

d te

sted

and

full

inte

grat

ion

will

happ

en o

nce

amen

dmen

ts to

the

rele

vant

sect

ions

of t

he F

IC A

ct h

ave

been

prom

ulga

ted.

(ii)

Out

line

of r

e-qu

irem

ents

and

scop

e fo

r re

-ce

ivin

g an

d in

te-

grat

ing

data

from

EFTs

An

outli

ne, o

r sc

opin

g, d

ocum

ent f

or th

eap

proa

ch o

f the

EFT

rep

ortin

g w

as d

rafte

dan

d ag

reed

with

the

Rese

rve

Bank

’sEx

chan

ge C

ontr

ol D

epar

tmen

t.

Targ

et a

chie

ved



27

ficannual report

2009/10

Obje

ctiv

es

Perf

orm

ance

indic

ators

Outp

ut

targ

ets

2009/1

0

2009/1

0 a

chie

vem

ents

Reas

ons

for

devi

atio

n a

nd c

orr

ect

ive

action p

lan

2.3

To e

stab

lish

disa

ster

reco

very

, bus

ines

sco

ntin

uity

, inf

orm

atio

nse

curit

y sy

stem

s an

dpo

licie

s re

quire

d fo

rth

e se

curin

g an

dsu

stai

nmen

t of t

heC

entr

e’s

busin

ess

oper

atio

ns

(i)

App

rove

ddi

sast

er r

ecov

ery

plan

and

disa

ster

reco

very

sys

tem

impl

emen

ted

(i)

Disa

ster

rec

over

ypl

an a

ppro

ved

–Q

2

The

disa

ster

rec

over

y pl

an w

as a

ppro

ved

durin

g Q

3 (D

ecem

ber

2009

). Th

e sli

ght

dela

y w

as d

ue to

the

disa

ster

rec

over

y pl

anm

akin

g pr

ovisi

on fo

r ne

wly

impl

emen

ted

busin

ess

appl

icat

ions

(pa

ragr

aphs

2.1

and

2.2

refe

r) a

nd it

s as

soci

ated

dat

a gr

owth

.

Targ

et a

chie

ved

(ii)

App

rove

dbu

sines

s co

nti-

nuity

pla

n an

dbu

sines

s co

nti-

nuity

sys

tem

impl

emen

ted

(ii)

Busin

ess

con-

tinui

ty p

lan

appr

oved

– Q

2

The

busin

ess

cont

inui

ty p

lan

has

not b

een

draf

ted

and

appr

oved

as

plan

ned.

Busin

ess

cont

inui

ty p

roce

sses

hav

e no

t yet

been

impl

emen

ted.

The

IT s

ervi

ces

cont

inui

ty p

roce

ss is

stil

l to

be d

esig

ned

and

com

plet

ed in

the

next

fina

ncia

l yea

rto

geth

er w

ith d

isast

er r

ecov

ery

proc

ess.

Onc

e th

e di

sast

er r

ecov

ery

plan

has

bee

nfu

lly im

plem

ente

d an

d bu

sines

s co

ntin

uity

proc

esse

s de

fined

, the

bus

ines

s co

ntin

uity

plan

will

be d

rafte

d an

d im

plem

ente

ddu

ring

2010

/11.

(iii)

App

rove

d ke

yin

form

atio

nse

curit

y po

licie

san

d ke

y in

for-

mat

ion

secu

rity

syst

em e

lem

ents

impl

emen

ted

(iii)

Key

info

rmat

ion

secu

rity

polic

ies

appr

oved

– Q

2

The

key

info

rmat

ion

secu

rity

polic

ies

have

not b

een

draf

ted

and

appr

oved

as

plan

ned.

The

vaca

nt in

form

atio

n se

curit

y ar

chite

ctpo

st c

ould

not

be

fille

d by

a s

uita

ble

cand

idat

e. O

nce

a su

itabl

e ca

ndid

ate

has

been

app

oint

ed, t

he k

ey in

form

atio

nse

curit

y po

licie

s w

ill be

dra

fted

and

appr

oved

bef

ore

31 M

arch

201

1.


IMPROVING CONSUMPTION OF FIC PRODUCTS

The FIC took important steps forward in this area by improving the use of financial intelligence andsupporting investigations by law enforcement agencies.

In part due to the work of the Centre, there is growing public awareness of the need to combatmoney laundering and the financing of terrorist activity. Heightened public consciousness led to theFIC receiving 29 411 STRs during the reporting period. This marked a 28 percent increase on theprior year. In addition, both the quality of reports and the accuracy of accompanying data haveimproved over time as a result of interventions by the private sector and the FIC. The majority ofreports concerned remittances. The FIC has received a total of 142 240 STRs since its inception.

Table 1: Suspicious transactions reported to the FIC

Suspicious Transaction Reports made to the Financial Intelligence Centre

Financial Year No of STRs Accumulated Total

2002/03 991 991

2003/04 7 480 8 471

2004/05 15 757 24 228

2005/06 19 793 44 021

2006/07 21 466 65 487

2007/08 24 580 90 067

2008/09 22 762 112 829

2009/10 29 411 142 240

Data analysis

In conducting data analysis, the FIC has adopted a new approach that takes into account thepriorities, capabilities and human resource constraints facing different law enforcement agencies.These factors are given consideration when the FIC analyses or refers STRs for investigation. Thisstrategy, combined with the application of risk-based approaches to STR selection, as well as newfinancial analytical and modelling tools, has substantially increased our ability to interpret and identifymoney laundering schemes, proceeds of crime and potential terrorism financing. As a result of theimproved data analysis, law enforcement agencies are now better positioned to act on reports thatwe supply. During the reporting period, the FIC took steps to enhance the quality and integrity ofsuch information, leading to a closer relationship with law enforcement agencies and increasedinteraction based on referrals and requests.

ficannual report

2009/10

28



Financial Non-financial

Cooperation with law enforcement agencies in combating crime

During 2009/10 the FIC referred 331 intelligence reports to law enforcement authorities. Thesereports, compiled on the basis of data analysis, identified individuals and entities suspected of dealingwith proceeds of crime, money laundering or terrorism financing. While this was a 73 percentdecrease in the number of referrals compared with the prior year, it reflected a vast increase in the

9%

91%

Cooperation with the private sector in combating crime

Private-sector cooperation is vital for the FIC to be able to identify the proceeds of crime, and tocombat money laundering and terrorism financing. Extensive interactions with accountableinstitutions in the form of training, feedback, discussion of trends, typologies and guidance notes haveled to greater understanding by businesses of their obligations, and by the FIC of private-sectorconcerns. For example, the banks have a greater appreciation of their role in ensuring complianceand the efficiency of South Africa’s AML/CFT regime.

To enhance cooperation with business, the FIC conducted a training session on informationgathering and analysis. More than 40 participants, representing all of South Africa’s major banks,attended. In partnership with the supervisory organisations, the FIC conducted a host of compliancereviews during the reporting period. These reviews are discussed in detail later in this annual report.

Submission of STRs is still dominated by the financial sector (91 percent), with the remainder comingfrom non-financial bodies.

Figure 3: Breakdown of STRs received from financial and non-financial bodies

ficannual report

2009/10

29



R80.3 million

R6.2 million

R17.7 million

R24.3 million

R115 000

Fraud

Fraud – commercial crime

Fraud, theft

Drug trafficking

Money laundering

funds involved. The 331 reports identified R66.1 billion in financial transactions that were suspectedto be proceeds of crime and money laundering – a 1 039 percent increase in monetary value over2008/09 (R5.8 billion).

This reflects the FIC’s growing emphasis on quality, rather than quantity. The aim is to improve theconsumption of financial intelligence products by law enforcement authorities. The FIC increasinglyfavours providing high-quality and timely, actionable, financial intelligence rather than larger volumesof lower-quality intelligence, much of which cannot be acted upon. This development has seen aconcomitant increase in interaction with investigators. Our risk-based approach is designed to targethigh-impact cases involving large amounts of money and greater numbers of people. In practice, itwill be more important to identify a pyramid scheme that has attracted the savings of hundreds ofSouth Africans, for example, rather than one individual.

During 2009/10 the FIC identified 43 matters where there was a direct connection between criminalconduct and financial benefit, and where such funds remained in bank accounts. In these instanceswe froze bank accounts and worked with other government agencies to confiscate the financialbenefits of criminal activity. The FIC froze just over R128 million in bank accounts to enableinvestigators from the Asset Forfeiture Unit to forfeit the amounts.

Figure 4: Crime-related funds frozen by the FIC

ficannual report

2009/10

30



Domestic cooperation

The FIC supports law enforcement and security agencies by supplying financial intelligence onindividuals and entities under investigation. In 2009/10 we responded to 393 such requests – a 57percent increase compared with the prior year. The information supplied included identifying bankaccounts within South Africa and abroad, identifying syndicates and organised crime networks, andcomplex financial analysis to uncover money laundering trails. Ninety percent of all feedback receivedfrom requesting agencies indicates that information supplied by the FIC has added value toinvestigations, and in all instances law enforcement authorities indicated either excellent or promptfeedback to their requests.

International cooperation

The FIC contributed to 83 international investigations by responding to information requests – a 16percent increase in requests for assistance from our global counterparts compared with 2008/09.The information supplied included open source and STR information, in keeping with theinternational protocols for cooperation between FIUs.

ficannual report

2009/10

31



PER

FO

RM

AN

CE A

GA

INST

TA

RG

ET

S: I

MPRO

VIN

G C

ON

SU

MPT

ION

OF F

IC P

RO

DU

CT

S

Obje

ctiv

es

Perf

orm

ance

indic

ators

Outp

ut

targ

ets

2009/1

0

2009/1

0 a

chie

vem

ents

Reas

ons

for

devi

atio

n a

nd c

orr

ect

ive

action p

lan

3.1

To e

nhan

ce th

eco

nsum

ptio

n of

the

Cen

tre’

s fin

anci

alin

tellig

ence

pro

duct

sby

law

enf

orce

men

tag

enci

es a

ndin

vest

igat

ing

auth

oriti

es

(i)

Prod

ucts

up-

date

d as

agr

eed

in r

epor

t on

need

s an

d pr

iori-

ties

(i)

Repo

rt o

n cl

ient

prio

ritie

s –

Q1

and

upda

tes

topr

oduc

t – Q

4

A c

lient

-nee

ds r

evie

w (

incl

udin

g 12

rese

arch

doc

umen

ts)

was

com

plet

ed a

ndre

port

ed to

the

Dire

ctor

. Bas

ed o

n th

efe

edba

ck r

ecei

ved,

am

endm

ents

wer

eef

fect

ed w

ithin

the

finan

cial

inte

lligen

cean

d m

anag

emen

t cyc

le th

at u

ltim

atel

yre

sulte

d in

impr

oved

turn

arou

nd ti

mes

.

Targ

et a

chie

ved

(ii)

Feed

back

form

siss

ued

(ii)

Con

tinuo

usiss

uing

of

feed

back

form

s

Feed

back

form

s ar

e iss

ued

to a

llst

akeh

olde

rs w

ith e

very

req

uest

resp

onde

d to

. Fee

dbac

k re

ceiv

edin

dica

tes

that

the

info

rmat

ion

supp

lied

by th

e C

entr

e ad

ds v

alue

to in

vest

iga-

tions

. Fur

ther

mor

e, a

lmos

t all

of th

ere

spon

dent

s in

dica

ted

that

eith

erex

celle

nt o

r pr

ompt

feed

back

was

rece

ived

from

the

Cen

tre.

Targ

et a

chie

ved

3.2

To p

rovi

de ti

mel

yre

spon

ses

to r

eque

sts

for

the

Cen

tre’

sfin

anci

al in

tellig

ence

prod

ucts

by

law

enfo

rcem

ent a

genc

ies

and

inve

stig

atin

gau

thor

ities

(i)

Tim

ely

resp

onse

sto

req

uest

s(i)

80

% o

f int

erna

-tio

nal r

eque

sts

rece

ived

re-

spon

ded

to w

ith-

in th

e ag

reed

resp

onse

tim

e

83 in

tern

atio

nal r

eque

sts

wer

e re

ceiv

ed.

