SA Presidency of Financial Action Task Force: Financial Intelligence Centre briefing

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Finance Standing Committee

30 August 2005
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Meeting report

FINANCE PORTFOLIO COMMITTEE
31 August 2005
SA PRESIDENCY OF FINANCIAL ACTION TASK FORCE: FINANCIAL INTELLIGENCE CENTRE BRIEFING

Acting Chairperson

: Mr K Moloto (ANC)

Documents handed out:
 

Financial Intelligence Centre briefing
Kader Asmal’s Speech to African Delegates at Livingstone, Zambia, on 25 August 2005
Background material on Financial Action Task Force Background
Media statement on Presidency of Financial Action Task Force (see Appendix)

Financial Intelligence Centre website:
www.fic.gov.za

SUMMARY
www.ftaf-gafi.org.

 

A delegation from the Financial Intelligence Centre briefed the Committee about the implications of South Africa’s presidency of the Financial Action Task Force (FATF). The briefing gave a background to the FATF and outlined its core functions. During its presidency, South Africa would seek to highlight developing country issues, address ongoing discussions relating to the inclusion of India and China into the accord, consolidate work done in previous terms, and focus on the issue of human trafficking.

The Committee asked about specific issues facing developing countries; how the FATF had addressed concerns relating to Switzerland’s policy on bank secrecy; how assistance would be carried out to developing countries; if one year was a sufficient tenure for the presidency; how the FATF conducted prosecution of criminals, and how the relationship between South Africa and Nigeria affected the reputation of South Africa.

MINUTES

Financial Intelligence Centre briefing
Mr Murray Michell (Director: FIC) explained that the FATF was an international standards setting body that aimed to combat money laundering and the financing of terrorism by reducing the vulnerability of financial systems to criminal activity. The FATF monitored its member countries and this process was subject to a peer review mechanism.

The briefing outlined the FATF focus on the identification of typologies, or new fraud trends, as criminals moved away from the traditional fraud vehicles such as banks and into new areas like insurance policies and real estate manipulation. The briefing focused on South Africa's recent assumption of the presidency of the FATF and stated that Kader Asmal had been appointed by Cabinet to this position. The South African presidency would focus on the continuation of work done in previous years, the ongoing Mutual Evaluations programme, the problems facing developing countries, the facilitation of membership for India and China and the issue of human trafficking (see document).

Discussion
Ms B Hogan (ANC) asked what problems were specific to developing regions and cash-based economies.

Ms F Zitha, FIC Manager of Eastern and South African Anti Money Laundering Group (ESAAMLG) Region, replied that there was a lack of political will from developing countries and that this resulted in large gaps in the implementation of legislation. She also said that developing countries lacked the resources to implement financial security measures as there were other priorities to be addressed. Cash based economies faced problems around cash couriers where individual agents transmit cash over borders.

Ms Hogan asked what the reaction was from the legal profession regarding issues of confidentiality. Mr P Smit (FIC Senior Manager: Legal and Policy Section) replied that there was initial resistance to the implementation of standards but that the legal profession was now embracing the concept. He said the reaction was not as strong in South Africa as initially predicted.

Mr I Davidson (DA) asked how the FATF measured its outputs. Mr Smit replied that the FATF was a taskforce that dealt with standard setting and not actual enforcement. He said that the FATF guidelines were monitored by a peer review mechanism and that this could be used as a measure of outputs to a degree. The member countries had individual responsibilities to adhere to the FATF guidelines and they should provide statistics on convictions and funds confiscated to satisfy the peer review committee.

Mr Davidson asked if there had been an improvement in monitoring new typologies as a result of FATF work. Mr Smite replied that criminals were using new fraud vehicles and so the FATF needed to upgrade its monitoring activities in this sphere.

Mr Davidson asked how Switzerland could be a member of the FATF given its reputation of bank secrecy. Mr Smit replied that Switzerland's case was to be heard by the peer review committee in the coming months and that it would be interesting to monitor the committee's reaction.

Mr Davidson asked how the FATF could provide assistance to countries and how this worked in practice. Mr Smit replied that the FATF could not provide direct assistance due to its small budget but would rather play a facilitative role to help members interact with each other.

Mr N Van Dyk (DA) asked if the FATF had sufficient resources to conduct its affairs. Mr Smit replied that the budget was barely sufficient but since the FATF was not an implementation organisation it was manageable.

Ms J Fubbs (ANC) noted that the number of institutions present meant that in many cases the regulatory environment became very complex. She asked how the FATF integrated objectives to achieve challenges. [This question was answered towards the end of the meeting]

Mr M Johnson (ANC) asked how the FATF defined terrorism. Mr Michell replied that the FATF followed the definitions set out by the United Nations.

Mr Johnson asked if the recommendations laid out by the FATF were vague suggestions which members could choose to follow or were they rigorously enforced? Mr Smit replied that FATF members were bound to follow the recommendations of the FATF or they faced expulsion from the group. The FATF was not ratified by UN standards but that legitimacy was guaranteed given the International Monetary Funds involvement in the initiative.

Mr Johnson asked if one year was enough for a presidency term. Mr Michell replied that one year was insufficient but that issues were carried over from one term to the next.

