New rules tighten screws on money laundering

Banks risk fines if they do not check out ‘politically exposed’ clients, writes Phakamisa Ndzamela

INSTITUTIONS such as banks may need to review their internal rules on how they handle money laundering, global legal firm Norton Rose said on Friday. Also, they could be forced to adopt higher due diligence standards when dealing with clients who are seen as politically exposed.

Failure to comply could expose the institutions to tens of millions of rand in fines by the Financial Intelligence Centre. The challenge with this is that it could add to the burden of compliance for the institutions.

For instance, banks may be forced to retrain their employees and raise compliance standards in order to adhere to the new guidelines.

Just before the Easter long weekend, the Financial Intelligence Centre issued a guidance note titled “Guidance for accountable institutions on client identification and verification and related matters”. The note forms part of the centre’s work to combat money laundering.

Institutions affected will be expected to adopt internal money laundering and terrorist financing policies approved by the board of directors, which are aligned with the guidance note. The guidance affects banks, longterm insurers, foreign exchange dealers, attorneys, trusts and estate agents.

The institutions may be held liable for a failure to comply. Companies will need to adopt client acceptance policies that measure the risk of clients.

Marelise van der Westhuizen, a director at Norton Rose, said on Friday that the guidance applied from the date of publication, unless it had been challenged. The guidance was published on March 28.

“A failure to comply exposes institutions to administrative penalties of up to R50m,” Ms van der Westhuizen said. “These penalties may be imposed by the Financial Intelligence Centre or an entity’s supervisor, but only after the entity has been afforded an opportunity to make representations as to why the sanction should not be imposed.

“Accountable institutions are additionally exposed to criminal penalties of up to R100m for a failure to perform the customer identification and verification procedures in the prescribed manner.”

Ms van der Westhuizen said the guidance notes were aimed at helping the institutions to better apply client identification and verification procedures as the Financial Intelligence Act required. Institutions had to take additional measures when transacting with “politically exposed persons” (PEPs).

PEPs referred to individuals who were or had been entrusted with prominent public functions in a particular country. Examples included heads of state, cabinet ministers and key functionaries in nationalised industries and government administration.

Others were senior judges and senior political party functionaries, members of royal fam- ilies and religious leaders whose responsibilities were linked to political, judicial, military and administrative activities.

Ms van der Westhuizen said PEPs’ family members such as spouses, children, parents and siblings had to be treated with extra caution as well.

The guidance note points out that banks and other accountable institutions need to conduct “proper due diligence on both a PEP and the persons acting on his or her behalf”.

“In addition to performing customer due diligence measures, accountable institutions should put in place appropriate risk management systems to determine whether a customer, a potential customer, or the beneficial owner of a customer, is a PEP. The institutions also need to obtain senior management approval for establishing business relationships with a politically exposed person.”

According to the guidance note, institutions should take reasonable measures to establish the source of wealth and funds of any client and also of the beneficial owners of customers if identified as PEPs. Raised security was necessary when PEPs, their families or those associated with them were contracting parties or beneficial owners of any assets concerned.

The guidance note advises that the manner of dealing with PEPs should form part of an institution’s regular training programmes.