Rece

ipt o

f all

the

requ

ests

was

ackn

owle

dged

with

in 4

8 ho

urs.

Targ

et a

chie

ved

(ii)

80%

of n

atio

nal

requ

ests

rec

eive

dre

spon

ded

tow

ithin

the

agre

edre

spon

se ti

me

393

loca

l req

uest

s w

ere

rece

ived

.Re

ceip

t of a

ll th

e re

ques

ts w

asac

know

ledg

ed w

ithin

48

hour

s.

Targ

et a

chie

ved

ficannual report

2009/10

32



ENCOURAGING GREATER COMPLIANCE BY ACCOUNTABLE

INSTITUTIONS AND THE PUBLIC

Building an effective AML/CFT system requires a high degree of commitment and accountabilityfrom all those who are required to report to the FIC. This degree of compliance is an indication ofthe extent to which systemic prevention has been entrenched in the business community. The FICstresses the need for businesses to go beyond formal compliance, taking the next steps to becomegood corporate citizens. Greater public awareness of the need to combat money laundering andterrorism financing reinforces these goals and strengthens the overall system.

During 2009/10 the FIC conducted, in partnership with supervisory bodies, a large number ofcompliance engagements with partner organisations in all reporting industries. These reviewshighlighted progress achieved, as well as some deficiencies, and helped us to appreciate businessconcerns in implementing the FIC Act. These engagements complemented other steps we took toencourage compliance.

Work on new regulations (FIC Amendment Act). The Centre continued to prepare for theimplementation of amendments to the FIC Act. This work included: • Establishing an Inspectorate Unit to monitor and enforce administrative sanctions in cases

of compliance violation and, if necessary, to refer the matter to the investigative authoritiesfor criminal prosecution

• Drafting manuals on the inspectorate, enforcement policy, and a framework foradministrative sanctions and prosecution

• Preparing for the establishment of an appeals board to handle appeals against theadministrative decisions made by the FIC or a supervisory body

• Preparatory work for the accountable and reporting institutions register mentioned earlierin this report. Registration will be free of charge. The date for registration will be announcedin the next financial year.

Public compliance communications (PCCs). To reinforce growing public awareness, the FICdeveloped new guidance directed primarily to supervisory bodies, accountable institutions andreporting institutions. The PCC series, posted to the Centre’s website and emailed to stakeholders,is intended to improve understanding of the FIC and the compliance obligations of business, andto address complex or contentious issues that arise in the interpretation of the FIC Act. We issuedtwo PCCs during 2009/10.

Responses to public queries. During the reporting period the FIC responded to 529 queries frommembers of the public. Of these, 415 were received by e-mail and 114 by telephone. The majorityconcerned practical challenges that accountable institutions and the public confronted in theapplication of the FIC Act. The graph below shows year-on-year use of the FIC’s public enquiriesfacility.

ficannual report

2009/10

33



0

100

200

300

400

500

600

416469

368324

529

FY 2008/09 FY 2009/10FY 2007/08FY 2006/07FY 2005/06

Num

ber

of Public

Queri

es

An approach to compliance to combat terror financing. The FIC began a project to set out thebuilding blocks of a domestic CFT compliance architecture, a requirement distinct from AMLcompliance given the potential for threats to national security.

Compliance reviews and stakeholder engagements. The FIC is mandated to monitor and giveguidance to accountable and reporting institutions, supervisory bodies and other persons regardingtheir compliance with the FIC Act. In total, 21 business sectors deemed to be vulnerable to moneylaundering are required to fulfil these obligations. In performance of its mandate, the Centre informs,advises and collaborates with supervisory bodies to ensure their effective compliance oversight.We also provide compliance awareness training.

During the reporting period, the FIC placed emphasis on building and strengthening relationshipswith key partners. Accordingly, we conducted on-site compliance reviews together with the relevantsupervisory bodies (excluding the attorneys’ sector, where voluntary on-site reviews wereconducted solely by the FIC), as well as other engagements with industry. Table 2 shows the numberof reviews conducted to improve AML/CFT compliance levels since April 2006.

Figure 5: Public queries to the FIC

ficannual report

2009/10

34



Supervisory body Industry/sector 2006/07 2007/08 2008/09 2009/10

National GamblingBoard

Casinos 27 24 7 35

National GamblingBoard

Bookmakers – 42 43 28

Estate Agency AffairsBoard

Estate agents 8 13 27 11

Reserve Bank(Exchange ControlDepartment)

Authorised dealers with limited authority

16 25 43 21

Financial Services Board Insurance companies – 52 16 –

Financial Services Board Financial servicesproviders

– 26 3 25

Financial Services Board Collective investmentscheme managers

– 24 30 4

JSE Limited JSE stockbrokers andauthorised users of theBond Exchange

– 3 9 19

Law Society of SA Attorneys – 0 27 29

Financial IntelligenceCentre

Postbank – 27 30 27

Total 51 236 235 199

Overview of stakeholder sectors

To better understand the partner organisations with which we engage, the FIC is building profilesof supervisory bodies, accountable and reporting institutions, and others. Of particular importanceis the “compliance footprint” and risk profile of each sector and individual institution. Our stakeholderengagements during 2009/10 are summarised below.

Banking sector – The banking sector plays a critical role in the national AML/CFT framework. TheFIC held regular meetings with South Africa’s five largest banks (ABSA, FNB, Investec, Nedbankand Standard Bank) as well as with smaller banks. The purpose of these meetings was to enhanceour relationship with the sector, to introduce new initiatives (such as CTR) and to allow banks toengage on AML/CFT matters. We also interacted with 19 foreign banks during the year.

Authorised dealers with limited authority (ADLAs) – ADLAs are the only institutions allowed toengage in cross-border remittances. Working jointly with the Reserve Bank, the FIC conducted on-

Table 2: Compliance reviews conducted, 2006/07 – 2009/10

ficannual report

2009/10

35




36

ficannual report

2009/10

site reviews of 21 ADLAs in Gauteng, KwaZulu-Natal and the Western Cape. General areas of non-compliance included the following:• Customer identification and verification procedures were not always adhered to • Inadequate training of staff members • FIC Act reporting obligations were not communicated to all employees.

The majority of ADLA branches visited had internal rules, which was a marked improvement onthe previous financial year.

Financial services sector – The FSB and the FIC conducted joint compliance reviews of accountableinstitutions under FSB supervision, concentrated on financial services providers. The review founda broad level of compliance, but identified room for improvement, particularly among smallerorganisations.

Members of the JSE Limited – The FIC corresponded with all authorised users of the BondExchange of South Africa, prior to its merger with the JSE Limited, requesting that they allow us toconduct compliance reviews at their offices. The response was positive and the FIC conducted 19such visits during the reporting period. Compliance levels were found to be good, apart from someminor issues needing attention.

South African Post Office and the Postbank – The FIC held regular meetings with the Post Officeand Postbank. Since Postbank does not have an AML/CFT compliance supervisory body, the Centrehas taken on this role by default. The FIC conducted 27 on-site reviews of Postbank branches. Moststaff members interviewed were not fully aware of their STR reporting duties. Only managersattended training, and there was no proper dissemination of information to staff who dealt withclients on a daily basis. Based on a representative sample, we concluded that the Postbank was onlypartially compliant with the provisions of the FIC Act. These matters will receive further attentionin 2010/11.

Attorneys – Twenty-nine voluntary, on-site compliance reviews were conducted with legal firms.The FIC conducted these reviews without the presence of a supervisory body, because the LawSociety of South Africa has no supervisory or enforcement powers. Consideration was given tomaking each provincial law society a supervisory body for attorneys under schedule 2 of the FIC Act,and as a result the provincial law societies are preparing for such an amendment. The FIC alsoconsulted with the law societies on the implementation of CTR, and sent letters to 10 law firmsrequesting participation in the user acceptance testing of web-based CTR. Five firms respondedpositively and participated in the pilot.



37

ficannual report

2009/10

Casinos – Thirty-five casino reviews were conducted jointly with the National Gambling Board.Casinos were found to be largely compliant with the FIC Act. General areas of non-complianceincluded the following: • Loyalty programme client identification and verification records were not fully retained • Casinos had adopted generic group rules, rather than specific, customised internal rules• Internal rules were not fully cross-referenced to internal control procedures.

The FIC will work with the National Gambling Board to resolve these concerns.

Bookmakers – Twenty-seven on-site reviews of bookmakers were conducted jointly with theNational Gambling Board, and most were found to be largely compliant. However, bookmakers’internal rules did not adequately outline processes as required by the FIC Act. In addition, somebookmakers were not fully aware of all terror property reporting requirements. The FIC willcontinue to work with the National Gambling Board to support remedial action.

Motor vehicle dealers – The FIC strengthened its relationship with the National AutomobileDealers Association, which represents new motor vehicle dealerships. A key area of discussion wasthe proposed transition of motor vehicle dealers from reporting institution to accountable institutionstatus under the FIC Act. The challenge is that there is no regulatory body for AML/CFT supervision.Accordingly, in 2010/11 the FIC will assume this role.

Cash threshold reporting – As discussed earlier in this report, the FIC has moved to implement aCTR system in fulfilment of the requirements of section 28 of the FIC Act.

Cash conveyance reporting – During the reporting period, the FIC and SARS continued on aproject for CCR, and reports have been successfully received via a web-based facility, as proposedby the FIC Act. The review extends into the new financial year to enhance the reporting system.

Electronic funds transfer – The FIC engaged with the Reserve Bank to implement cross-border EFTreporting.

Risk-based approach to compliance – The FIC continued to consider the requirements needed toadopt a risk-based approach to AML/CFT compliance in South Africa, in accordance with FATFrecommendations. We anticipate that it will take at least two years before this approach can beconsidered for adoption in the domestic regulatory environment.

Training – To enhance compliance and strengthen partnerships with the major banks, and toimprove information gathering and analysis, the FIC conducted training on writing STRs.


PER

FO

RM

AN

CE A

GA

INST

TA

RG

ET

S: E

NC

OU

RA

GIN

G G

REA

TER

CO

MPLIA

NC

E B

Y A

CC

OU

NTA

BLE IN

ST

ITU

TIO

NS A

ND

TH

E P

UB

LIC

Obje

ctiv

es

Perf

orm

ance

indic

ators

Outp

ut

targ

ets

2009/1

0

2009/1

0 a

chie

vem

ents

Reas

ons

for

devi

atio

n a

nd c

orr

ect

ive

action p

lan

4.1

To c

reat

e aw

aren

ess

of th

e C

entr

e, th

e FI

CA

ct a

nd th

eir

role

sam

ong

all s

take

hold

ers

and

the

publ

ic

(i)

App

rove

dco

mm

unic

atio

npl

an

(i)

Com

mun

icat

ion

plan

app

rove

d –

Q1

A fo

rmal

com

mun

icat

ion

plan

was

deve

lope

d an

d co

ntin

uous

ly u

pdat

eddu

ring

2009

/10.

Targ

et a

chie

ved

(ii)

App

rove

dco

rpor

ate

iden

tity

plan

(ii)

Cor

pora

te id

enti-

ty a

ppro

ved

–Q

2

The

plan

for

the

Cen

tre’

s co

rpor

ate

iden

tity

was

app

rove

d du

ring

Janu

ary

2010

.Th

e sli

ght d

elay

was

due

to th

e ex

tent

of

wor

k be

ing

unde

rest

imat

ed.

Targ

et a

chie

ved

(iii)

Impl

emen

tatio

nof

an

appr

oved

awar

enes

sca

mpa

ign

(iii)

One

cor

pora

tele

vel a

war

enes

sca

mpa

ign

– Q

3

One

edi

toria

l was

writ

ten

and

one

adve

rtor

ial p

ublis

hed

in R

eal E

stat

eIn

vest

or m

agaz

ine.

Targ

et a

chie

ved

(iv)

Com

plet

edco

mm

unic

atio

nsac

tions

(iv)

Com

mun

icat

ion

actio

ns im

ple-

men

ted

as p

erth

e ap

prov

edpl

an –

Q4

Com

mun

icat

ion

activ

ities

wer

eim

plem

ente

d as

pla

nned

and

rep

orte

d on

in th

e m

onth

ly a

nd q

uart

erly

rep

orts

.