Mr Johnson asked what happened to the funds that were confiscated by the prosecuting authorities. Mr Smit replied that the confiscated funds were placed in a special account within the control of the National Treasury. The fund helped to finance further law enforcement and also paid out money to victims of crime.

Mr S Asiya (ANC) asked what the international community thought of South Africa's relationship with Nigeria given Nigeria’s place on the FATF blacklist. Mr Michell replied that the international community did not discourage a relationship with Nigeria. South Africa had regular meetings with Nigerian officials to analyse potential legislation and identify gaps. It was important not to freeze Nigeria out of the picture as it had a large role to play in the promotion of NEPAD. He also said other countries like the United States had a vested interest in seeing Nigeria do well.

Mr K Moloto (ANC) asked what areas in the insurance sector posed specific problems. Mr Smit replied that the new trend was for criminals to trade policies in the secondary market or cash in policies before their maturation date. Internationally there was no real understanding of insurance sector vulnerabilities but that South Africa had legislation in place to deal with the situation.

Ms Fubbs asked what steps could be taken to integrate the work of immigration officials, the SA Revenue Service (SARS) and the SA Police Service (SAPS). Mr Smit replied that there was cooperation between SAPS, investigators, the judiciary and the correctional services but that further effort was needed to include the prosecuting authority and the FIC. The FIC was looking to develop an integrated model that could be duplicated in the region. This model should not interfere with trade relationships. Mr Michell added that a project taskforce was being set up to address the issue of integration but that it would take time before any deliverables became apparent.

The meeting was adjourned.

Appendix:
South Africa to take over the presidency of the Financial Action Task Force (FATF) from July 2005

29 June 2005

South Africa will be taking over the presidency of the Financial Action Task Force (FATF) from July 2005. Cabinet has appointed Professor Kader Asmal to represent South Africa in this position. South Africa regards the presidency of the FATF as an honour and an extremely important responsibility.

The Financial Action Task Force is an inter-governmental body whose purpose is to develop and promote national and international policies and standards to combat money laundering and terrorist financing. It consists of 33 (list1) members, with South Africa being the only member from the African continent. It is headquartered at the OECD in Paris.

The FATF has developed a set of standards in the form of the so-called 40+9 Recommendations aimed at money laundering and combating the financing of terrorism (termed "AML/ CFT"). The FATF Recommendations are designed for application worldwide. Members of the FATF have endorsed measures to implementing these recommendations through express political commitment to this end. Assessment of compliance by countries’ AML/CFT regimes with the FATF Recommendations is conducted among its members on a peer-review basis called a "Mutual Evaluation" exercise. Both the World Bank and IMF use the mutual evaluation results as part of their Financial Sector Assessment Programmes and the results contribute towards a country’s Report on Observance of Standards and Codes. These are used by agencies when they assess a country’s credit rating.

The FATF can discipline member countries not in compliance with the Recommendations which may include expulsion from the organisation. In addition, both member and non-member countries can be placed on a Non-Co-operating Countries and Territories (NCCT) (list2). A consequence of placement on the list is that FATF will advise financial institutions to exercise special attention to business relationships and transactions with such a country because of its lack of basic AML and CFT frameworks.

South Africa’s Presidency of the FATF has obligations to deliver effectively on those areas of ongoing work that are important to FATF. These areas of work will include:
* The closer co-operation between FATF and its regional bodies and providing clarity on this relationship;
* Increasing engagement by FATF with the Private Sector;
* Seek to introduce into areas of FATF work, initiatives that are important to Developing nations such as South Africa;
* Seek to align the FATF Recommendations with international conventions on corruption;
* Understanding better the relationship of trafficking of women and children to money laundering practices; and
* Looking at issues of the sustainability of the Secretariat in view of the increased workload and extension of FATF’s mandate.

South Africa will host a major meeting of the FATF early in 2006, to which the countries in the region who are members of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) will be invited. The ESAAMLG is the FATF regional body, consisting of fourteen countries in the region.

As President of the FATF, South Africa will seek to highlight those objectives and programmes within FATF that are consistent with the aspirations of the African continent, especially in the context of NEPAD. South Africa will also seek to promote issues such as good governance and combating corruption, and will seek an alignment of the relevant international standards on these matters with the FATF standard.

Further information on the FATF can be obtained by accessing its website at

 

For further information on this announcement please contact the Financial Intelligence Centre:
Tel: (012) 902 9200;
Fax: (012) 315 5688

1 Argentina; Australia; Austria; Belgium; Brazil; Canada; Denmark; Finland; France; Germany; Greece; Administrative Territory of Hong Kong, China; Iceland; Ireland; Italy; Japan; Luxembourg; Mexico; Kingdom of the Netherlands; New Zealand; Norway; Portugal; Russian Federation Singapore; South Africa; Spain; Sweden; Switzerland; Turkey; United Kingdom; and United States. The two international organisations are: European Commission; and the Gulf Co-operation Council.
2 At present Myanmar, Nauru and Nigeria are on the NCCT list


For further information on this announcement please contact the Financial Intelligence Centre:
Tel: (012) 902 9200
 

Issued by: Ministry of Finance
29 June 2005

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