Proof of residence, income now required at hardwares
MBABANE – The Eswatini Financial Intelligent Unit (EFIU) has uncovered a loophole for money laundering in customer accounts of hardware stores.
The unit has since introduced new regulations that hardware stores need to follow when opening customer accounts, to prevent criminal activities.
According to EFIU Head of Compliance and Prevention Calvin Dlamini, millions of Emalangeni were laundered through hardware stores, because criminals had identified loopholes in the sector. Dlamini explained that the hardware sector vulnerability assessment revealed that most of the local hardware dealers provided financial services by opening prepaid accounts for their customers.
Accounts
“Customers are allowed to open accounts with hardware dealers, where they make cash deposits for future use. The hardware stores do not require the source of funds. Large sums of cash are frequently deposited by walk-in customers at the hardware outlets, across the country. Besides the cash deposits by walk-in customers, some customers’ accounts are also credited through electronic funds transfers (EFTs) from their bank accounts to the retail outlet’s business account, which in turn credits the customer’s held in-house account. Upon making the EFTs, clients are then expected to forward their proof of payment to the hardware dealers, which then credit the accounts of these customers. Deposits through EFTs do not pose significant money laundering risks as the funds transferred were previously vetted by commercial banks, which are ordinarily regulated by the central bank for money laundering purposes,” he said.
He, however, stated that cash deposits by walk-in customers posed a significant money laundering risk.
Dlamini added that the assessment uncovered that hardware dealers received high value cash purchases from customers, which were different from EFTs and cash deposits. These high value cash purchases further heighten the money laundering risk exposure of the sector.
Further, the vulnerability assessment against this sector revealed the need to ensure that all the obligations emanating from the Act, ranging from customer due diligence, record keeping, suspicious transaction reporting, cash threshold reporting and various other preventatives and mitigating measures are applied by this sector in conducting its operations.
“On the ground, there is evidence of large sums of monies accepted from customers holding hardware accounts with the hardwares, without applying the minimum standards of customer due diligence as required by the Act, such as requesting source(s) of funds.
Evidence
“There is also evidence of the lack of limit of money one can deposit into the account held with neither the business nor a requirement by management to use deposited funds within a prescribed period. These are some of the lucrative gaps criminals can explore to launder funds,” he said.
For that reason, Dlamini said Eswatini had designated hardware dealers as accountable institutions under the Money Laundering and Terrorism Financing (Prevention) Act, 2011.
After conducting the building hardware sector money laundering vulnerability assessment, the country took a decision to designate hardware dealers as accountable institutions under the Money Laundering and Prevention of Terrorist Financing Act, 2011, which is the Principal Act enacted by Parliament to combat money laundering and terrorist financing in Eswatini. Section 2 of the Act defines accountable institutions under the Act and Schedule 3 of the Act further lists accountable institutions under the Act.
Accountable
Under the Act, accountable institutions include banks and non-banking financial institutions and designated non-financial businesses and professions (DNFBPs) which are categorised as such, listed in schedule 3 of the Act. The DNFBPs are professions and businesses which have been designated as such because of the risks and threats they pose to the financial system of the country.
These sectors include legal practitioners, real estate agencies, gaming sector (including casinos), dealers in precious metals and stones, accountants, building hardware dealers, accountants and dealers in motor vehicles.
After the designation, Dlamini said people who would be opening accounts in hardware stores would be expected to disclose their sources of funds, when making cash deposits, especially for large sums of cash deposited. He mentioned that in the assessment, they noted that hardware dealers did not have ceilings of money that could be deposited into the accounts.
Furthermore, Dlamini said it was uncovered upon the opening of these accounts, that hardware dealers only requested a copy of the client’s ID cards.
“The hardware dealers are also expected to collect other critical KYC documents like proof of residence and proof of income documents. Hardwares are also expected to conduct adequate customer due diligence on their customers at on-boarding stage and when customers transact. Hardware dealers are obligated to perform customer transactions monitoring to identify suspicious transactions and activities. The results of the transactions monitoring should enable hardware dealers to file any identified suspicious transaction/activity report with the EFIU, as required by the Act.
Hardware dealers under the new guidelines would be also expected to file cash threshold reports (all cash transactions that are E 15 000 and above) with the EFIU. The hardware dealers should have a person responsible for overseeing compliance.
Laundering
This person should ensure that money laundering controls are put in place to safeguard their financial services from being abused.
He added that the tough measures also require good record keeping.
He said: “Record keeping compliance requirements are also not adequately adhered to by some hardware dealers. Some hardware dealers keep customer records/ transactions data manually in exercise books. Most of the critical records are not kept in computer systems. With such manual record keeping, the risk of losing critical customer information is heightened. These record keeping issues are prevalent within the hardwares owned by individuals. The chain stores of hardwares usually have proper record keeping systems in place which reduces the risk of information loss.”