Targ

et a

chie

ved

4.2

To u

nder

take

adm

inist

rativ

e ac

tions

and

assis

t in

crim

inal

pros

ecut

ions

rel

atin

gto

non

-com

plia

nce

inpu

rsui

t of i

mpr

oved

com

plia

nce

of F

IC A

ct

(i)

App

rove

d ac

tion

plan

(i)

A

ctio

n pl

anap

prov

ed –

Q4

A fo

rmal

sco

ping

doc

umen

t was

deve

lope

d du

ring

June

200

9. K

eydo

cum

ents

dev

elop

ed a

s pe

r th

e sc

opin

gdo

cum

ent i

nclu

ded:

–

Fina

l dra

ft fra

mew

ork

for

the

esta

blish

men

t of a

n in

spec

tora

te–

Fina

l dra

ft en

forc

emen

t pol

icy

– Fi

nal d

raft

insp

ecto

rate

man

ual

– Fi

nal d

raft

rule

s an

d pr

oced

ures

of t

heA

ppea

l Boa

rd m

embe

rs

– Fi

nal d

raft

inte

rnal

pro

cedu

re o

f the

secr

etar

iat.

Targ

et a

chie

ved

(ii)

Repo

rt o

n th

esu

ppor

t pro

vide

d (ii

) Re

port

on

sup-

port

pro

vide

d –

Q4

Mon

thly

and

qua

rter

ly r

epor

ts a

reco

mpi

led

and

subm

itted

to th

e D

irect

orin

dica

ting

the

supp

ort p

rovi

ded.

Targ

et a

chie

ved

ficannual report

2009/10

38



Obje

ctiv

es

Perf

orm

ance

indic

ators

Outp

ut

targ

ets

2009/1

0

2009/1

0 a

chie

vem

ents

Reas

ons

for

devi

atio

n a

nd c

orr

ect

ive

action p

lan

4.3

To p

rovi

de tr

aini

ng to

desig

nate

d ex

tern

alst

akeh

olde

rs w

ithre

spec

t to

thei

rob

ligat

ions

und

er

the

FIC

Act

(i)

App

rove

dtr

aini

ng p

lan

(i)

Stak

ehol

ders

for

trai

ning

iden

tifie

dan

d pl

an a

p-pr

oved

– Q

2

The

stak

ehol

ders

to b

e tr

aine

d w

ere

iden

tifie

d du

ring

the

finan

cial

yea

r. Th

ese

wer

e no

t, ho

wev

er, f

orm

alise

d in

a tr

aini

ng p

lan.

The

trai

ning

spe

cial

ist w

as a

ppoi

nted

inSe

ptem

ber

2009

to d

evel

op fo

rmal

ised

trai

ning

mat

eria

l for

ext

erna

l sta

keho

lder

s.Th

e tr

aini

ng p

lan

is to

be

final

ised

durin

g20

10/1

1.

(ii)

App

rove

dtr

aini

ng m

ater

ial

(ii)

Trai

ning

mat

eria

lco

mpi

led

– Q

3N

o fo

rmal

trai

ning

mat

eria

l or

man

uals

wer

e de

velo

ped

durin

g 20

09/1

0. T

rain

ing

mat

eria

ls in

MS

Pow

erPo

int p

rese

ntat

ion

form

ats

wer

e de

velo

ped

and

deliv

ered

.

In 2

010/

11 a

trai

ning

pla

n an

d m

ater

ial

for

stak

ehol

ders

on

the

regi

stra

tion

and

repo

rtin

g ob

ligat

ions

und

er th

e FI

C A

ctw

ill be

dev

elop

ed.

(iii)

Repo

rt o

n tr

ain-

ing

prov

ided

acco

rdin

g to

pla

n

(iii)

Repo

rt o

n tr

ain-

ing

prov

ided

ac-

cord

ing

to p

lan

–Q

4

Mon

thly

and

qua

rter

ly r

epor

ts a

reco

mpi

led

and

subm

itted

to th

e D

irect

orin

dica

ting

the

trai

ning

pro

vide

d an

daw

aren

ess

raise

d. K

ey in

itiat

ives

incl

uded

12 p

ublic

aw

aren

ess

sess

ions

com

plet

ed:

Teba

Ban

k, tw

o at

FSB

con

fere

nces

,C

ompl

ianc

e A

lert

Con

fere

nce,

M&

ABa

nks’

feed

back

ses

sion

and

all p

rovi

ncia

lga

mbl

ing

boar

ds.

Targ

et a

chie

ved

4.4

To d

evel

op a

risk

-ba

sed

appr

oach

toco

mpl

ianc

e m

anag

e-m

ent a

nd o

vers

ight

(i)

Com

pile

re-

quire

men

ts fo

rco

mpl

ianc

em

anag

emen

t

(i)

Requ

irem

ents

for

com

plia

nce

man

agem

ent

com

pile

d –

Q4

Fina

l dra

ft co

mpl

ianc

e m

anag

emen

tdo

cum

ent w

as p

repa

red

in F

ebru

ary

2010

.

Targ

et a

chie

ved

(ii)

Ove

rsig

htfra

mew

ork

com

pile

d

(ii)

Firs

t ver

sion

ofov

ersig

ht fr

ame-

wor

k co

mpi

led

–Q

4

Fina

l dra

ft ov

ersig

ht fr

amew

ork

was

final

ised

durin

g Fe

brua

ry 2

010.

Targ

et a

chie

ved

ficannual report

2009/10

39



FATF

Egmont

ESAAMLG


40

ficannual report

2009/10

ENHANCING INTERNATIONAL AML/CFT COOPERATION

South Africa and the FIC place the highest priority on global cooperation to combat moneylaundering and terrorism financing. This stance finds organisational expression primarily through ourparticipation in three international bodies: the FATF and ESAAMLG, in which the Centre headsdelegations representing the South African government, and the Egmont Group of FinancialIntelligence Units, of which the FIC itself is a member.

Our participation contributes to enhanced global governance and AML/CFT capacity in SouthernAfrica. Having strong regulatory frameworks in place is one precondition for securing internationalmarket confidence. Absent such confidence, and governments generally find it very difficult – andvery costly – to obtain loans and investment to develop their economies. Moreover, South Africarecognises that if regional AML/CFT regulation and enforcement is weak or porous, our owneconomy is at risk.

Figure 6: International AML/CFT relationships

UN:� UNODC� SecurityCouncil

Committees

IMFWorldBank G 20

OECD:� Tax

� Corruption

SA

FIC

FIC coordinates membership

FIC Member

Coord

inat

ion o

f ac

tivi

ties

and info

rmat

ion

shar

ing

among

inte

rnat

ional

bodie

s

FIC pro

vide

s info

rmation an

d

advice

to SA rep

rese

ntative

s

FIC coordinates

membership



41

ficannual report

2009/10

The activities we undertake also fulfil our international responsibilities in policy development andtactical cooperation within the FIU community, as discussed in strategic objective 6.5 in theperformance table that appears in the section on increasing AML/CFT capacity in South Africa.

Greater cooperation to combat money laundering on the African continent has been a key focus.Memoranda of understanding for sharing information were completed with Namibia, Senegal andSwaziland, and the FIC co-sponsored Malawi’s admission to the Egmont Group. Cooperationagreements were completed with Armenia, Poland and the United Arab Emirates. To date, theFIC has strategic cooperation agreements in place with our counterparts in 24 countries.

Egmont

The FIC joined the Egmont Group in 2003 and subscribes to its charter. We support the widestpossible cooperation and exchange of information among Egmont members, based on reciprocityor mutual agreement. The FIC promotes free exchange of information for purposes of analysis atFIU level; no dissemination or use of information for other purposes without prior consent of theproviding FIU; and protection of information confidentiality.

ENHANCING AML/CFT CAPACITY IN EASTERN AND SOUTHERN AFRICA

ESAAMLG

South Africa recognises that the operation of a robust AML/CFT regime in Eastern and SouthernAfrica, as well as the rest of the continent, is a strategic priority. South Africa was one of the firston the continent to establish a legislative framework to combat money laundering and terrorfinancing. Given the FIC’s relatively higher level of experience and resources, we prioritisecooperation when asked by our counterparts to provide assistance.

As the only African member of the FATF, South Africa helps to feed developments in the globalbody to ESAAMLG, and in turn brings regional perspectives to the FATF.

During the reporting period the FIC established a technical assistance function to help fellow Africancountries to set up FIUs, with priority on ESAAMLG members. This has enabled the Centre torespond effectively to requests for assistance. In the context of this programme, we hosted a studyvisit by a delegation from Cameroon to demonstrate the functioning of an FIU, and to providegeneral advice on an AML/CFT legislative framework.

In addition to bilateral assistance, the FIC offers direct support. To address a capacity shortage inthe ESAAMLG Secretariat, which is based in Dar es Salaam, the FIC continued the secondment ofan official to the secretariat. This has enabled ESAAMLG to fulfil a number of important functions,such as the completion of draft mutual evaluation reports. ESAAMLG has asked South Africa toextend this support into 2010/11.


During 2009/10 ESAAMLG developed and implemented a follow-up process for member countriesthat had undergone mutual evaluation. It also collected information and responded to questionnairesconcerning drug trafficking and human trafficking in the region.

FATF

The FATF is a global standards-setting body backed by the political commitment of the governmentsof all member states. As noted above, South Africa is the only African member of the FATF. TheFATF is currently revising its international standards to evaluate member countries, and during thereporting period South Africa, represented by a senior FIC official, co-chaired the working groupinvolved in this process.

The FIC is also taking account of the Mutual Evaluation Report: South Africa, produced by FATF andESAAMLG at the close of the prior financial year, as discussed in strategic objective 6.4 (seeperformance table under the section on enhancing AML/CFT capacity in South Africa). The Centrehas coordinated government’s response to the findings in the report and has facilitated an inter-departmental process to prepare a comprehensive action plan to address all of the report’srecommendations. A number of these actions relate to amendments that will have to be made tothe FIC Act, while others concern actions that need to be taken by other bodies to strengthenSouth Africa’s AML/CFT framework.

Other FIC work in relation to the FATF included the following: • Coordinating South Africa’s participation in the FATF working group on terrorist financing

and money laundering, and an associated project team. The FIC facilitated regular interactionand communication between representatives of the National Prosecuting Authority, theDepartment of International Relations and Cooperation, the National Treasury, theDepartment of Trade and Industry, the National Intelligence Agency and the BankingAssociation of South Africa. South Africa played a crucial role in this project, includingcontributing to the final report, which provides various international policy options and bestpractices

• Coordinating the South African task team on the FATF’s Best Practices Paper on SpecialRecommendation III (Freezing and Confiscation of Terrorist Assets), which included variousdepartments, prosecuting and investigating agencies

• Preparing comments and feedback on the FATF’s global threat assessment project• Participating in the FATF’s International Cooperation Review Group, where we presented

South African policy positions on matters concerning the identification of jurisdictions athigh risk of money laundering or terrorism financing

• Working in a project team that has identified typologies on new payment methods• Co-chairing a subgroup responsible for preparing the FATF’s next round of mutual

evaluations, including the revision of key elements of the international standards.

ficannual report

2009/10

42



PER

FO

RM

AN

CE A

GA

INST

TA

RG

ET

S: I

MPRO

VIN

G A

ML/C

FT

CA

PAC

ITY

IN

EA

ST

ER

N A

ND

SO

UT

HER

N A

FR

ICA

Obje

ctiv

es

Perf

orm

ance

indic

ators

Outp

ut

targ

ets

2009/1

0

2009/1

0 a

chie

vem

ents

Reas

ons

for

devi

atio

n a

nd c

orr

ect

ive

action p

lan

5.1

To im

prov

e FI

C’s

unde

rsta

ndin

g of

the

scop

e of

and

nee

d fo

r te

chni

cal a

ssist

ance

inth

e ES

AA

MLG

reg

ion

nece

ssar

y to

str

engt

h-en

reg

iona

l AM

L/C

FTre

gim

es

(i)

App

rove

d re

port

on p

riorit

ies

and

need

s

(i)

Repo

rt a

p-pr

oved

– Q

2Th

e on

goin

g st

udy

of te

chni

cal a

ssist

ance

need

s is

base

d on

the

avai

labl

ein

form

atio

n re

ceiv

ed fr

om E

SAA

MLG

mut

ual e

valu

atio

n re

port

s. A

con

solid

ated

repo

rt h

as n

ot y

et b

een

draf

ted

as th

e FI

Con

ly h

as in

form

atio

n fo

r ni

ne o

f the

13

coun

trie

s (e

xclu

ding

Sou

th A

frica

) th

at a

resu

ppor

ted.

The

ESA

AM

LG m

utua

l eva

luat

ion

repo

rts

for

the

rem

aini

ng tw

o co

untr

ies

will

bere

ceiv

ed d

urin

g 20

10/1

1. O

nce

rece

ived

,a

cons

olid

ated

rep

ort o

n th

e pr

iorit

ies

and

need

s w

ithin

the

ESA

AM

LG r

egio

n w

ill be

com

pile

d an

d ap

prov

ed.

5.2

To p

rovi

de te

chni

cal

assis

tanc

e an

d su

ppor

ton

req

uest

to c

oun-

trie

s w

ithin

the

ESA

AM

LG r

egio

n to

stre

ngth

en th

eir

AM

L/C

FT r

egim

es

(i)

App

rove

dfra

mew

ork

for

the

supp

ly o

fte

chni

cal

assis

tanc

e

(i)

Fram

ewor

kap

prov

ed –

Q1

Repo

rt o

n FI

C’s

capa

city

and

fram

ewor

kfo

r de

liver

y of

tech

nica

l ass

istan

ce, i

nac

cord

ance

with

nee

ds o

f req

uest

ing

coun

trie

s, w

as d

evel

oped

and

app

rove

ddu

ring

June

200

9.

Targ

et a

chie

ved

(ii)

Resp

onse

tore

ques

ts fo

rsu

ppor

t

(ii)

100%

of r

eque

sts

resp

onde

d to

Whi

le n

ot p

art o

f the

ESA

AM

LG d

urin

g20

09/1

0, o

ne r

eque

st fr

om C

amer

oon

was

rec

eive

d an

d re

spon

ded

to (

100%

of

rece

ived

req

uest

s re

spon

ded

to).

Targ

et a

chie

ved

5.3

To p

rovi

de a

ssist

ance

and

supp

ort t

o th

eES

AA

MLG

Sec

reta

riat

(i)

Repo

rt r

evie

win

gas

sista

nce

toES

AA

MLG

Secr

etar

iat a

ndth

e su

ppor

tpr

ovid

ed

(i)

Repo

rtco

mpl

eted

– Q

4A

form

al r

epor

t was

not

com

plet

ed a

spl

anne

d.A

form

al r

epor

t was

not

com

plet

ed a

s th

eES

AA

MLG

Sec

reta

riat p

rovi

ded

writ

ten

feed

back

on

the

valu

e of

ass

istan

cepr

ovid

ed. T

he S

ecre

taria

t for

mal

lyre

ques

ted

the

seco

ndm

ent o

f the

offi

cial

to th

e Se

cret

aria

t to

be e

xten

ded.

ficannual report

2009/10

43



INCREASING AML/CFT CAPACITY IN SOUTH AFRICA

The FIC Amendment Act, which is expected to come into force during 2010/11, will support abroad strengthening of South Africa’s AML/CFT framework by granting the Centre and supervisorybodies a range of administrative powers and sanctions. Such functions provide for a degree offlexibility in the enforcement of the FIC Act that has not been available until now, and will promotebroader compliance.

By the end of the reporting period the FIC Amendment Act had been signed but was not in force,pending adoption of regulations. The FIC completed the drafting of regulations and new reportingmechanisms during 2009/10 and an external consulting process is underway. The draft regulationswill be submitted to the Minister of Finance for his approval this year.

Administrative powers enhance flexibility and promote compliance

Aspects of the core provisions of the Amended Act were touched on earlier in this report. Insummary, the outcomes of the FIC’s work during 2009/10 are expected to result in the following: • The FIC and supervisory bodies will be able to issue directives to accountable institutions to

provide information, reports or statistical returns• Every accountable institution and reporting institution must register with the FIC• Supervisory bodies will have clearly defined powers to ensure compliance, removing any

uncertainty in this regard• The FIC and supervisory bodies will be able to conduct inspections of institutions to ensure

compliance, and direct individuals to appear for questioning • The FIC or supervisory body may apply various administrative penalties for breaches of

compliance. These penalties range from a caution to monetary fines of up to R10 million fornatural persons and R50 million for legal persons

• The provision for an appeals board to consider actions taken by the FIC and supervisorybodies. The Centre will provide administrative support to this board.

Enhancement of the legislative framework is expected to continue in the medium term. This willinclude reorganising and expanding the lists of accountable institutions and supervisory bodies namedin the schedules to the FIC Act. In preparation for such changes, the FIC has held discussions withsectors that may be liable for reporting in future amendments to the Act, such as the diamond andjewellery industries, and cooperative banks.

Cross-border electronic funds transfer reports to expand obtainable data

South Africa is one of only a handful of countries that, in line with exchange controls, tracks incomingand outgoing currency. The levels of currency flows have important implications for macroeconomicpolicy, trade and financial purposes. During the reporting period, the FIC engaged the ReserveBank’s Exchange Control Department to discuss means of receiving reports from the Bank’s cross-border foreign exchange transaction reporting system. Both institutions agreed to find a way toclear all legal obstacles related to the FIC receiving such reports. This development is expected toresult in a marked increase in our data analysis, monitoring and reporting capabilities.

ficannual report

2009/10

44



PER

FO

RM

AN

CE A

GA

INST

TA

RG

ET

S: I

NC

REA

SIN

G A

ML/C

FT

CA

PAC

ITY

IN

SO

UT

H A

FR

ICA

Obje

ctiv

es

Perf

orm

ance

indic

ators

Outp

ut

targ

ets

2009/1

0

2009/1

0 a

chie

vem

ents

Reas

ons

for

devi

atio

n a

nd c

orr

ect

ive

action p

lan

6.1

To r

evie

w a

nd m

ake

prop

osal

s to

upd

ate

the

FIC

Act

in o

rder

to im

prov

e th

e A

ML/

CFT

fram

ewor

k

(i)

App

rove

d ac

tion

plan

(i)

Act

ion

plan

final

ised

– Q

2(i)

A

form

al a

ctio

n pl

an fo

r th

e im

ple-

men

tatio

n of

the

FIC

Am

endm

ent

Act

was

fina

lised

and

app

rove

ddu

ring

Sept

embe

r 20

09.

Targ

et a

chie

ved

(ii)

Prop

osal

doc

u-m

ent o

utlin

ing

impr

ovem

ents

tobe

sub

mitt

ed to

the

Min

ister

of

Fina

nce

(ii)

Prop

osal

subm

itted

for

min

ister

ial

appr

oval

– Q

4

(ii)

Impl

emen

ting

regu

latio

ns in

rel

atio

nto

the

FIC

Am

endm

ent A

ct w

ere

deve

lope

d be

twee

n M

ay 2

009

and

Mar

ch 2

010.

Impl

emen

ting

regu

latio

ns w

ere

only

final

ised

for

cons

ulta

tion

in M

ay 2

010.

Th

is w

as m

ainl

y du

e to

inte

rnal

cons

ulta

tion

and

coor

dina

tion

with

the

impl

emen

tatio

n of

oth

er F

IC p

roje

cts,

nam

ely

the

repo

rtin

g of

CTR

s.

6.2

To s

uppo

rt th

e So

uth

Afri

can

inve

stig

ativ

ean

d pr

osec

utor

ial

capa

city

and

inte

lli-ge

nce

agen

cies

tobe

tter

util

ise fi

nanc

ial

inte

lligen

ce to

com

bat

crim

e

(i)

Perc

enta

ge o

fre

ques

ts r

e-sp

onde

d to

(i)

100%

res

pons

eO

ne r

eque

st fo

r su

ppor

t and

coo

rdin

atio

nw

as r

ecei

ved

durin

g th

e fin

anci

al y

ear

and

resp

onde

d to

(10

0% r

espo

nse

rate

).

Targ

et a

chie

ved

6.3

To d

evel

op a

str

ateg

icre

sear

ch c

apab

ility

with

in th

e FI

C to

iden

tify

mon

ey la

un-

derin

g/te

rror

ismfin

anci

ng th

reat

s,ty

polo

gies

and

tren

ds,

and

to d

evel

op th

eC

entr

e as

a le

arni

ngor

gani

satio

n

(i)

App

rove

dbu

sines

s ca

se(i)

Bu

sines

s ca

seap

prov

ed –

Q4

(i) A

rep

ort w

ith th

e pr

opos

ed b

usin

ess

case

for

the

impl

emen

tatio

n of

a s

trat

egic

rese

arch

cap

acity

with

in th

e C

entr

e w

asfin

alise

d in

May

200

9.

The

deve

lope

d bu

sines

s ca

se h

as n

ot

yet b

een

appr

oved

by

the

man

agem

ent

com

mitt

ee (

MA

NC

O),

mai

nly

beca

use

ther

e ha

s no

t bee

n su

ffici

ent t

ime

inM

AN

CO

mee

tings

to c

anva

ss th

is m

atte

r.It

is en

visa

ged

that

the

deve

lope

d bu

sines

sca

se w

ill be

app

rove

d be

fore

31

Aug

ust

2010

.

ficannual report

2009/10

45



Obje

ctiv

es

Perf

orm

ance

indic

ators

Outp

ut

targ

ets

2009/1

0

2009/1

0 a

chie

vem

ents

Reas

ons

for

devi

atio

n a

nd c

orr

ect

ive

action p

lan

6.4

To m

onito

r th

eac

tions

by

rele

vant

Sout

h A

frica

n au

thor

i-tie

s to

impl

emen

t the

reco

mm

enda

tions

from

the

Mut

ual

Eval

uatio

n Re

port

inor

der

to r

epor

t on

prog

ress

to th

e FA

TF

(i)

Prop

osed

pl

an fo

r th

em

onito

ring

ofre

leva

ntau

thor

ities

(i)

Prop

osed

pla

npr

esen

ted

for

adop

tion

– Q

3

(i)

The

num

ber

of c

ompl

ianc

e re

view

sto

be

unde

rtak

en w

as a

ppro

ved

bya

seni

or m

anag

er in

May

200

9.D

urin

g th

e fin

anci

al y

ear,

199

of th

eta

rget

ed 2

08 c

ompl

ianc

e re

view

s(9

6% o

f the

tota

l) w

ere

cond

ucte

don

Pos

tban

ks, c

asin

os, F

SB-

regu

late

d en

titie

s, Bo

nd E

xcha

nge

of S

outh

Afri

ca m

embe

rs, a

ttor

neys

,bo

okm

aker

s, A

DLA

s an

d es

tate

agen

ts.

Targ

et a

chie

ved

(ii)

Repo

rts

on th

epl

anne

d co

rrec

t-iv

e ac

tions

impl

e-m

ente

d by

the

Cen

tre

(ii)

Plan

dev

elop

edan

d ap

prov

ed –

Q3

(ii)

A c

ompr

ehen

sive

wor

king

pla

n by

the

FIC

and

oth

er s

take

hold

ers

toun

dert

ake

requ

ired

actio

ns in

rela

tion

to fi

ndin

gs o

f Mut

ual

Eval

uatio

n Re

port

was

dev

elop

eddu

ring

Q4.

The

slig

ht d

elay

was

due

to th

e in

divi

dual

res

pons

ible

for

draf

ting

the

plan

bei

ng o

n m

ater

nity

leav

e.

Targ

et a

chie

ved

6.5

To fu

lfil i

nter

natio

nal

resp

onsib

ilitie

s in

term

s of

pol

icy

deve

lopm

ent a

ndta

ctic

al c

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ficannual report

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46



3. Structure of the FIC


Office of the Director

Administration and Support Services Department

Legal and Policy

Department

Compliance and

Prevention Department

Monitoring and Analysis

Department

The management of the departments and business units meet regularly as a management executiveto oversee the effective performance of the organisation, share information and coordinate activities.Interaction and cooperation between the various departments is essential for the organisation toachieve its mandates and strategic objectives.

Summary descriptions of each department are provided below. The primary outcomes achieved bythe FIC during 2009/10 are captured in Sections 1 and 2 of this report.

LEGAL AND POLICY

The Legal and Policy Department has three primary areas of responsibility: • Administering the FIC Act• Engaging with international and regional organisations, such as the FATF and ESAAMLG• Providing strategic policy advice concerning money laundering and terrorism financing.

During the reporting period the unit did a great deal of preparatory work related to the FICAmendment Act. Most of this work fed into the activities of other departments within the Centre.

3. STRUCTURE OF THE FIC

The FIC, which began operating in 2003, is composed of four business units:• Legal and Policy• Compliance and Prevention• Monitoring and Analysis• Administration and Support Services

Figure 7: Structure of the FIC

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48


COMPLIANCE AND PREVENTION

The Compliance and Prevention Department is responsible for compliance oversight of the FIC Act.The department monitors and gives guidance to accountable and reporting institutions, supervisorybodies and other persons regarding the performance of their obligations. It also issues guidancenotes and provides training for affected entities. The unit works to enhance public awareness of theneed to combat money laundering and terror financing.

MONITORING AND ANALYSIS

The Monitoring and Analysis Department is responsible for the receipt and analysis of data relatedto the identification of the proceeds of crime, money laundering or terror financing. This includesmonitoring and scrutinising all STRs received by the Centre. The department works closely with thelaw enforcement authorities, intelligence agencies, SARS and the private sector to help them combatcrime. The department’s work also contributes to enhanced international cooperation in combatingmoney laundering and terrorism financing.

ADMINISTRATION AND SUPPORT SERVICES

Administration and Support Services provide the infrastructure to support the FIC’s work. Thedepartment’s primary functions are office management, financial and administrative management,procurement and supply chain management, human resources, registry and document storageservices, in-house staff training and development, security services, marketing, in-house legal services,and information and communication technology.

Office of the Director

The Director is responsible for FIC strategy, relationships and networking, and heads South Africa’sdelegation to international bodies such as the FATF, ESAAMLG and the Egmont Group.

Project Management Office

The PMO develops project management methodology for use throughout the FIC.

Information Technology

The IT Unit works to develop the Centre’s IT systems.

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Structure of the FIC


Human Resources

The Human Resources Unit works towards a fully staffed, appropriately skilled FIC. The unitoversees initiatives to empower and develop individual employee skills through training, whilebuilding strong depth of management across the organisation.

Facilities Management

The FIC continues to grow and diversify its operations. Given the nature of our work, the Centrerequires a customised, highly secure physical environment. Since the start of the reporting periodthe FIC has been housed in its own premises and has been responsible for the management of itsfacilities. The Facilities Management Unit is responsible for ensuring compliance in the areas ofsecurity, maintenance, space, and occupational health and safety. A process to identify the long-termlocation requirements, and to draft appropriate plans and budgets, is under way.

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Structure of the FIC


4. Typologies


Excerpt: Attorney to appear in court for fraud and money laundering

15 October 2009

A Cape Town attorney is accused of fraud and money laundering involving more than R11 million after investors paid money into his trust account, which was allegedly managed asa pyramid scheme. (NAME REMOVED) also faces a range of other charges relating to hisinvolvement with (NAME REMOVED), owned by Hout Bay businessman (NAME REMOVED)

4. TYPOLOGIES

This section of the annual report presents a synopsis of common types of money laundering activitynoted by the FIC over the recent period. The FIC is publishing these typologies to increase publicawareness of the kind of investigations that it conducts, and to underline the nature of existing andemerging money laundering and terror financing activity in South Africa. We have included severalrelated excerpts from published news reports, with the names of individuals and organisationsremoved.

CASE 1: ABUSE OF ATTORNEY’S TRUST ACCOUNT

The FIC received several STRs about an attorney who appeared to be abusing his attorney trustfacility, which must be regulated in terms of section 78(1) of the Attorneys Act (1979). Thesuspicious transactions in the reports pointed out the following:• Multiple large sums of money were being deposited into the trust account by different

people and companies over a period exceeding two years • These funds were used to make payments to other depositors in South Africa and abroad• Funds from this account were being remitted to foreign jurisdictions deemed to be tax

havens• Some monies were transferred to the attorney’s personal credit card; his practice expenses

were also paid directly from the trust account.

Our analysis identified the following money laundering indicators: • A sudden and unexplained spike in turnover of the trust account• Servicing of practice expenses via the trust account – for example, fees or commission paid

to the attorney from the account• Servicing of personal expenses from the trust account. Transfers to a personal credit card

were used to buy luxury items• Funds from the trust account were routed to accounts of the attorney’s own entities• No business trust account serviced the practice.

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[who] earlier brokered a plea bargain with the state. He was sentenced to eight yearsimprisonment, of which three were suspended, and will testify for the state. (NAMEREMOVED) will appear in the Wynberg Regional Court on 9 December.

Excerpt: SARS hit by massive R68m fraud

24 July 2009

The South African Revenue Service has been hit by a massive scam, costing it at least R51 million. VAT refunds due to some prominent companies, including (NAME REMOVED),were diverted to the accounts of phony duplicate companies. Investigators are trying to unravelthe full reach of the syndicate – which was able to penetrate at least four state institutions.

So far there has been one person arrested in the case: (NAME REMOVED) [who] had beenred flagged as a person of interest on the immigration system and on his return to South Africa

CASE 2: FRAUDULENT COMPANY SCAM

The FIC assisted a law enforcement agency with an investigation concerning fraudulent companiesthat were being used as vehicles to commit financial crimes. The modus operandi of this syndicateinvolved the following:• The syndicate registered legal entities with the Companies and Intellectual Property

Registration Office using names that were confusingly similar names to those of legitimate,existing businesses in South Africa

• Using these details and employing false identity documents, the syndicate opened severalbank accounts for the “duplicated” companies and began making multiple changes to accountinformation

• The syndicate then successfully changed the banking details of the aforementioned legitimatecompanies, and channelled the money of these firms into the accounts opened with falseidentity documents.

Our analysis of the scam identified the following money laundering indicators: • Registration of businesses and establishment of business accounts using names similar to

those of well-known trading enterprises• Using trademarks similar to those of another person or already existing entity• Newly opened accounts (with generic shelf company names) suddenly receiving money,

followed by immediate disbursal of funds• A company account that is new but receives tax refunds and value-added tax return

payments.

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Typologies


from Pakistan on June 8 he was briefly detained at OR Tambo International Airport. Accordingto a statement by Inspector (NAME REMOVED), he was questioned and searched. Policefound two ABSA bank cards, Nedbank cards, three cell phones and six sim cards in hispossession. He also had a notebook, carried in a bag around his waist, "which had a lot of notesin it like names, bank details, pin numbers etc." (NAME REMOVED) was extremely reluctantto hand the notebook over.

After questioning, (NAME REMOVED) was released. He was arrested a few days later at hislawyer's office.

CASE 3: INVESTMENT SCAM

The FIC received information about a “business opportunity” advertised in a newspaper. The adpromised prospective investors a 5 percent monthly return on investment for buying and sellingforeign currency. The venture required investors to sign two contracts: one giving one company themandate to act as the agent for investors, and the other mandating a second company to investdeposits received. Our analysis revealed the following:• The principal of the two companies was the same individual using two different identity

documents• Documents obtained under false pretences were used to open and operate a bank account• Neither the principal nor the two entities were registered to provide financial services.

As a result of the analysis, the FIC was able to ensure the following:• Speedy interaction with the FSB, which confirmed that the two entities were not registered

with the FSB as required by law• Immediate interaction with the Department of Home Affairs, which confirmed the use of

false identity documents by the subject.

Working with the Asset Forfeiture Unit, the FIC was able to freeze an amount of R5.2 million inthe perpetrators’ bank accounts. The South African Police Service and SARS took subsequentaction.

The Centre was able to identify the following money laundering indicators in this scam:• Use of false identities to open and operate accounts• The prevalence of “trade as” accounts to commit fraud or other financial crimes• Investments promising unrealistically high returns over a short period of time• Numerous cash deposits not followed by the agreed investment• The purchase of high-value assets and lifestyle expenses• Financial transactions not consistent with the account or client profile• Use of family members to route the proceeds of crime.

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Typologies


EXCERPT FROM E-MAIL: 419 SCAM

(Spelling as in original)

You may be surprise to receive this message from me since you don’t know me in person, butfor the purpose of introduction, I am Mr (NAME REMOVED)….

Before the death of my father, he took me to SOUTH AFRICA to deposit the sum of $25.5million with a security and finance company as if he knew the looming danger in Angola….

I, my mother and my family … have decided to transfer this money to a foreign country wherewe can invest it…. The South African monetary policy/law does not allow such investmenthence I am seeking for an asylum or refugee. I must let you know that this business is 100% riskfree and the nature of your business does not necessary matter.

CASE 4: 419 SCAM

The FIC conducted an investigation into an advance-fee fraud, commonly known as a 419 scam,which takes its name from Section 419 of the Nigerian Criminal Code. The syndicate’s modusoperandi involved the following:• Fraudsters, posing as senior government officials, contacted several targeted companies either

by fax or e-mail• The correspondence claimed that the authors were in possession of a large amount of over-

budgeted funds • The proposal required targeted companies to submit bids in the form of “upliftment”

projects; they would receive financing if the bid was successful, and money would betransferred to designated accounts for the benefit and use of the bidder

• Recipients of the correspondence were promised a sizeable percentage (between 20-35percent) of the money to be transferred as commission fees.

Our analysis of the scam identified the following money laundering indicators: • Unknown sources of money and unrealistic value of funds being presented• Requests for advance payments “covering administrative and processing expenses for

completing the deal”• “Risk-free” transactions in which confidentiality was emphasised• Requests for bidders to forward a variety of paperwork, including blank company letterheads

that had been signed, blank invoices and company details• Requests for bank account details, which are commonly used to obtain further information

and siphon monies from the accounts of targeted individuals and firms, and the transfer ofthese funds into an account under the control of the syndicate.

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Typologies


So if you are willing to assist us, we have agreed to give you 20% of the total money, 40% willbe for a joint business venture I will be doing with you and another 35% will be for me and myfamily which we shall also invest in your country and the remaining 5% will be mapped out forall expenses we may Incurred during the transaction.

Therefore, if you are willing and interested to render the needed assistance, endeavour to replythrough my email address or the above Tel number. I also need your private phone and faxnumber for easy communication. Remember that this is highly confidential and the success ofthis business depends on how secret it is kept….

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Typologies


5. Audit Committee Report


AUDIT COMMITTEE REPORT

The following is our report for the financial year ended 31 March 2010.

Audit Committee members and attendance

The Audit and Risk Committees have each met on four occasions during the year under review.The attendance of members, all of whom are independent non-executives, at these meetings wereas follows:

Name of Member Number of Meetings Attended

C Kneale (Chairperson) 4

B Lengane 4

N Khumalo 3

Audit Committee’s duties

The Audit Committee has performed its duties, as the Audit Committee of a Public Entity, whichduties are set out in Treasury Regulation 27, promulgated in terms of section 51(1)(a)(ii) and76(4)(d) of the Public Finance Management Act.

The Audit Committee’s Terms of Reference were reviewed and amended during the year underreview.

The Risk Committee, during the year under review, has received reports from management and theinternal audit function on the process used to identify, quantify and prioritise risk, identified by riskmanagement procedures.

Internal Audit, whose function is risk based, has during the financial year, reviewed the riskmanagement procedure, which seeks to identify existing and emerging risks, the effects of which areminimized and controlled by internal controls.

Internal controls

The Internal Audit function, during the financial year, has reviewed the internal controls adopted tocontrol risk.

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Internal Audit and the Auditor-General have, in the past year, not reported any material deficiencyin the risk management or internal control procedures. Accordingly, the Audit Committee has noreason to doubt the effectiveness of internal controls.

Evaluation of financial statements

The Audit Committee has during the 2009/10 financial year:

• Reviewed and discussed the audited annual financial statements to be included in the annualreport, with the Auditor-General;

• Reviewed the Auditor-General’s management letter and management’s response;• Reviewed the entity’s compliance with legal and regulatory provisions;• Reviewed significant adjustments resulting from the audit;• Ensured that the annual financial statements are prepared in accordance with the applicable

accounting standards.• Reviewed the process used for the identification and management of risks, including emerging

risks.

Internal audit

The Audit Committee is satisfied that the internal audit function has operated effectively and thatit has addressed the risks pertinent to the Financial Intelligence Centre.

Auditor-General

The Audit Committee has met with representatives of the Auditor-General. No unresolved issueswere identified at the meeting.

CLIVE D KNEALE

Chairperson of the Audit Committee

Date: 31 July 2010

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Audit Committee Report


60

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6. Report of the Auditor-General


REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON THE

FINANCIAL STATEMENTS OF THE FINANCIAL INTELLIGENCE CENTRE

FOR THE YEAR ENDED 31 MARCH 2010

REPORT ON THE FINANCIAL STATEMENTS

Introduction

I have audited the accompanying financial statements of the Financial Intelligence Centre, whichcomprise the statement of financial position as at 31 March 2010, and the statement of financialperformance, statement of changes in net assets and cash flow statement for the year then ended,and a summary of significant accounting policies and other explanatory information, as set out onpages 66 to 94.

Accounting authority’s responsibility for the financial statements

The accounting authority is responsible for the preparation and fair presentation of the financialstatements in accordance with South African Standards of Generally Recognised Accounting Practice(SA Standards of GRAP) and in the manner required by the Public Finance Management Act ofSouth Africa, 1999 (Act No. 1 of 1999) (PFMA). This responsibility includes: designing, implementingand maintaining internal control relevant to the preparation and fair presentation of financialstatements that are free from material misstatement, whether due to fraud or error; selecting andapplying appropriate accounting policies; and making accounting estimates that are reasonable in thecircumstances.

Auditor-General’s responsibility

As required by section 188 of the Constitution of South Africa and section 4 of the Public AuditAct of South Africa, 2004 (Act No. 25 of 2004) (PAA), my responsibility is to express an opinionon these financial statements based on my audit.

I conducted my audit in accordance with International Standards on Auditing and General Notice1570 of 2009 issued in Government Gazette 32758 of 27 November 2009. Those standardsrequire that I comply with ethical requirements and plan and perform the audit to obtain reasonableassurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial statements. The procedures selected depend on the auditor’s judgement,including the assessment of the risks of material misstatement of the financial statements, whetherdue to fraud or error. In making those risk assessments, the auditor considers internal controlrelevant to the entity’s preparation and fair presentation of the financial statements in order to

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Report of the Auditor-General


design audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the entity’s internal control. An audit also includesevaluating the appropriateness of accounting policies used and the reasonableness of accountingestimates made by management, as well as evaluating the overall presentation of the financialstatements.

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis formy audit opinion

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial positionof the Financial Intelligence Centre as at 31 March 2010, and its financial performance and its cashflows for the year then ended in accordance with South African Standards of Generally RecognisedAccounting Practice and in the manner required by the PFMA.

Emphasis of matters

I draw attention to the matters below. My opinion is not modified in respect of these matters:

Restatement of corresponding figures

As disclosed in note 27 to the financial statements, the corresponding figures for 31 March 2009have been restated as a result of errors discovered during the 2009-10 year in the financialstatements of the Financial Intelligence Centre at, and for the year ended, 31 March 2009.

Fruitless and wasteful/irregular expenditure

As disclosed in note 28 to the financial statements, irregular expenditure of R755 000 was incurred,as a proper tender process had not been followed.

Material underspending of the budget

The Financial Intelligence Centre materially underspent its budget by R15 613 000, which is disclosedin the annual report on page 94.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

In terms of the PAA and General Notice 1570 of 2009, issued in Government Gazette 32758 of27 November 2009, I include below my findings on the report on predetermined objectives,compliance with the PFMA and financial management (internal control).

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Findings

Predetermined objectives

No matters to report.

Compliance with laws and regulations


INTERNAL CONTROL

I considered internal control relevant to my audit of the financial statements and the report onpredetermined objectives and compliance with the PFMA, but not for the purposes of expressingan opinion on the effectiveness of internal control. The matters reported below are limited to thedeficiencies identified during the audit.


OTHER REPORTS

Investigations

During the financial year under review the Financial Intelligence Centre identified one case offraudulent misconduct by an employee who has since been dismissed. The centre instituted criminalproceedings against this employee.

The chief financial officer was suspended on possible charges of misconduct, pending the outcomeof the ongoing investigation.

Pretoria

30 July 2010


64

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7. Financial Statements


STATEMENT OF FINANCIAL POSITION

66

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Restated

Note(s) 2010 2009

R'000 R'000

ASSETS

Current assets

Cash and cash equivalents 3 23 554 1 601Receivables 4 1 359 992Inventory 5 169 166Prepayments 6 341 654

25 423 3 413

Non-current assetsIntangible assets 7 7 791 7 378Property, plant and equipment 8 28 158 27 427Financial lease assets 9 410 608

36 359 35 413

Total assets 61 782 38 826

LIABILITIES

Current liabilitiesPayables 10 11 014 9 332Provisions 11 156 –Finance lease obligation 12 307 396

11 477 9 728

Non-current liabilitiesFinance lease obligation 12 158 278

Total Liabilities 11 635 10 006

50 147 28 820

Accumulated surplus 50 124 28 797Revaluation reserves 23 23

Total Net assets 50 147 28 820

STATEMENT OF FINANCIAL POSITION

66

Financial Statements for the year ended 31 March 2010


STATEMENT OF FINANCIAL PERFORMANCE

67

Restated

Note(s) 2010 2009

R'000 R'000

Revenue

Parliamentary allocations 13 141 645 111 474Interest received 14 1 269 483Discount received 1 1Total Revenue 142 915 111 958

Expenditure

Administrative 15 52 977 43 488Audit Committee member fees 16 189 155Audit Fee 17 314 645Depreciation and amortisation 18 8 132 6 456Finance Costs 19 91 130Fruitless and wasteful expenses 20 3 –Personnel 21 59 855 48 383Miscellaneous 29 – 121Total Expenditure 121 561 99 378

Loss on disposal of property, plant andequipment (38) (201)Surplus / (deficit) on exchange differences 11 (141)Proceeds on sale of property, plant andequipment – 33Surplus for the year 21 327 12 271

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STATEMENT OF CHANGES IN NET ASSETS

68

Note(s) Revaluation

reserve

Accumulated

surplus

Total net

assets

R’000 R’000 R’000

Opening balance as previouslyreported

23 16 639 16 662

AdjustmentsPrior year adjustments 27 – (113) (113)

Balance at 01 April 2008 23 16 526 16 549

Surplus for the year – 12 271 12 271

Opening balance as restated 23 28 797 28 820

Opening balance previously 23 29 515 29 537Prior year adjustments 27 – (717) (717)

Balance at 01 April 2009 as restated 23 28 797 28 820

Surplus for the year – 21 327 21 327

Balance at 31 March 2010 23 50 124 50 147

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CASH FLOW STATEMENT

69

Restated

2010 2009

Note(s) R'000 R'000

CASH FLOW FROM OPERATING ACTIVITIES

Cash receipts from customers 141 645 110 659Cash paid to suppliers and employees (111 583) (95 141)

Cash generated from operations 23 30 062 15 518Interest received 1 269 483Finance Costs (91) (129)

Net cash from operating activities 31 240 15 872

CASH FLOWS FROM INVESTING ACTIVITIES

Additions to property, plant and equipment 8 (6 917) (11 801)Sale of property, plant and equipment 8 – 33Additions to leased assets 9 (268) (442)Purchase of other intangible assets 7 (2 102) (3 241)Net cash from investing activities (9 287) (15 451)

Total cash movement for the year 21 953 421

Cash at the beginning of the year 1 601 1 180

Net increase in cash and cash equivalents 3 23 554 1 601

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ACCOUNTING POLICIES

70

1. BASIS OF PREPARATION

The financial statements have been prepared in accordance with South African Statements ofGenerally Recognised Accounting Practice (GRAP).

The financial statements are prepared on the historical cost basis. The presentation currency of thefinancial statements is in South African Rand and figures are rounded to the closest thousand. Thefinancial statements are prepared on a going concern basis.

1.1 FINANCIAL INSTRUMENTS

Classification

The financial instruments recognised in the statement of financial position consist of cash at bankand cash equivalents, receivables, payables and lease liabilities.

Initial recognition and measurement

Financial instruments are recognised in the statement of financial position when the Centre becomesa party to the contractual provisions of a financial instrument.

The Centre does not offset the financial assets and liabilities.

Financial instruments are initially recognised at fair value.

Subsequent measurement

Subsequent to initial measurement, financial instruments are measured at fair value according to thefollowing classifications:• Cash and cash equivalents are measured at fair value;• A provision for impairment of trade receivables is established when there is objective

evidence that the Centre will not be able to collect all amounts due according to the originalterms of receivables. Significant financial difficulties of the debtor and default or delinquencyin payments are considered indicators that the trade receivable is impaired. The amount ofthe provision is the difference between the asset's carrying amount and the present valueof estimated future cash flows, discounted at the effective interest rate, and

• Payables are subject to normal trade credit terms and relatively short payment cycle.

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ACCOUNTING POLICIES – continued

71

Amortised cost

Amortised cost is the amount at which the financial asset or financial liability is measured at initialrecognition minus principal repayments, plus or minus the cumulative amortisation using the effectiveinterest method of any difference between that initial amount and the maturity amount, and minusany reduction for impairment or uncollectibility.

Financial Liabilities held at amortised cost

Finance lease liabilities are included in financial liabilities held at amortised cost.

Finance lease liabilities are subsequently measured at amortised cost using the effective interest ratemethod. Interest expense is recognised in the Statement of Financial Performance by applying theeffective interest rate.

Effective interest rate method

The effective interest method is a method of calculating the amortised cost of a financial asset or afinancial liability and of allocating the interest income or interest expense over the relevant period.The effective interest rate is the rate that exactly discounts estimated future cash payments orreceipts through the expected life of the financial instrument or, when appropriate, a shorter periodto the net carrying amount of the financial asset or financial liability.

Loans and receivables

Trade and other receivables (excluding prepayments and deposits), and loans that have fixed anddeterminable payments that are not quoted in an active market are classified as loans andreceivables.

Cash and cash equivalents

Cash and cash equivalents comprise short-term highly liquid investments that are readily convertibleto a known amount of cash and are subject to an insignificant risk of changes in value.

Cash and cash equivalents are subsequently recorded at fair value which always approximates facevalue.

Cash includes cash on hand and cash with banks. For the purposes of cash flow statement, cash andcash equivalents comprise cash on hand and cash held in the bank.

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72

1.2 LEASES

Leases are classified as both finance and operating leases.

Finance leases

Finance leases are leases that substantially transfer all risks and rewards associated with ownershipof the assets to the Centre, entered into by the Centre.

Assets held under finance lease are capitalized as leased assets. The corresponding liability is includedin the balance sheet as a finance lease obligation. The cash equivalent cost is the lower of the fairvalue of the asset and the present value of the minimum lease payments at inception of the lease.

Lease payments are apportioned between finance charges and reduction of the lease obligation soas to achieve a constant rate of interest on the remaining balance of the liability.

The lease assets are written off over the duration of the lease contract which is 36 months.

Operating leases

Leases where the lessor retains the risks and rewards of ownership of the underlying asset areclassified as operating lease. Operating lease expenses are charged against surplus on a straight linebasis over the term of the lease.

Rentals in respect of operating leases with fixed escalation are recognised as an expense on astraight line basis over the term of the lease.

1.3 PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is stated at historical cost less accumulated depreciation and anyaccumulated impairment losses. Depreciation is calculated on a straight line basis to write off thecost of each asset to its residual value over the estimated useful life.

The review of the estimated useful life is performed annually both internally and externally. Theestimated useful lives are as follows:

Item Average useful life

– Furniture 6 years– Motor vehicles 5 years– Office equipment 2 to 5 years– Computer hardware 5 years – Fixtures and fittings 5 to 10 years

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73

Gains and losses on disposal of property, plant and equipment are determined by reference totheir carrying amount and are taken into account in determining the operating surplus / (deficit).

The Centre recognises in the carrying amount of an item of property, plant and equipment thecost of replacing part of such an item when the cost is incurred, if it is probable that additionalfuture economic benefits embodied within the part will flow to the company and the cost of suchitem can be measured reliably. All other costs are recognised in the Statement of FinancialPerformance as an expense when incurred.

At each financial position date, the Centre reviews the carrying amounts of property, plant andequipment to determine whether there is any indication that those assets may be impaired. If anysuch indication exists, the recoverable amount of the asset is estimated in order to determine theextent of the impairment loss (if any). Where it is not possible to estimate the recoverable amountfor an individual asset, the recoverable amount is determined for the cash-generating unit to whichthe asset belongs.

The recoverable amount of property, plant and equipment is the greater of an asset's fair value lesscost to sell and value in use. In assessing value in use, the estimated future cash flows are discountedto their present value using a pre tax discount rate that reflects current market assessments of thetime value of money and the risks specific to the asset. For an asset that does not generate cashinflows largely independent of those from other assets, the recoverable amount is determined forthe cash-generating unit to which the asset belongs.

An impairment loss is recognised whenever the carrying amount of an asset or its cash generatingunit exceeds its recoverable amount. Impairment losses are recognised in the Statement of FinancialPerformance.

An impairment loss is only reversed if there is an indication that the impairment loss may no longerexist and there has been a change in the estimates used to determine the recoverable amount.Where an impairment loss subsequently reverses, the carrying amount of the asset (cash generatingunit) is increased to the revised estimate of is recoverable amount, but so that the increased carryingamount does not exceed the carrying amount that would have been determined had no impairmentloss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairmentloss is recognised as income immediately

1.4 INTANGIBLE ASSETS

Intangible assets comprise of identifiable, non monetary assets without physical substance. Anintangible asset is recognised when it is probable that the expected future economic benefits thatare attributable to the asset will flow to the entity and the cost of the asset can be measured reliably.

After initial recognition, intangible assets shall be carried at their respective costs less anyaccumulated amortisation and any accumulated impairment losses.

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74

The review of the estimated useful life is performed annually both internally and externally.

Amortisation is calculated on a straight line basis to allocate the depreciable amount of the intangibleassets on a systematic basis over the useful life. The estimated useful life is as follows:

Item Useful life

– Computer software 6 years

Subsequent expenditure on capitalised intangible assets is capitalised only when it increases thefuture economic benefits embodied in the specific assets to which it relates. All other expenditureis expenses.

1.5 TAXATION

The Financial Intelligence Centre is exempt from income tax in terms of provisions of section 10(1)(cA) (I) of the Income Tax Act.

1.6 REVENUE RECOGNITION

Income

In terms of section 14 of the Financial Intelligence Centre Act, 2001 (Act No. 38 of 2001), theCentre will be funded by:• Money appropriated annually by Parliament;

Revenue is recognised on an accrual basis and represents the amounts received andreceivable by the Centre and is raised in the financial performance statement. Initialrecognition of revenue does not include uncollectible amounts in the estimate;

• Government grants; and• Legally acquired donations approved by the Minister of Finance.

Finance income

Finance income comprises interest received on funds invested. Interest is recognised on a timeproportion basis as it accrues, using the effective interest rate method.

1.7 EMPLOYEE BENEFITS

Short-term employee benefits

The cost of short-term employee benefits is recognised during the period in which the employee

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renders the related service. The provisions for employee entitlements to salaries, performancebonuses and annual leave represent the amounts that the Centre has a present obligation to payas a result of services provided by employees. The provision has been calculated at undiscountedamounts based on the current salary rates, because of short-term nature.

Termination of benefits

Termination benefits are recognised as an expense when the Centre is demonstrably committed,without realistic possibility of withdrawal, to a formal detailed plan to terminate employment beforethe normal retirement date. Termination benefits for voluntary redundancies are recognised if theCentre has made an offer encouraging voluntary redundancy, it is probable that the offer will beaccepted, and the number of acceptances can be reliably be estimated.

Retirement benefit

The Centre contributes to a defined contribution fund in respect of employees. The contributionsare included in staff costs, in the year to which they relate.

1.8 ACCUMULATED SURPLUS

The Centre shall apply for retention of surplus funds at end of each financial period, if there is asurplus.

1.9 PROVISIONS

Provisions are recognised when:• the Centre has a present obligation as a result of a past event;• it is probable that an outflow of resources embodying economic benefits or service potential

will be required to settle the obligation; and• a reliable estimate can be made of the obligation.

Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate.

If the effect is material, provisions are determined by discounting the expected future cash flows thatreflect current market assessments of the time value of money and, where appropriate, the risksspecific to the liability.

75



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1.10 TRANSLATION OF FOREIGN CURRENCIES

Foreign currency transactions

Transactions in foreign currencies are converted into South African rands at the rate of exchangeruling at the date of such transaction. Balances outstanding on the foreign currency monetary itemsat the end of the financial year are translated into South African rands at the rates ruling at that date.Exchange gains and losses on settlement of foreign currency monetary liabilities during the periodare recognised in the Statement of Financial Performance.

1.11 INVENTORY

Inventory is stated at lower of cost and net realisable value. Cost is based on weighted averageprinciple and includes expenditure incurred in acquiring the inventories and bringing them to theirexisting location and conditions.

Inventories comprise mainly of stationery and printer cartridges.

1.12 FINANCE COST

Finance expenses comprise interest expenses on borrowings, changes in fair value of financial assetsat fair value through profit or loss and impairment losses recognised on financial assets. All borrowingcosts are recognised in the statement of financial performance using the effective interest method.

1.13 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Management makes estimates and assumptions concerning the future in applying its accountingpolicies. The resulting accounting estimates may, by definition, not equal the related actual results.The estimates and assumptions that have a significant risk of causing a material adjustment to thecarrying amounts of assets and liabilities are detailed in the notes to the financial statements whereapplicable. Management continually evaluates estimates and judgments based on historicalexperience and other factors, including expectations of future events that are believed to bereasonable under the circumstances. Details of management accounting estimates and judgmentsare disclosed under the relevant notes.

1.14 COMPARATIVES

Where necessary, comparative figures have been reclassified to conform to changes in presentationin the current year.

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2. NEW STANDARDS AND INTERPRETATIONS

2.1 STANDARDS AND INTERPRETATIONS NOT YET EFFECTIVE

At the date of authorization of these financial statements, the following accounting standardsof Generally Recognised Accounting Principles (GRAP) were in issue, but not yet effective:

GRAP 21 – Impairment of non cash generating assetsGRAP 23 – Revenue from non exchange transactionsGRAP 24 – Presentation of budget information in financial statementsGRAP 25 – Employee benefitsGRAP 26 – Impairment of cash generating assetsGRAP 103 – Heritage assets (not applicable)GRAP 104 – Financial instruments

IPSAS 20- Related Party Disclosure

The management believes the adoption of these standards in future will have no materialimpact on the financial statements, as the majority of them are not applicable and therelevant one/ones would not change the figures but assist in monitoring financialperformance of the Centre.

3. CASH AND CASH EQUIVALENTS

Restated

2010 2009

R '000 R '000

Cash and cash equivalents consist of:

Cash at bank 23 542 1 591Cash on deposit 9 8Cash on hand 3 2

23 554 1 601

For the purposes of the cash flow statement, cash and cash equivalents comprise cash onhand and cash held in the banks.

NOTES TO THE FINANCIAL STATEMENTS

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Restated

2010 2009

R '000 R '000

4. RECEIVABLES

Interest receivable 162 49Deposits 1 122 894Salary related debtors 57 49Sundry debtors 18 –

1 359 992

Discounted amount 1 235 902

The carrying amount of trade receivables approximates their fair value due to their short-term maturity

Salary related debts are interest free and repayable within the following month

5. INVENTORY

Consumables on hand 169 166

6. PREPAYMENTS

Department of Foreign Affairs – 171Insurance – 371Lease 43 43Subscriptions 235 7Membership fees 63 62

341 654


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7. INTANGIBLE ASSETS

2010 Restated 2009

Cost Accumulated

amortisation

Carrying

value

Cost Accumulated

amortisation

Carrying

value

R'000 R'000 R'000 R'000 R'000 R'000

Computer software 11 686 (3 895) 7 791 9 751 (2 373) 7 378

Reconciliation of intangible asset – 2010

Opening

balance

Additions Disposals Amortisation Total

R'000 R'000 R'000 R'000

Computer software 7 378 2 102 (39) (1 650) 7 791

Reconciliation of intangible asset – 2009

Opening

balance

Additions Amortisation Total

R'000 R'000 R'000 R'000

Computer software 5 496 3 241 (1 359) 7 378

During the year ended 31 March 2010 the Centre conducted an annual review of the useful life of itsintangible assets, which resulted in no changes in the expected useful life.

8. PROPERTY, PLANT AND EQUIPMENT

2010 Restated 2009

Cost Accumulated

amortisation

Carrying

value

Cost Accumulated

amortisation

Carrying

value

R'000 R'000 R'000 R'000 R'000 R'000

Computer Hardware 16 893 (6 782) 10 111 14 162 (3 876) 10 286Office equipment 2 807 (1 614) 1 193 2 612 (1 109) 1 503Fixtures & Fittings 15 811 (3 501) 12 310 15 591 (1 716) 13 875Motor vehicles 129 (52) 77 129 (26) 103Furniture 5 838 (1 371) 4 467 2 238 (578) 1 660Total 41 478 (13 320) 28 158 34 732 (7 305) 27 427


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Reconciliation of property, plant and equipment – 2010

Opening

balance

Additions Disposals Depreciation Total

R'000 R'000 R'000 R'000 R'000

Computer Hardware 10 286 2 732 – (2 907) 10 111Office equipment 1 503 195 – (505) 1 193Fixtures & Fittings 13 875 390 (170) (1 785) 12 310Motor vehicles 103 – – (26) 77Furniture 1 660 3 600 – (793) 4 467Total 27 427 6 917 (170) (6 016) 28 158

Reconciliation of property, plant and equipment – 2009

Opening

balance

Additions Disposals Depreciation Total

R'000 R'000 R'000 R'000 R'000

Computer Hardware 11 428 1 585 (19) (2 708) 10 286Office equipment 1 324 754 (3) (572) 1 503Fixtures & Fittings 6 573 8 574 (179) (1 093) 13 875Motor vehicles 129 – – (26) 103Furniture 1 088 888 – (316) 1 660Total 20 542 11 801 (201) (4 715) 27 427

During the year ended 31 March 2010 the Centre conducted an annual review of the useful life of itsproperty, plant and equipment, which resulted in no changes in the expected useful life.


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9. FINANCIAL LEASE ASSETS

2010 2009

Cost Accumulated

depreciation

Carrying

value

Cost Accumulated

depreciation

Carrying

value

R'000 R'000 R'000 R'000 R'000 R'000

Leased assets 1 144 (734) 410 1 261 (653) 608

Reconciliation of financial lease assets – 2010

Opening

balance

Additions Depreciation Total

R'000 R'000 R'000 R'000

Leased assets 608 268 (466) 410

Reconciliation of financial lease assets – 2009

Opening

balance

Additions Depreciation Total

R'000 R'000 R'000 R'000

Leased assets 548 442 (382) 608


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Restated

2010 2009

R '000 R '000

10. PAYABLES

Trade payables 3 362 2 942Salary related accruals 1 462 1 582Performance bonus 3 425 2 789Accrued leave pay 1 634 1 261Operating lease payables 1 131 758

11 014 9 332

Discounted amount 10 013 8 484

The carrying amount of trade payables approximates their fair value due to their short-termmaturity.

11. PROVISIONS

Reconciliation of provisions – 2010

Opening

Balance

Movement Total

R'000 R'000 R'000

Provision for Director's Bonus – 156 156


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Restated

2010 2009

R '000 R '000

12. FINANCE LEASE OBLIGATION

Minimum lease payments due– within one year 343 467– Within 2–5 years 167 305

510 772Less: future finance charges (45) (98)Present value of minimum lease payments 465 674

Present value of minimum lease payments due

– within one year 307 396– in second to fifth year inclusive 158 278

465 674

Non-current liabilities 158 278Current liabilities 307 396

465 674

The Finance leases are in respect of Bizhub photocopiers. The option of renewal at the endof the period of the leases is available.

13. TRANSFERS FROM OTHER GOVERNMENT ENTITIES

Parliamentary allocation 141 645 111 474

14. INTEREST RECEIVED

Current Account 1 267 482Other interest 2 1

1 269 483


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Restated

2010 2009

R '000 R '000

15. ADMINISTRATIVE EXPENSES

Administation fees 357 288Advertising 87 78Bank charges 72 68Cleaning 498 204Computer expenses 1 288 2 571Conferences 156 69Consulting fees 18 331 7 156Corporate branding 141 –Electricity and water 1 085 618FIC Academy – 20Insurance 414 504Internal audit 718 743International Agency: Mutual evaluation – 67Lease rentals on operating lease 227 95Legal fees 17 2Media, Subscriptions & Library 1 052 1 031Membership fees 1 017 967Motor vehicle expenses 12 8Office consumables 475 662Parking expenses – Staff 827 741Postage and courier 7 7Printing and stationery 782 503Professional fees 5 316 7 213Public relations 11 –Recruitment and placement cost 1 402 1 667Refurbishment costs 302 783Removal expenses 6 63Rent paid 7 843 7 118Repairs and maintenance 326 488Research and development costs 801 –Security 1 031 689Small assets written off 79 10Staff training 2 001 1 837Subsistence and accommodation – International 808 865Subsistence and accommodation – Local 542 528Telephone, fax and internet 2 164 2 317Travel – International 1 286 1 942Travel – Local 1 466 1 536Workshop 30 30

52 977 43 488


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Restated

2010 2009

R '000 R '000

16. AUDIT COMMITTEE MEMBER FEES

Chairperson: C Kneale 69 48Other members: B Lengane 59 47

N Khumalo 61 60189 155

17. AUDIT FEES

External Audit 314 645

18. DEPRECIATION AND AMORTISATION

Depreciation on property, plant and equipment 6 016 4 715Amortisation of intangible assets 1 650 1 359Depreciation on leased assets 466 382

8 132 6 456

19. FINANCE COSTS

Finance charges on leased assets 89 122Interest on late payment of PAYE/Supplier 2 8

91 130

20. FRUITLESS AND WASTEFUL EXPENSES

Interest on late payment for rental of office space 1 –Interest on late payment of Telkom account 2 –

3 –


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Restated

2010 2009

R '000 R '000

21. PERSONNEL EXPENSES

Salary costs 47 025 38 644Bonus performance 4 182 2 934Group life 881 712Medical aid contributions 1 884 1 570Provident fund 4 145 3 346UIF 177 157Other short-term costs 1 561 1 020

59 855 48 383

22. RETIREMENT BENEFITS

Defined Contribution Plan

Employees of the Centre are members of Liberty Life Umbrella Provident fund. This fundis a defined contribution fund and it is governed by the Pension Fund Act, 1956 as amended.The contribution rate by the employer is 14.6% (2009: 14.6%) and is calculated onretirement funding income.

Provident Fund contributions 4 145 3 346


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Restated

2010 2009

R '000 R '000

23. CASH GENERATED FROM OPERATIONS

Profit before taxation 21 327 12 271Adjustments for:

Depreciation and amortisation 8 132 6 456Loss on sale of property, plant and equipment – 201Proceeds on sale of property, plant and equipment – (33)Discount received (1) –Interest received (1 269) (483)Finance Costs 91 130Movements in provisions 156 107

Changes in working capital:

Inventory (3) –Increase in accounts receivable (367) (1 175)Prepayments 313 –Increase /(decrease) in accounts payable 1 683 (1 956)

30 062 15 518

24. OPERATING LEASE

An operating lease, is a lease where risks and rewards are not transferred to the lessee atthe end of the lease term

The Centre has entered into a 60 month lease contract for the office premises. The leasecommenced on 1 July 2008 and terminates on 30 June 2013.

The Centre also entered into a 60 month lease agreement for the office premises in CapeTown. The lease commenced on 1 May 2005 and terminates on 30 April 2010. The leasehas been renewed commencing 1 May 2010 to 30 June 2013 and was concluded and signedon the 24 December 2009.

Minimum lease payments due

– within one year 7 563 5 915– within 2–5 years 19 512 21 136

27 075 27 051


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25. RELATED PARTIES

During the year under review the Centre entered into various transactions with relatedparties.

Restated

2010 2009

R '000 R '000

Related party transactions

1. State Controlled Entities

SARS: Leased building: Cape Town 1 104 573Telkom 720 736South African Reserve Bank 3 27National Treasury 1 037 –Department of Foreign Affairs 934 896

2. Key Management Personnel

Name Position Cash

Component

Bonus UIF Provident

Fund

Group

Life

Medical

Aid

Total

MSR Michell Director 1 040 390 1 – – 23 1 454

CCM Malan Snr Manager:CAP

1 037 107 1 108 32 23 1 308

P Smit Snr Manager:L&P

1 004 103 1 104 31 23 1 266

A Puoane CFO 833 62 1 87 26 23 1 032

N Mewalall Snr Manager:M&A

681 69 1 71 21 23 866


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26. RISK MANAGEMENT

Liquidity Risk Management

Liquidity risk is the risk that the Centre will not be able to meet its financial obligations asthey fall due.

In terms of its borrowing requirements, the Centre ensures that adequate funds are availableto meet its expected and unexpected financial commitments.

Market Risk

The Centre’s activities expose it primarily to the risks of fluctuations in interest rates andforeign currency risk.

Interest rate risk refers to the risk that the fair value of future cash flows of a financialinstrument will fluctuate because of changes in market interest rates.

Foreign currency risk refers to the risk that the fair value or future cash flows of a financialinstrument will fluctuate because of changes in foreign exchange rates.

Interest Rate Risk Management

The Centre’s interest rate profile consists of fixed and floating rate loans and bank balanceswhich exposes the entity to fair value interest rate risk and cash flow interest rate risk andcan be summarised as follows:

Financial Assets

Bank deposits linked to South African prime rate.


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Financial Liabilities

Finance lease at a fixed rate of interest.

Management manages interest rate risk by negotiating beneficial rates on floating rate loansand where possible using fixed rate loans.

Credit Risk Management

Credit risk refers to the risk that counterparty will default on its contractual obligationsresulting in financial loss to the Entity.

Maximum Exposure to Credit Risk

The Centre’s exposure to credit risk with regards to loans and receivables are limited.

Foreign Currency Risk Management

Management accepts the risks as a result of changes in rate of exchange and therefore hasnot hedged foreign currency risk.

Restated

2010 2009

R '000 R '000

Categories of Financial Instruments

Financial Assets

Cash 23 554 1 601Receivable 1 359 992Prepayments 341 654

Financial Liabilities

Finance lease obligations 465 674Payables 11 014 9 331Provisions 156 –


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26. RISK MANAGEMENT (continued)

Sensitivity Analysis Rate % Effect on

Surplus

R'000

2010 Floating rate financial assets

Banking balances 1% 235.54Receivables 1% 13.59Prepayments 1% 3.412010 Floating rate financial liabilities

Finance lease obligations 1% 4.65Payables 1% 110.14Provisions 1% 1.562009 Floating rate financial assets

Bank balances 1% 16.01Receivables 1% 9.92Prepayments 1% 6.542009 Floating rate financial liabilities

Finance lease obligations 1% 6.74Payables 1% 93.31Provisions 1% –

27. PRIOR YEAR ADJUSTMENTS

The operating leases for the Head Office and Cape Town buildings were not straight linedin the prior years and the lease incentive was not recognised. Rental expense of R41 000for March 2009 was incorrectly captured in the current financial year. This resulted in therent expense understated by R714 000 and parking understated by R85 000 and thedeferred operating lease being understated by R758 000.

Subscription fees of R98 000 relating to the current year were incorrectly captured in theprevious period.


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27. PRIOR YEAR ADJUSTMENTS (continued)

Interest of R8 000 which related to the previous financial period was raised in the currentyear.

Prepayments relating to personnel costs of R122 000 were overstated in the previousfinancial period.

The prior year error has been accounted for retrospectively and the comparative figures for2009 have been restated. The effect is as follows:

Statement of financial position 2009 2008

Increase in deferred operating lease (645) (113)Decrease in accruals 50 –Decrease in prepayables (122) –

(717) (113)

Statement of financial performance

Increase in personnel costs 122 –Increase in rent and parking expense 685 113Decrease in subscriptions (98) –Increase in interest paid 8 –

717 113

Restated

2010 2009

R '000 R '000

28. IRREGULAR EXPENDITURE

Opening balance – –Add: Irregular Expenditure – current year 757 1 900Less: Amounts condoned – (1 713)Less: Amounts not recoverable (not condoned) (2) (187)Irregular expenditure awaiting condonation 755 –


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Restated

2010 2009

R '000 R '000

28. IRREGULAR EXPENDITURE (continued)

Details of irregular expenditure – current year

Incident Disciplinary steps taken/criminal

proceedings

Transgression of Disciplinary hearing to be heldprocurement process

755

Interest on late PAYE 2payment –

757

29. MISCELLANEOUS

Interest on late payment of PAYE (Included in note 28 inthe prior year) – 121

30. CONTINGENT LIABILITY

Accumulated Surplus 50 124 28 797

The management of the Centre has decided to disclose the accumulated surplus as acontingent liability which is an obligation that arises from past events whose existence willbe confirmed only by occurrence of an uncertain future event/s not wholly within the controlof the Centre, because at reporting date an approval to retain the accumulated surplus fundwas not yet granted by National Treasury.

31. CHANGE IN PRESENTATION

The allocation of redeployment costs for the prior financial year was changed fromAdministration Costs to Personnel Costs since this would provide reliable and more relevantinformation about these transactions. This change has no aggregate effect on the financialstatements for the year ended 31 March 2009


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32. RECONCILIATION OF BUDGET SURPLUS

For current year

Net surplus per the statement of financial performance 21 327Adjusted for:Underspend on goods and services (30 567)Underspend on compensation of employees (18)Underspend on interest and rent (1 309)Overspend on depreciation 41Revenue not transferred from National Treasury 16 239Net surplus/deficit per approved budget 5 713

33. COMMITMENTS

For current year:

Operating expenditure 8,179This has been contracted for and authorised, however delivery of goods / services did not take place at year-end.

Not yet contracted for and authorised 9 35017 529


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2009/10 2008/09

Quantity R'000 R'000

Tickets acquired 0 0 0

2009/10 2008/09

Distribution of tickets Quantity R'000 R'000

Clients/StakeholdersAccounting Authority

ExecutiveNon-executive

Accounting OfficerSenior ManagementOther employeesFamily members of officialsOther government entitiesAudit Committee membersOther Total 0 0 0

2009/10 2008/09

Travel costs

Clients/Stakeholders 0 0Accounting Authority

Executive 0 0Non-executive 0 0

Accounting Officer 0 0Senior ManagementOther employees 0 0Family members of officials 0 0Other government entities 0 0Audit Committee members 0 0Other

0 0

2009/10 2008/09

Purchase of other World Cup

apparel

Quantity R'000 R'000

Nature of the purchase (e.g t-shirts, caps etc) 0 0 0

0 0 0

Total World Cup expenditure 0 0

WORLD CUP EXPENDITURE

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World Cup Expenditure

Quantity R'000

Tickets acquired after year-end

(30 June 2010) 0 0

Distribution of tickets acquired

after year-end

Quantity R'000

Clients/StakeholdersAccounting Authority

ExecutiveNon-executive

Accounting OfficerSenior ManagementOther employeesFamily members of officialsOther government entitiesAudit Committee membersOther Total 0 0

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Notes


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Notes


Private Bag X177Centurion, 0047

South AfricaTel +27 12 641 6000Fax +27 12 641 6435

ISBN: 978-0-621-39689-8

RP: 240/2010

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